Choose Your Approach in Forex

There are two basic approaches to analyzing the Forex market. It is important to understand how they can be used successfully.

Technical Analysis

Technical Analysis focuses on the study of price movements, using historical currency data to try to predict the direction of future prices. The premise is that all available market information is already reflected in the price of any currency, and that all you need to do is study price movements to make informed trading decisions.

The primary tools of Technical Analysis are charts. Charts are used to identify trends and patterns in an attempt to find profit opportunities. Those who follow this approach look for trending tendencies in the Forex markets, and say that the key to success is identifying such trends in their earliest stage of development.

Fundamental Analysis

Fundamental Analysis focuses on the economic, social, and political forces that drive supply and demand. The premise is that macroeconomic indicators such as economic growth rates, interest rates, inflation, and unemployment can be used to make informed trading decisions. Information about economic data can be found using XE Forex News, which is free to use.

There is no single set of beliefs that guide Fundamental Analysis. Different traders look to different indicators, and weigh various indicators in different ways.

What should I use - Technical or Fundamental Analysis?

Traders using Technical Analysis follow charts and trends, typically following a number currency pairs simultaneously. Traders using Fundamental Analysis must sort through a great deal of market data, and so typically focus on only a few currency pairs. For this reason, many traders prefer Technical Analysis.

In addition, many traders choose Technical Analysis because they see strong trending tendencies in the Forex market. They look to master the fundamentals of Technical Analysis and apply them to numerous time frames and currency pairs.

Be aware that trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.