Do you remember the first time that you came across the financial markets, or more specifically, forex trading? Unless you had a keen interest in economics, it's highly likely that you were almost immediately drawn to technical analysis (T.A). Those attractively colourful indicators, pin-point accurate support/resistance lines and rumours of other technical traders trading for a living, is usually enough to lure the majority of newcomers into this category. There is, however, another technique used to analyse the markets: fundamental analysis (F.A).
Fundamental analysis in forex is one of the ways to analyze the currency markets. As the name suggests, fundamental analysis is completely different to technical analysis. While technical analysis deals with price and historical price behavior, fundamental analysis focuses on the factors that are driving the prices in the market. Fundamental analysis is widely used in the stock markets and primarily among investors. But it can also be used in a number of other markets, including forex and futures.
With the improvement of technology in the late 20th century, the world of forex trading opened up to the internet. By 2004, forex had developed into a $1.9 trillion a day market. As of 2016, the daily volume surpassed $5 trillion a day! Gaining access to the markets is relatively easy. The creation of the Internet made it possible to trade currencies anywhere in the world with internet access, 24 hours a day five days a week.
In the previous article, we covered the two main reasons why traders often end up losing money. The first being the chase to catch tops and bottoms, which can be lucrative but also comes with big risks. The second mistake being, making use of improper money management techniques or entering a trade too late into the trend.
In this day and age, becoming an independent financial trader is easy. You just need some capital and a brokerage account, and voilà, you're a trader! The only problem is, trading the markets is not quite so straightforward!
Have you ever found that your trading system works great one day but fails miserably the next? Your problem is quite possibly market type identification. Too many Forex traders will trade the same way no matter what the market is doing. Instead look to identify the market type first, and then devise a strategy appropriate to that market type.
As humans we love to overcomplicate things!
While an elaborate trading strategy may impress your family and friends, it is unnecessary to succeed.
For those that...
ActionForex.com was set up back in 2004 with the aim to provide insight analysis to forex traders, serving the trading community over a decade. Empowering the individual traders was, is, and will always be our motto going forward.