The Technicals And The Fundamentals

The Fundamental analysis

Fundamental analysis basically means studies of surrounding events that affect the market trends. For example FOREX market, fundamental traders will consider events and situations that will affect the value of a country currency value. These factors include the local bank policies, political states, country growth rates, natural disasters, market speculator's mood, terrorism attacks, and wars.

The fundamental is commonly known as no-number analysis where traders are investing solely on their personal reviews on one-country economy trends. Fundamental traders normally review a country economy's situation base on these fundamental elements and respond accordingly. Generally speaking, natural disasters and unstable political state poison a country's economy; thus currency value drops. Vise versa, if a country is basically free of natural disaster, and it's showing a steady economy growth rate, currency of the country will be strong.

In FOREX market, it would be difficult to trade solely based on fundamental analysis as it only provides an overall view on the market condition. Numeric data and graphs are much needed to give a more accurate estimation on the market movement. This will lead our discussions to the second type of analysis method - the Technical.

The Technical analysis

Quoted from one of the FOREX well-established website, www.Forex.com, forex technical analysis is "a method of forecasting price movements by looking at purely market-generated data." (Well, at most of the time, this market-generated data means the price of the currency) The analysis is done base on the concept of 'history repeats itself' and thru comparing present situation with the past, technical analysis is quite effective in drafting out the entry/exit price indicator.

Price charts are often the only item a pure technical trader concerns in. Through patterns of charts, various indicators will be generated and used for planning the investment tactic. A few well-known indicators for FOREX traders are strength indicator, momentum indicator, and volatility indicator. Technicians strongly believe currency price (or any other market numeric data) moves in trend and it will always follow a pattern similar to the past.

Although the methodology looks secure with proven tracks in the olden times, it would be relative unsafe to trade FOREX purely base on technical analysis. The future does not equal with the past. There are a lot of unexpected variables that technical analysis does not reflect on: change of country leaders, change of government, natural disasters, change of bank policies, investor's mood, war-- all these factors affect currency value directly and might not have happened before in the past. A combined of two approaches (fundamental and technical) is always encourage to get the optimum plots on your investment plan.

FOREX can be extraordinarily beneficial to a variety of people. It gives huge leverage rates, it gives incompatible liquidity to your money, it gives convenience to trade on the Internet, and it can definitely give you a lot of money if you trade smartly. Like any other trading business, if you are new to it, best advice you can get is to learn and practice more before you test your 'wings'. Seminars, eBooks, Internet, papers, video courses - all these are handy to get yourself ready. You can also try out your skill on the demo account provided free. After all, FOREX trades 24hours a day and there is always money to make in the market, so why not be patience until you are fully ready for it?