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Beginner

Type of chart

Subtopic 1 – Types of Trading

There are 2 basic types of analysis you can take when approaching the forex:

a)         Fundamental analysis

Fundamental Analysis

a)      Fundamental analysis is the analysis of a market through the strength of its economy.

Example: the dollar gets stronger because the US economy is getting stronger. 

Technical Analysis

a)         The analysis of price movements

b)        Technical analysis = Charts

c)         Helps us identify trends which can help us find profitable trading opportunities.

So which type of analysis is better?

In order to become a true Forex master you will need to know how to effectively use both types of analysis. Don't believe me? Let me give you an example of how focusing on only one type of analysis can turn into a disaster.

·         Let’s say that you’re looking at your charts and you find a good trading opportunity.  You get all excited thinking about the money that’s going to be raining down from the sky.  You say to yourself, “Man, I’ve never seen a more perfect trading opportunity.  I love my charts.”

·         You then proceed to enter your trade with a big fat smile on your face (the kind where all your teeth are showing).

·         But wait! All of a sudden the trade makes a 30 pip move in the OTHER DIRECTION!   Little did you know that there was an interest rate decrease for your currency and now everyone is trading in the opposite direction.

·         Your big fat smile turns into mush and you start getting angry at your charts. You throw your computer on the ground and begin to pulverize it.  You just lost a bunch of money, and now your computer is broken.  And it’s all because you completely ignored fundamental analysis.