Fundamental Analysis and Technical Analysis compared

Basically, there are two types of analysis you can take or use3 to approach forex trading: They are Fundamental analysis and Technical analysis. Some times ago on seminar ground the debate as to which one is of more valuable to forex trader generated a heated arguments among forex traders and professionals on which of the analysis is better to help prepare one for profitable trading.

Honestly speaking, you’ll need a bit knowledge of both to be a successful forex trader, so to say.

1. Fundamental Analysis: To approach forex trading holistically, you must consider the fundamental analysis thro ugh looking at the market from the angle of economic, social and political forces that affect supply and demand. Consider whose economy is doing well or not. The rationale behind this type of analysis is that whoever’s economy is doing well, then their currency will also be doing well. What this simply means, logically is that the better a country’s economy is, the more trust other countries have in that currency as well. Over the years, the U.S. Dollars have gained strength and value, because the U.S. economy is fast gaining strength and value as well. While the U.S. interest rates keep increasing, the value of the dollar continues to increase along side by side. As a pro-forex trader in making, you have to equip your self with the knowledge of fundamental analysis.

2. Technical Analysis: the term Technical Analysis refer to the study of price movement during trading. It is also calculated as technical analysis equals to charts(TA=Cs). This is a process where a person can look at historical price movements and based on the price action, then determine on some level where the price will go from there, through looking at the charts and identify trends and patterns that can help find good trading opportunities to rake more dollars to the account. History has it that the most important thing a trader will ever learn in technical analysis is the trend, as it is always being said severally that ‘the trend is your friend.’ There is this indication that if you are much more likely to make money when you can find a trend and trade in the same direction as well. The importance of Technical Analysis cannot be over emphasized here, because it can help you identify these trends in its earliest stages and therefore provide you with very profitable trading opportunities that ordinarily wouldn’t get.

Your take home here is to incorporate both Fundamental Analysis and Technical Analysis to help you be a successful Forex trader of your dream. Reason, suppose you look at your charts and you found a good trading opportunity, and get all exited, not knowing that there was an interest rate decrease for your currency, and now every one is trading in the opposite direction. So, for you to balance your trading techniques, the knowledge of both analysis are required

How to calculate spread trading in the forex market. Let me start topic from the angle of what the traders do in the forex market per say. In the forex market, Investors trade one currency for another, and so currencies are quoted in terms of their price in another currencies to be candid. Currencies are always quoted in pairs, for example, USD/CAD – The first currency is called the base currency, and the second currency is called the counter or quote currency (base/quote). Let see this, if it took C$1.30 to buy US$1, the expression USD/CAD would equal 1.3/1 or 1:3, because the USD is the base currency and the CAD the quote or counter currency without mincing word.

Now, come to our focus on how to calculate the spread and look at how we can calculate their spread with respect to bid and ask. Remember that for forex quotes are always provided with bid and ask prices as earlier mentioned, very similar to what you see in the equity market too. While the bid represents the price at which the forex market maker is willing to buy the base currency(USD) as stated in our example and in exchange for the counter currency (CAD). On the other hand, the ask price is the price at which the forex market maker is willing to sell the base currency in exchange for the counter currency the (CAD) .

Now to drive our point home, forex prices are always quoted using five numbers, so for the example above, let’s say we have a USD/CAD bid price of 130.00 and ask of 130.05, the spread then would be equal to 0.05 or 50/0005 all the same.