The 2 basic forcasting methods in forex market are:
1. Technical analysis and
2. Fundamental analysis.
1. TECHNICAL ANALYSIS:
Technical analysis or chart reading, is a method of predicting price movements and future market trends by studying charts of past market action.
Technical analysis is concerned with what has actually happened in the market, rather than what should happen and takes into account the price of instruments and the volume of trading, and creates charts from that data to use as the primary tool.
Many traders consider technical analysis to be somewhat of an art form that anyone can master with a little time and practice.
When most people think about trading forex, they think about watching price movements flash by them on the charts and making money as they jump in and out of profitable trades.
This is where traders show whether or not they have what it takes to be successful in forex market.
Fundamental analysis helps you determine whether you should trade a particular currency pair while technical analysis helps you determine when you should buy or sell that currency pair.
Technical analysis is built on three essential principles:
a. Market action discounts everything:
This means that the actual price is a reflection of everything that is known to the market that could affect it.
The pure technical analyst is only concerned with price movement, not with the reasons for any changes.
b. Price move in trends:
Technical analysis is used to identify patterns of market behavior that have long been recognized as significant.
For many given patterns there is a high probability that they will produce the expected results. Also, there are recognized patterns that repeat themselves on a consistent basis.
c. History repeats itself:
Forex chart patterns have been recognized and categorized for over 100 years and the manner in which many patterns are repeated leads to the conclusion that human psychology changes little over time.
2. FUNDAMENTAL ANALYSIS:
Fundamental analysis is a method of forcasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlines the financial instrument.
The key to making money in the forex is understanding what makes currency pairs move.
Ultimately, it is investors who make currency pairs move as they buy and sell different currencies, but these investors buy and sell for a reason.
Either they see something happening fundamentally in the global economy that makes them believe a currency is going to get stronger or they see something happening fundamentally that makes them believe a currency is going to get weaker.
In other words, they watch the fundamentals and make their decisions according to what they see.
Fundamentals make currency pairs move. If the economic fundamentals in the United States are improving, the U. S. dollars (USD) will most likely be getting stronger because forex investors will be buying dollars.
Conversely, if the economic fundamentals in the United States are declining, the U. S. dollar will most likely be getting weaker because forex invrstors will be selling dollars.
You can learn to watch the fundamental economic indicators that move currency pairs just like institutional investors do.
In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their trading strategy.
The fundamentalist studies the cause of market movement, while the technician studies the effect.
Many profitable trades are made moments prior to or shortly after major economic announcements.
Hope these will go a long way in helping you become a good trader in the forex market.
Visit the links below to open a forex trading account and start trading today:
1. www.agea.com/?gid=53541
2. www.instaforex.com/en/index.php?x=LGYM
Good luck!
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