FUNDAMENTAL ANALYSIS

The forces of supply and demand determine the value of currencies. Spec-ulation in the foreign exchange market (the FOREX) must be based on sound analytical principles. There are two radically different methods of forecasting where the forces of supply and demand are heading.


The first method as mentioned earlier is known as fundamental analysis.While I cannot list all the events that move the market, some of them include the forces of currency supply and demand worldwide, fundamental economic data, and political developments.
Unlike in the stock market, fundamental analysis in the FOREX is much more important. Although it is important to watch fundamentals when trading in the stock market, it is much easier to manipulate the data.
After all, where does the fundamental data come from that traders use to make their trading decisions?

ANALYZING THE FOREX

The forces of supply and demand determine the values of currencies. Spec-ulation in the FOREX must be based on sound analytical principles. There are two radically different methods of forecasting where the forces of sup-ply and demand are heading.

WHY TRADE THE FOREX?

There are many benefits in trading the foreign exchange market (the
FOREX). A few of them are:

• It has continuous liquidity.
• It has very low dealing costs; 4 to 5 price interest point (pip; 
• discussed later in this chapter) spreads.
• It has 100:1 leverage for margin trading.
• It has a very volatile, trending market.
• It has a two-way market; that is, traders participate in bull or bear
• markets.
• It is open 24 hours a day from Sunday night to Friday afternoon.
• There are no separate commissions.

RECOMMENDED CURRENCY PAIRS

It is important to keep in mind that you will be a much more successful trader if you concentrate on only a few currencies to trade rather than all the available ones. Just like the stock market, when you start worrying about 40,000-plus stocks, it is hard to find the right currency pair to trade.
Limit yourself and become an expert on just a few currencies you want to trade.