If you are involved in trading stocks, you probably already know that if you are able to analyze the market and predict price movement accurately, you will be more successful in this money making past time. This is true whether your trading is stocks, commodities, currency, or bonds. The two types of analysis are technical analysis and fundamental analysis, with one being just as important as the other one.
Technical analysis is the study of prices. This is what you use to go over the history of price movement so you can predict future prices more accurately. Fundamental analysis takes in the overall economic health of a nation. This is due to the fact that a nation’s economy will impact the supply and demand for that nation’s currency. Of course, this affects the price of that currency.
People who trade in currency will watch to see if the US economy is in an upswing, causing the economy to become strong. This pushes the value of the dollar up. When the currency traders see this, they will invest heavily in the dollar. This raises the dollar value even more.
This concept sounds really simple, but there is nothing simple about judging the health of a nation’s economy. There are various economic indicators that are used to study the economic strength. Fundamental analysts watch this data closely for the interest rate, consumer price index, unemployment rate, and gross domestic product or GDP.
These reports are regularly released to the public by both government agencies and non-government agencies. The best way is to just do your own analysis. You will see the information right in front of you and not have to depend on the interpretation of others. If you choose to do this, remember that the numbers turning up in a report is not what always has the biggest impact. Rather,it’s the relation of the numbers when compared to what was initially forecasted that is most important.
A rise in the interest rates may not be felt in a big way if the forecasters expected it. On the other hand, if they were not expecting a change,and an unexpected increase occurred, this could significantly impact the currency prices.
Fundamental analysis can sometimes be a bit too broad. It works well for predicting an overall economic growth and price changes, but there is not enough detail to target specific entry and exit points. It is at this time, a trader would turn to technical analysis.
If you are new to the whole trading arena, it would help you to have a mentor or the advice of someone who has done it a long time. You may find that this is something you are meant to do as a way to pad your bank account.