In many ways, the foreign exchange market or currency market is no different from any other market, and prices are determined by the simple laws of supply and demand to a large extent. If you demand the currency, its price will rise, and when the demand is low, its price will fall.
This principle is quite simple to understand, and you might think that on this background to predict currency price movements need quite easily. Unfortunately, this is not the case.
By the mid-1980s, most traders relied on a method known as fundamental analysis to predict market movement. Today, however, a growing number of traders has deviated from the fundamental analysis in favor of technical analysis, although there is still a significant number of traders who are stuck on fundamental analysis or use it to back up the results of its technical analysis.
Let's briefly look at each of these two analytical methods.
The principle of fundamental analysis is that it is the study of these factors can predict changes in the political, economic and social factors that dictate supply and demand, and the market movement.
In this case, the fundamental analysis looks at political events and economic data such as inflation, interest rates and trade figures, as well as social data, such as employment rates. Then the historical data used as a basis for predicting the movement in the light of current figures. In other words, the analysis of, for example, the effect of that rise or fall in interest rates have had on the price of the currency in the past, used to predict the effect that today have a rise or fall in interest rates.
The biggest problem of fundamental analysis is the vast amount of data that must be analyzed, and that there is a wide degree of disagreement about what information is important and what is not. In some quarters also felt that because in recent years the world has changed dramatically, many of the factors that may have influenced the price of the currency in the past will not necessarily have the same effect today.
Perhaps one of the areas of common agreement with the & # 39 is that the analysis of the balance of payments of the country is crucial to the success of the fundamental analysis. The balance of payments is important because it reflects the flow of currency into the country and abroad, and a situation in which money is flowing into the country faster than they emerge, or conversely, clearly affect currency prices. Of course, an analysis of how will affect the price, – is, of course, what is actively discussing the fundamental analysts.
The principle of technical analysis is that although the political, economic and social factors will really move the market, to study or even to understand them is not necessary, because these factors in any combination you choose, there were again and again. past and their influence can be seen just studying historical patterns of currency movement.
Accordingly, the main instrument of the technical analyst & # 39 is a graph, or rather, a series of diagrams that provide a graphical representation of the market in time. The study of these graphs show that there are clear trends and patterns of price movements, and thus the expansion of the current graphics based on past models will show in what direction will move the currency.
As with fundamental analysis, there is a wide range of different instruments for chart and widespread disagreement about which precious little and having a smaller benefit.
Determine what method you need to take – it is not easy, although the majority of novice traders today decided to stick to the technical analysis. Of course, this may be because they are firmly convinced that it is better of the two methods, but, in most cases, it is probably because the study of fundamental analysis skills takes time and involves a rigorous learning curve and, therefore, this destination , which moves in the Forex trade.