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TradingCurrencyOnline.com Presents...
A Beginner's Guide to Forex Analysis
- by Gregory DeVictor
The Forex
trading market is an around-the-clock cash market
where the currencies of nations are bought and sold,
typically via brokers.
Forex prices can change at
any moment in response to real-time events, such as
political unrest or the rate of inflation. Currency
market players typically use "Forex analysis" as a
means of predicting currency price movements.
Forex
analysis is divided into two types: fundamental and
technical.
A fundamental analysis uses economic and
political factors as a means of predicting currency
movements. A technical analysis uses reliable
historical data as a means of forecasting these
movements. The purpose of this article is to discuss
the basics of fundamental and technical analysis.
A
fundamental analysis uses economic and political
factors, such as housing starts, the unemployment
rate, or inflation, as a means of predicting
currency movements. Fundamental analysis is
concerned with the reasons for currency movements.
Many Forex traders who rely on fundamental analysis
plan their trading strategies around a number of
U.S. Government economic indicators. Some of these
indicators are the Consumer Confidence Index (CCI),
the Consumer Price Index (CPI), the Employment
Situation Report, the Gross Domestic Product (GDP),
the Composite Index of Leading Indicators, the
Advance Report on Durable Goods, Housing Starts, and
Initial Jobless Claims.
All of these
Federal economic indicators have a marked effect on
the Forex trading market. Some of these indicators
are released weekly, while others are released
monthly or quarterly. Their sources include the
Federal Reserve, the U.S. Bureau of Labor
Statistics, the U.S. Bureau of Economic Analysis
(BEA), and the U.S. Census Bureau.
Forex
traders must take other economic indicators into
consideration as well. The world's leading economies
(for example, the United Kingdom, Japan, France, and
Germany) also release their own economic indicators
that will have an impact on the Forex market. For
example, common economic indicators in the United
Kingdom include Housing Prices, Gross Domestic
Product (GDP), Vehicles per 1,000 People, Telephones
per 1,000 People, and the Percentage of People
Employed in Agriculture.A technical
analysis uses historical data as a means of
predicting currency movements. The technical analyst
believes that history repeats itself over and over
again. Technical analysis is not concerned with the
reasons for currency movements (for example,
interest rates or inflation). Instead, it believes
that historical currency movements are a clear
indication of future ones. The technical analyst
typically uses charts as a tool in predicting
currency price movement.
Investopedia
states that "In a shopping mall, a fundamental
analyst would go to each store, study the product
that was being sold, and then decide whether to buy
it or not. By contrast, a technical analyst would
sit on a bench in the mall and watch people go into
the stores. Disregarding the intrinsic value of the
products in the store, his or her decision would be
based on the patterns or activity of people going
into each store." For example, during the
back-to-school buying season, the technical analyst
might observe that more people are going into
clothing stores than into stores selling flowers.
Likewise, the technical analyst might observe that
more men are going into stores selling flowers on
Valentine's Day than into clothing stores.
Here is
another example. Oil prices dramatically increase,
thus creating inflation. Interest rates rise as a
means of controlling inflation. One historical
result of higher interest rates is less money to
spend, thus slowing economic growth. Another
historical result is increased foreign investment in
the currency affected by the higher interest rates,
thus strengthening it.
Some Forex
traders depend on fundamental analysis while others
depend on technical analysis. However, many
successful Forex traders use a combination of both
strategies. The important point to remember here is
that no one strategy or combination of strategies is
100% certain.
About the
Author
Gregory
DeVictor is a consultant who has been developing and
marketing web sites since 1999. You can learn more
about Forex trading and test your strategies under
real market conditions at:
http://www.forex-trading-system.name/forexyard_account1.htm
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