Monday, May 5, 2008

Types of Trading

There are 2 basic types of analysis you can take when approaching the Forex:
1. Fundamental analysis
2. Technical analysis.
There has always been a constant debate as to which analysis is better, but to tell you the
truth, you need to have the knowledge of both. So let’s break each one down and then
come back and put them together.

Technical Analysis
Technical analysis is the study of price movement. In one word, technical analysis equal
to charts. The idea is that a person can look at historical price movements, and based on
the price action, can determine at some level where the price will go. By looking at
charts, you can identify trends and patterns which can help you find good trading
opportunities. The most IMPORTANT thing you will ever learn in technical analysis is
the trend! Many expert traders have a saying that goes, “The trend is your friend”. The
reason for this is that you are much more likely to make money when you can find a trend
and trade in the same direction. Technical analysis can help you identify these trends in
its earliest stages and therefore provide you with very profitable trading opportunities.

Fundamental Analysis
Fundamental analysis is a way of looking at the market through economic, social and
political forces that affect supply and demand. In other words, you look at whose
economy is doing well, and whose economy sucks. The idea behind this type of analysis
is that if a country’s economy is doing well, their currency will also be doing well. This is
because the better a country’s economy, the more trust other countries have in that currency.
For example, the U.S. dollar has been gaining strength because the U.S. economy is gaining strength. As the economy gets better, interest rates get higher to control inflation and as a result, the value of the dollar continues to increase. In a nutshell, that is basically what fundamental analysis is.
Based on experience and research, both technical and fundamental analyses are to gaze at
when you want to trade, each trade swings its focus more to one of the two; I will
basically say that economic news release is more fundamental, while session opening is
more technical. Therefore, watch out!
Fundamental Announcements provides some of the absolute best trading opportunities in
the FOREX markets, and it account for most of the considerably large market moves. In
general (but not always) the markets move relatively slowly when not affected by FA,
thus giving small profit opportunities. Immediately, and for a while after a significant
Fundamental Announcement the markets move strongly, thus providing great profit
Usually Fundamental Announcements are released at a scheduled time. This means that
you can know days in advance when a potentially great opportunity will happen… to the
minute! This could be found on some websites like, Focus on the Fundamental Announcements of the country or
economy that you are proposing or already trading their currency pairs for more profits.
Some of the major Global Economic Calendars (indicators) are state below and could be
very volatile and profitable. You cannot watch all the indicators because they change in
importance base on time and condition. Watch out for more insights of different
techniques and strategies of trading the FA indicators.
1. Trade Reports
2. Gross Domestic Product (UK)
3. Unemployment
4. Interest Rates Reports
5. Core Durable Goods (USD)
6. Retail Sales (USD)
7. Consumer Confidence
8. Trade Balance (USD)
9. ISM manufacturing Index and Prices (USD) (comes 1st of every month)
10. Non-Farm payroll (USD) (being announced every 1st Friday of the month)
11. Employment Change (it will happen the same day with non-farm payroll but an
hour before non- farm payroll).

As I stated before, the pros watch only six major currency pairs. Here they are:
The U.S. dollar vs. the Japanese yen
The U.S. dollar vs. the Swiss franc
The U.S. dollar vs. the Canadian dollar
The Euro vs. the U.S. dollar
The British pound vs. the U.S. dollar
The Australian dollar vs. the U.S. dollar

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