FOREX Trading : explained fully and the Forex analysis with examples
Forex Analysis can mainly be done in two methods, either using technical Analysis or Fundamental Analysis, In both the methods you got to have the power of prediction. You need to foresee which market is going to rise otherwise your predictions will pull your leg.
Technical analysis involves studying the currency price fluctuations over a period of time. If you find the currency value growth is steady, then you can expect it to stay positive in near future. You should be capable of grasping the growth in currency value asp and you make profit directly proportional to your speed of judging the currency value increase. Identifying the trend is very much essential here for one to trade smooth.
Fundamental analysis gives due consideration to social, economical and political factors catalyzing the currency of a country. If a country has trustworthy and stable economy as well as government then you can predict that the value will increase and fetch profit. A currency of a country is likely to be more valuable if its government is steady with increase in economy levels otherwise if the government and economy are unreliable then currency will be vulnerable and will fall.
Zimbabwe has very poor economy, almost a pirate government and corrupt employees. Hence their currency is cheaper than the cost of the paper it resides. In other extreme we have some US or UK reserve banks actions which can govern the currency value of the country no matter the economy and government is strong.
Hence it’s vital to consider both technical and fundamental methods when you trade in Forex. For example, let’s use technical analysis of UK GBP vs. USD from October to November 2007.Pound sterling was constantly raising against USD and at Nov 7, the Forex quote is GBP/USD = 2.1104/2.1109.Your instincts and analysis tells you that at the end of trading day quotes will be GBP/USD = 2.1204/2.1209. You decide to buy one standard lot at a rate of 1 GBP = 2.1109 USD, = 47373 GBP expecting GBP to go up by 100 pips which in turn will help you sell 47373 GBP for 2.1204 USD each, which gives you $450 profit for the day’s trade.
But to your shock, few hours later you see Forex quote is now 2.0906/2.0911.Fearing severe loss, you sell your 47373 GBP for 2.0906 USD each = $99,294 ending up losing $706 instead of gaining $450.
What pulled you down was, on Thursday 8th November (bank of England sets UK base interest rates usually on November first week) the Bank of England left the UK interest rate on hold instead of expected increase in the UK interest rates.
Technical analysis involves studying the currency price fluctuations over a period of time. If you find the currency value growth is steady, then you can expect it to stay positive in near future. You should be capable of grasping the growth in currency value asp and you make profit directly proportional to your speed of judging the currency value increase. Identifying the trend is very much essential here for one to trade smooth.
Fundamental analysis gives due consideration to social, economical and political factors catalyzing the currency of a country. If a country has trustworthy and stable economy as well as government then you can predict that the value will increase and fetch profit. A currency of a country is likely to be more valuable if its government is steady with increase in economy levels otherwise if the government and economy are unreliable then currency will be vulnerable and will fall.
Zimbabwe has very poor economy, almost a pirate government and corrupt employees. Hence their currency is cheaper than the cost of the paper it resides. In other extreme we have some US or UK reserve banks actions which can govern the currency value of the country no matter the economy and government is strong.
Hence it’s vital to consider both technical and fundamental methods when you trade in Forex. For example, let’s use technical analysis of UK GBP vs. USD from October to November 2007.Pound sterling was constantly raising against USD and at Nov 7, the Forex quote is GBP/USD = 2.1104/2.1109.Your instincts and analysis tells you that at the end of trading day quotes will be GBP/USD = 2.1204/2.1209. You decide to buy one standard lot at a rate of 1 GBP = 2.1109 USD, = 47373 GBP expecting GBP to go up by 100 pips which in turn will help you sell 47373 GBP for 2.1204 USD each, which gives you $450 profit for the day’s trade.
But to your shock, few hours later you see Forex quote is now 2.0906/2.0911.Fearing severe loss, you sell your 47373 GBP for 2.0906 USD each = $99,294 ending up losing $706 instead of gaining $450.
What pulled you down was, on Thursday 8th November (bank of England sets UK base interest rates usually on November first week) the Bank of England left the UK interest rate on hold instead of expected increase in the UK interest rates.
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