Well now we have a basic understanding of how the FX market works
and who the main players are, so what next?
You are now going to have to decide on the best way to trade the
market. The two most common approaches are that of fundamental
analysis and technical analysis.
Fundamental analysis concentrates on the forces of supply and
demand for a given security. This approach examines all the factors
that determine the price of a security and the real value of that
security. This is referred to as the intrinsic value. If the market price is
below the intrinsic value then there is an opportunity to buy and if the
market is above the intrinsic value then there is an opportunity to sell.
Technical analysis is the study of market action, mainly through the
use of charts and indicators to forecast the future price of a security.
There are three main points that a technical analyst applies.
A. Market action discounts everything. Regardless of what the
fundamentals are saying, the price you see is the price you get.
B. The price of a given security moves in trends.
C. The historical trend of a security will tend to repeat.
Of all of the above things the most important of them is point A. The
tools of the technical analyst are indicators, patterns and systems.
These tools are applied to charts. Moving averages, support and
resistance lines, envelopes, Bollinger bands and momentum are all
examples of indicators.
There are many ways to skin a cat, as the saying goes, but
fundamental and technical analysis are the two most popular ways of
trading FX.
