If you haven’t done so already, you should open a demo trading account.  However once you do, even if you have read the lessons so far, you probably won’t know whether you should buy or sell a particular currency.

Traders analyse the data they have to hand to decide which way to trade. While any information pertaining to a country’s economy is relevant, all data falls into two main categories ; news events and historical price movements.

Fundamental analysis

Using the news to predict the price movement of a particular currency is commonly known as fundamental analysis.  At the most basic level, if the economy of a particular country is improving, then the value of the country’s currency will rise.  Lists of dates for significant scheduled news events and figures disclosed by governments and economic bodies are widely available and known as the forex calender. As well as regular unscheduled news, these events inform the decisions of traders in the forex market.

Technical analysis

Technical analysis refers to using historical price movements to attempt to predict future prices.  Quite often patterns occur in the price movement and these patterns tend to repeat.  Technical analysis attempts to recognise such patterns to predict future price movement.  For example if the price of GBPUSD reached 1.6 then retreated down more than once it can be suggested that this is the most the market believes this currency is currently worth.  So unless there have been changes to the economic situation it can be inferred that  if the price is currently around 1.6 the future movement will be to retreat downward once again.  Technical analysis is synonymous with charts as this is the best way to visualise and analyse historical data.

In order to be a successful trader, both types of analysis have to be used.  In addition to this fact, a successful trader should understand that the Forex market is highly emotional since the price reflects not only the analysis of millions of different people but the emotional reactions to all the data available to them also.

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