When applying fundamental analysis to trading forex, it is advisable to look at several countries, because the strong political and/or economic connections maintained between two or more countries will be reflected in their currency value fluctuations.

Other useful tips when embarking upon fundamental analysis as you trade forex include:

• Economic calendar: pay attention to the where and when. Due to the fact that the value of a currency responds quickly to the release of certain economic information, it is imperative to keep a close watch on currency price trends whenever new information is publicised.
• Economic indicators: know what economic indicators are capturing the market’s attention. These indicators serve as catalysts for the largest price and volume movements. For example, when the British pound sterling is weakened, one of the most watched indicators becomes inflation.
• Market expectations: do not just watch the data; know what market expectations develop from it and then watch closely to see whether or not those expectations are met. This serves as a better indicator of trends than just watching the data itself. From time to time, there is a major gap between what is expected and what actually occurs; therefore you need to remain aware of the possibilities.

Fundamental analysis is highly effective in helping to predict overall market behaviour and determining a country’s economic health trends, but where fundamental analysis falls short is in the short-term. This type of analysis is simply not capable of accounting for short-term fluctuations. It is important to use other techniques in conjunction with fundamental analysis and so this is where the technical analysis comes in.

While fundamental analysis uses economic indicators to help determine long-term trends, technical analysis when trading forex is used to identify trends as they develop. This allows the trader to capitalise on the trend until it reverses direction.

If you are planning to trade forex, then you should be aware that trends are what forex trading is all about. In forex trading, you can work both sides of the market; technical analysis helps you predict which side to work when.

A basic concept within forex technical analysis is the idea of resistance and support. Resistance is when a price has risen to a level that it finds difficult to surpass. Resistance levels are used to help determine when to sell; ideally, you want to sell as close to that level as possible. Unfortunately, resistance levels are subjective and can therefore be difficult to determine exactly where to draw the line.

Support, of course, is the opposite of resistance. This is the line where a price had dropped to the bottom and it becomes difficult for it to drop any further. This is the line where you want to buy. As with resistance levels, support levels are also subjective, but that does not mean they are not useful.

Although definitive resistance and support levels are difficult to ascertain, traders still benefit from the concepts, using the ranges as their guides to when to buy and/or sell – adopting a long or short market position, depending upon the situation and goal.

Range trading is a part of the technical analysis process of forex trading. Using resistance and support levels, traders buy and sell within these respective ranges, adopting a long market position (support range) or short market position (resistance range), depending upon the situation.

While range trading can reap profit, it tends not to be extraordinarily so. The reason is because the market can suddenly spike or crash if or when it breaks the level. As a result, traders find themselves subject to major losses, with the price suddenly raising or falling without ample warning.

An alternative to range trading is trading beyond the resistance and support range, or, in other words, trading with the anticipation that the price will break their resistance/support thresholds. This is called playing the momentum and is based on the principle that, with the level breached, the market will gain incentive, thus allowing the trader to profit from the situation.

As with fundamental analysis, using technical analysis and relying on range trading and/or momentum alone is an unsafe practice. There are a lot of variables that technical analysis does not take into account: unexpected things like natural disasters, a change in government and/or a country’s leadership, and even investor mood. If your intent is to trade forex successfully either part-time or full-time, it is wise to use a combination of technical analysis and fundamental analysis as part of your investment strategy.

As with any type of trading, successful forex trade requires the ability to predict movement and take advantage of it. To do this, a trade will rely on analysis – either fundamental or technical – to help him or her predict which way the move will go.

With fundamental analysis, the trader looks at the economic factors that can affect the currency exchange rate. This includes things like political news, recent social events, and various economic indicators. It is these aspects that drive the supply and demand of currency. For instance, the recent disasters in Japan had an effect on the strength of the yen while the death of Bin Laden had an effect on US currency.

Through fundamental analysis, a trade will dissect a country’s economic situation at a macro level in order to better understand and predict the trends. Key things looked at when you trade forex include:

Interest Rates

Each day, the Central Bank of a country will determine the overnight lending rate, using the interest rate as a method of expanding or contracting the money supply. Usually, a lower interest rate will cause a currency to depreciate, while higher interest rates will cause a currency’s value to rise.

Unemployment

Unemployment is a key indicator in how a country is doing economically. High unemployment rates lead to the lowering of a country’s currency value.

Fundamental analysis is best used to determine long-term trends; it does not prove itself very useful as a day trading tool. By concentrating on the longer-term factors that affect a country’s economic health, forex traders are able to determine which way a currency pair will move over time.

When starting out with trading forex, it is a good idea to begin with the primary seven: US dollar, British pound, euro, Japanese yen, Australian dollar, Canadian dollar, and Swiss franc. It is also recommended that, if you are living in one of the countries represented in the primary seven, you focus on your own country’s currency, because you will be in a better position to judge its value on the market.

When you trade forex, currency will always be shown as three letters, as set according to ISO 4217. The first two letters serve as country identifiers, while the third letter identifies the currency. The major seven are symbolised as follows:

• USD – United States dollar (trade nickname: buck)
• AUD – Australian dollar (trade nickname: aussie)
• CAD – Canadian dollar (trade nickname: loonie)
• EUR – Euro Zone euro (trade nickname: fibre)
• JPY – Japanese yen (trade nickname: yen)
• GPB – British pound sterling (trade nickname: cable)
• CHF – Swiss franc (trade nickname: swissy)

In addition to their use in forex trading, ISO currency codes are also used throughout global banking and business. You may even come across ISO currency codes on items like international flight and train tickets, where they are used instead of symbols in an effort to remove uncertainty around a ticket’s purchase price.

Along with their currency letter codes, ISO 4217 also issues numeric codes associated with each currency. A visit to the official ISO 4217 standard website will provide general information on ISO standards, as well as a list of abbreviations and codes for all country currencies.

If you decide to try your hand at trading forex, you will need to become familiar with currencies other than your own. The seven primary currencies in forex trade include the United States dollar, the euro, the Swiss franc, the Japanese yen, the British pound sterling, the Canadian dollar and the Australian dollar. While the US dollar and GB pound are two of the most significant, especially for British traders, other popular currencies to trade forex with include the euro and the Japanese yen.

EUR – Euro

The euro (currency sign €) is the official currency of the “Euro Zone”, which consists of Austria, Belgium, Cyprus, Germany, Greece, Estonia, Finland, France, Republic of Ireland, Luxembourg, Italy, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain. Several small European states have also adopted the euro, including Monaco, San Marino, Andorra, Montenegro, Kosovo, and the Vatican.

While all members of the European Union are eligible to join in using the euro if they comply with certain requirements, not all members have chosen to do so. Notable exceptions include the United Kingdom (including Northern Ireland), Denmark and Sweden.

JPY – Japanese Yen

The yen is the currency of Japan, symbolised by ¥, although in Japan it is sometimes notated by the kanji 円). In forex trading, the yen is popular as a reserve currency, falling after the US dollar, pound sterling, and euro. Typically, when working with large amounts of yen, the numbers are counted in multiples of 10,000 (much like the USD is often counted in 100s or 1,000s).

Everyone has their own niche or style of doing things that sets them apart from others. In addition, while no one style works perfectly for everyone, knowing what style works best for you is key to becoming a successful forex trader. That being said, it is common knowledge that 95% of forex traders do not reach the levels they aspire to, or fail to succeed full stop.

Basically, there are three types of forex traders:

Casino Traders (Gamblers)

These are people who trade forex using instinct as their primary weapon. Casino traders are gamblers; they go with their gut. These types of people rarely succeed over the long run, simply because they are gambling on a trend which they do not really understand. Little effort is put into gaining insight and knowledge on how forex trading works.

Bookworm Traders

A bookworm trader is someone who scours the internet for free information. Gaining knowledge this way can take time, but while bookworm traders may eventually succeed to desired levels, it takes a long time before they have the confidence to actually trade.

Educated Traders

Before investing in a forex account, educated traders will take the time to get a forex education. They learn the market, understand the tools, educate themselves in the trade, and then open a demo account and practice. Only then, when they feel ready, do they invest.

Anyone can succeed in the forex trade, but you should recognise that many will not. Gaining knowledge before you begin is the one sure way to put the odds of success in your favour.