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Forex Trading Strategies - Fundamental And Technical Analysis

By : Margaret Tye
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Fundamental analysis and technical analysis are the two main strategies that Forex traders use to decide when to make an entry into the money market.

Fundamental analysis The concept of demand and supply of the currency being traded forms the basis of fundamental analysis. It basically depends upon the economic condition prevalent in the country that uses the currency. Some of these factors include economic strength, present rates of interest and gross domestic product. The main reason behind using fundamental analysis for trading on the Forex market is that, although the money market moves very fast and fluctuates all through the day, over a longer period the economic situation affects whether the currency strengthens or weakens. The economic data derived from fundamental analysis suits the long-term investments. It involves watching for when a country publishes its economic reports, then studying and interpreting the data. Therefore, most long-term traders use fundamental analysis while many short-term traders prefer to use technical analysis based on the price movements.

Technical analysis

The theory behind technical analysis is that prices move in a particular manner. You can forecast when a currency reaches a high or low point on the basis of historical evidence. Then accordingly you can sell or buy. There are several methods, which are often used by technical analysts. For example the use of charts like the candlestick, and Bollinger charts. These charts help to follow the price trends. Traders may study a number of charts before they make their final decision.

Many traders use a combination of these methods. Fundamental analysis offers a long-term view of a currency's strength, on the basis of the economic condition of a country, but it often becomes difficult to trade on a regular short-term basis using the fundamental analysis method. Technical analysis proves to be the most helpful for short term or day trading. as it indicates entry and exit points. However, it is important for a trader to be aware of the prevalent economic conditions and know when economic figures are published, as these factors can play a decisive role in trade. Therefore it makes sense to use, or at least have a sound understanding, of both methods. In order to succeed on the Forex market it is essential to have a good knowledge base of the currency you are planning to trade in.

Trading on the Forex market is a high risk investment and you should never invest money that you cannot afford to lose. This article is for information only and the author accepts no liability for any action taken.



About the author:
Margaret Tye runs the Forex Trading Articles - Analysis website.


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