The most important goal in using in Forex market is to know how to make money from this market.
To make the right choice, decisions should be based on a thorough study. There are 2 different kinds of studies (analyses) investors use:
- Fundamental analysis
- Technical analysis
Fundamental analysis: we will talk about this analysis briefly due to it is complicated nature. This type of analysis is involved when a decision should be very fast and in a short period of time. More often than not, the risk is also very high.
By asking a simple question like “what would make the currency move?” we will find many reasons, like:
- National Banks
- Economic and political conditions
- Multinational companies
- Natural disasters
- Interest Rates- this is a very important factor that affects the price.
e.g.: if you have Euro and US Dollars and both, gives you the same interest rate, for example: 10%
What will happen when the interest rate of Euro increased to 11%?
Most people will start selling the US Dollars and start buying the Euro to benefit from the higher interest rate.
As an investor, buying Euros is NOT to benefit from the interest rate but to benefit from the price change of the currency.
Technical analysis is the study of currency fluctuations that affect and how it will react after it gets to a certain price level Often this method uses graphs and charts, to predict the future price and start make a decision.
The free market is just like the life of any person, good one day and bad the next. This is also true of your wallet; sometimes you have a lot of money and sometimes you don’t have much.
The Forex market is just the same, sometimes it’s up and sometimes it’s down, we call it Trend, this trend is the channel that the price moves inside, it will be going up and down, but the most important is the overall direction of this movement.
Many people would prefer to use Technical analysis due to its simplicity and it doesn’t add pressure like fundamental analysis.