What Is Forex Trading? (continued...)

Technical Analysis
Technical analysis focuses on the study of price movements. Historical currency data is used to forecast the direction of future prices. The premise of technical analysis is that all current market information is already reflected in the price of that currency; therefore, studying price action is all that is required to make informed trading decisions. The primary tools of the technical analyst are charts. Charts are used to identify trends and patterns in order to find buying and selling opportunities. The most basic concept of technical analysis is that markets have a tendency to trend, or either increasing or decreasing. Being able to identify trends in their earliest stage of development is the key to technical analysis.

Fundamental Analysis
Fundamental analysis focuses on the economic, social and political forces that drive supply and demand. Fundamental analysts look at various macroeconomic indicators such as economic growth rates, interest rates, inflation, and unemployment. However, there is no single set of beliefs that guide fundamental analysis. There are several theories as to how currencies should be valued.

Fundamentals Every Trader Should Know

Currency prices reflect the balance of supply and demand for currencies. Two primary factors affecting the supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals and some of the data is more important than others. The ones that are looked at more closely are those related to interest rates and international trade.

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