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Currency Prices

Forex Market Analysis: Which Type Is Better?

There are two types of forex market analysis: fundamental analysis, which considers economic, social and political forces and how they influence the currency markets, and technical analysis which uses charts to identify trends and patterns in the movement of prices.

So which one is better? If you check out forums and websites you will find many traders strongly supporting one or the other. Those who like to rely on charts will tell you that the only way to make money with forex trading is to identify trends and jump onto them as early as possible.

At the same time the advocates of fundamental analysis will argue that it is the economic factors that drive the changes in currency prices and this is undoubtedly true, at least most of the time. From that position they will reason that any patterns you might find on a chart are nothing more than coincidental.

But logically this does not necessarily follow. Even though economic changes have a huge impact on the currency markets, it may still be possible to identify patterns in the way that the markets react after an announcement or in times when there are no major announcements.

If on the other hand you rely solely on your charts, you are likely to be caught out when a major financial event such as an interest rate change is suddenly announced. You were not paying attention to the financial news and left a trade open at the wrong moment. That could result in disaster.

So the bottom line is that there are economic events behind the larger scale rises and falls in the market, but there are also common patterns that can be identified in the short term. Finding these patterns and trends, while keeping one eye on the economic and political news, is the best way to predict future price movements. And predicting future price movements, of course, is the way to make money with forex trading.

Foreign exchange market movements are a little like elastic that can stretch in one way or another and then fall back, although not always to its starting position. The fundamentals are the forces that cause it to stretch. Technical analysis predicts how far it will go in each direction before reversing.

So when you want to profit from forex trading it is better not to allow your attention to become fixed on either one. You need to learn to balance the use of both types of forex market analysis to make consistent profits.

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Wednesday, June 24th, 2009 Strategy No Comments

Currency Trading Basics

If you are thinking of investing in the money markets, you need to know currency trading basics. This way of making money is also known as forex or foreign exchange trading. You may even see it abbreviated to simply FX.

Forex trading involves buying and selling currencies according to your assessment of which country’s currencies are likely to rise in value and which will fall. You can judge this from financial news or from monitoring price movement charts for trends and patterns, or you can use both methods of analysis.

The foreign exchange markets are huge, with a turnover of around $4 trillion dollars every day. Most of this money is in the hands of the international banks and financial institutions but there is plenty of room for the small private investor. With this amount of money involved, plus the constantly fluctuations in prices (volatility), the forex markets are potentially the most lucrative market that you could get into.

You only need a small amount of capital to get started. The costs are low because brokers do not charge fees or commission, but earn their money from the difference between the buy and sell prices of a currency. This means that you can make many small trades without having to pay a fixed commission fee. Stock exchange trading is not so easy. These are just some of the reasons why more and more people are becoming involved in forex trading.

Another advantage of the forex markets is that you can trade 24 hours a day, five days a week. This makes it convenient for people who have other commitments during normal business hours. You can trade from any time zone at any moment, when it suits you. You do not have to be online in the day time.

As with any investment strategy that has the potential of large gains, there is also risk. Currency prices can change very fast and you can make a lot of money in a short time but you can lose it too, unless you are very careful. You should accept before you start that you may lose the money that you are trading with. At the same time, take your trading seriously. Do not treat it as a game. Keep clear records of what you did. However your trades turn out, look carefully at the results to see what you did right or wrong and learn from that.

You need a profitable system, clear strategies and the ability to stick to your decisions. You should not be constantly changing your tactics or acting from out of fear or greed. Consistent application of your system is vital.

When you are trading forex, you are in full control of your investment. You are not dependent upon the results of companies, as you would be with an investment in stocks. Of course prices will be affected by national and international events but you can often see these coming and exit the market before a major news announcement is due.

With good advice and a sound grasp of currency trading basics, you can begin to trade. Your financial future is in your own hands.

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Tuesday, June 23rd, 2009 Introduction No Comments