Fundamental and technical analysis


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Well this is fifth lesson you are going to learn about Forex through my blog. This is one of the most important lessons that you must know in Forex trading. Analysis is the key to success in Forex trading. There are hundreds of robots that analyze the Forex market. But most Forex robots are not working in such a way that we expect. So my personal advice is not to get caught those sucking Forex robot. Be confident enough to make your own analysis by learning Forex. Anyway let’s starts the new lesson now.

There are basically two type of analysis. My personal experience is both are equally effective and interrelated.  By name they are,

1.    Technical analysis
2.    Fundamental analysis

By reading the following you can get and overall idea on technical and fundamental analysis, but you will learn technical analysis in details in our future lessons. Because your trading is mainly depend on technical analysis rather than fundamental analysis. Let’s see those types separately,

Technical analysis:

This is the most popular method used to analyses the Forex market by most of the traders in order to place their buy or sell orders. This will provide the ability to predict the price movements even in a very volatile market. This analysis depends on kind of instruments known as indicators. By using these indicators traders will look for the trend of the price movements and then they will find the entry and exit points. Once they find entry and exit points they will use the indicators to find out the take profit value and the stop loss values.  Since Forex is a high risk high profit trade, you must have a comprehensive knowledge on entry and exit points. Otherwise you will lose your hard earned money without any doubt.

Learning all the indicators related to technical analysis can’t make a successful trader. You must learn how to use them effectively. This is a skill, that’s why I asked you to practice what you learn in a practice account.

The following are the most common indicators uses for technical analysis.

1.    EMA (Exponential Moving Average)
2.    Support and resistance
3.    Bollinger bands
4.    MACD (Mean Average Convergence Divergence)
5.    Stochastic
6.    RSI (Relative Strength Index)
7.    Parabolic SAR
8.    Ichimuko cloud

In my later lessons I’ll teach you each and every indicator with all the details. Again I am stressing you to practice these indicators in a practice account until you end 80% of your trades with profit.

Fundamental  analysis:

Fundamental analysis is depending on the economy of a particular country. If one country has a better economy than another country, the value of the first country will increases compare to the second country. Simply the value of the currency pair will increase. 

Just take an example. Euro is the currency of Europe and the USD is the currency of US. The currency pair is the EUR/USD. Just imagine the currency pair is now 1.3222. Then you should look at Forex News. Click here to see the Forex news.  If the economy of the Europe getting better the value of that currency pair will get increase. That means the previous value (1.3222) will increase to a value like 1.3333(this is an example value). So you should place a buy order on that particular currency pair.

I think it is better to tell how to read Forex news for the beginners here because I will not discuss fundamental analysis in my future lessons. Go to the URL I have given above and then look at the top right area of the page. You will see several columns (Details, Actual, Forecast, Previous, Charts). If the actual value of a currency is greater than the forecast value or previous value for a particular currency it is considered as good for that particular currency. Simply there is more chance to increase the price of that particular currency. Then you should look in to your technical analysis and confirm it and enter in to a trade.

This is known as fundamental analysis. In our next lesson we will show you how to read (interpret) Japanese candle sticks.

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