Essentially, currency exchange trading falls into one of two categories: technical analysis and Forex fundamental analysis. Of course, as is to be expected, there's an ongoing debate with regards to which is best. However, one should bear in mind that both types are equally important.
For the sake of simplicity with regards to understanding the difference between these two forms of trading, one could say that while fundamental analysis takes the world economy into consideration, technical analysis on the other hand focuses on charts. The purpose of this article is to take a look at how your trades can be affected by economic factors as well as fundamental factors.
Let's face it, even if you only have a very basic understanding of how currency markets operate, surely you will realize that the value of a country's currency is to a large extent at the mercy of that country's economic status. As we all know, when a company is performing well, the price of their stocks increase. This same principle applies to a country's currency in that when their economy is healthy, their currency will be strong.
As you've no doubt in the past noticed, currency exchange rates are always affected at a time when one of the world's financial giants are about to release a financial report. Such reports could include: national debt, inflation, national employment, and of course, a country's GDP (Gross Domestic Product). For the most part, such reports are issued on a regular basis on predetermined dates and if you have ever paid attention to the Forex markets, you will have noticed that these reports create alot of volatility.
Because of this, it is essential that you remain aware of when such reports are due. Of course, rather than only keeping track of reports in your own country, you also need to keep track of reports in all the countries whose currencies you trade. Contrary to what you may believe or been told, it is impossible to do this by means of newspapers or television, simply because they don't provide detailed enough information regarding international economies. Essentially, you will need dedicated publications which for the most part can be obtained via the Internet.
Of course, one should also bear in mind that a country's currency is not only affected by the economy, but instead, it is also vulnerable to factors such as social trends and political influences. As has been witnessed many times in the past, a country's currency value can be directly affected even by a general election, political unrest or some form of national disaster.
As you can imagine, events such as these are for the most part impossible to predict. However, you can still base your trades around events which are likely to happen. Historical analysis can provide you with a clearer idea as to how the markets responded the last time a similar event took place.
Ideally, you really need to be the sort of person who enjoys staying abreast of the times with regards to economic, financial and political news, if you intend basing your trades around fundamental analysis of the Forex markets.
Alternatively, you could always get the information about events which are likely to take place, and then refrain from trading during such times. In fact, those who base a trading on technical analysis usually do just that. Of course, in order to avoid trading during such times, you'll still need to know what events are taking place or are likely to take place. As you can see, even traders who rely on technical analysis, still have to depend on Forex fundamental analysis to a certain extent.
For the sake of simplicity with regards to understanding the difference between these two forms of trading, one could say that while fundamental analysis takes the world economy into consideration, technical analysis on the other hand focuses on charts. The purpose of this article is to take a look at how your trades can be affected by economic factors as well as fundamental factors.
Let's face it, even if you only have a very basic understanding of how currency markets operate, surely you will realize that the value of a country's currency is to a large extent at the mercy of that country's economic status. As we all know, when a company is performing well, the price of their stocks increase. This same principle applies to a country's currency in that when their economy is healthy, their currency will be strong.
As you've no doubt in the past noticed, currency exchange rates are always affected at a time when one of the world's financial giants are about to release a financial report. Such reports could include: national debt, inflation, national employment, and of course, a country's GDP (Gross Domestic Product). For the most part, such reports are issued on a regular basis on predetermined dates and if you have ever paid attention to the Forex markets, you will have noticed that these reports create alot of volatility.
Because of this, it is essential that you remain aware of when such reports are due. Of course, rather than only keeping track of reports in your own country, you also need to keep track of reports in all the countries whose currencies you trade. Contrary to what you may believe or been told, it is impossible to do this by means of newspapers or television, simply because they don't provide detailed enough information regarding international economies. Essentially, you will need dedicated publications which for the most part can be obtained via the Internet.
Of course, one should also bear in mind that a country's currency is not only affected by the economy, but instead, it is also vulnerable to factors such as social trends and political influences. As has been witnessed many times in the past, a country's currency value can be directly affected even by a general election, political unrest or some form of national disaster.
As you can imagine, events such as these are for the most part impossible to predict. However, you can still base your trades around events which are likely to happen. Historical analysis can provide you with a clearer idea as to how the markets responded the last time a similar event took place.
Ideally, you really need to be the sort of person who enjoys staying abreast of the times with regards to economic, financial and political news, if you intend basing your trades around fundamental analysis of the Forex markets.
Alternatively, you could always get the information about events which are likely to take place, and then refrain from trading during such times. In fact, those who base a trading on technical analysis usually do just that. Of course, in order to avoid trading during such times, you'll still need to know what events are taking place or are likely to take place. As you can see, even traders who rely on technical analysis, still have to depend on Forex fundamental analysis to a certain extent.
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