The difficult part in knowing how the forex trading works is the understanding of how to really identify the way a currency pair will move. Nevertheless, if there’s no fundamental basis to the process of your decision making, you are just really tossing a coin. For instance, the price now of GBP/USD is 1.2960; will the price increase or decrease?
Obviously, if you are a newbie trader, identifying the answer to this is like asking a child aged 4 years old to enumerate the first 40 numbers in pi.
With that, you have to know how to execute comprehensive research to evaluate the price movements for both long and short run. Significantly, it focuses on two research method types, namely technical and fundamental research.
Regardless of the market from which you trade, fundamental research plays an important role in determining whether an asset will decrease or increase its price. Basically, fundamental research is centered on the news developments in the real world. This signifies that it assesses how a story in the news will affect the currency value.
For instance, suppose that the government of the US decides that the money supply be increased by printing more and more dollars. Thus, there will be more circulating dollars which will result in its value to decrease. As such, currency pairs like EUR/USD will then increase in value.
There are a lot more examples of news developments in the real world which can affect the price of a certain currency. Yet, the point here is that you don’t just have to make certain you’re keeping up- to –date of the main financial developments, but as well as understanding how a news story is interpreted.
Reading books about fundamental research, especially those that are top-rated is advised if you want to re-acquaint yourself in the knowledge about the mentioned topic.
Some would say that fundamental research is the simple part. It’s because when you already have an understanding on the basics which surrounds the interest rates, GDP, monetary and fiscal policy, and geopolitical events, you will have an idea how it’s likely to influence the currency value.
On the other hand, technical analysis is considerably more complex. It’s because the process will need you to read, study and interpret the pricing charts. The key concept is that you will be searching for possible trends and see how these trends will impact the future currency pair movement.
Technical analysis is more significant in the forex scene, compared to the fundamental analysis. The reason is that foreign exchange traders usually use day trading techniques, which means that they put several buy and sell positions all through the day. Simply put, they may retain a position open for not over a few minutes or hours. Therefore, the trader will mostly focus on technical analysis, and this is able to help see the complete image of where the pair is more likely to go in a short span of time.
In the end, it will be questionable that there would be significant fundamental news every day or every week on the currency pair that you prefer.