Most Forex Traders will normally use either one of these 2 methods or both methods for their trades.

Fundamental analysis focuses on the theoretical models of exchange rate determination such as purchasing power parity (PPP) and the theory of elasticity. Fundamental analysis also concentrates on other major economic factors such as Gross National Product (GNP) that measures the economic performance of a nation economy. Other economic indicators include Gross Domestic Product (GDP), which refer to the sum of all goods and services produced in a country. Consumption spending, Investment and government spending are all very influential due to their sheer size and have great impact on a nation economic performance.

Inflation Indicators such as Producer price index (PPI), Consumer price index (CPI) are closely watched by traders to measure inflationary activity. For the Federal Reserve, the method of choice to flight inflation is to raise interest rates. And higher interest rates tend to support the local currency, in this case, the US dollar.

For the fundamentalists, this approach to examine all the factors will determine the real value of a currency. This is normally referred to as the intrinsic value. A fundamentalist believes that if the intrinsic value is below the current market price, there is a good opportunity to long or buy the currency. And if a currency current market price is higher than its intrinsic value, there is higher probability that the currency will falls, hence, opportunity to short or sell.

Technical analysis is the study of market action, mainly through the use of charts and indicators to forecast the future movement of a currency.

There are a few principles that a technical analyst applies. The price is a compressive reflection of all market forces.

To a technical analyst, regardless of what the fundamentalist are saying, the price you see is the price you get. Price moves in trend - up (bullish), down (bearish) and flat (sideway) until the trend is broken and a reversal takes place. The time duration of the trend may be long intermediate or short. The historical trend will repeat itself.

The tools of the technical analyst are indicators, chart pattern and system. Moving average, Bollinger band and Stochastic Oscillator are some of the indicators. Trend line, support and resistance are some examples of chart pattern.

Forex Trading Education - How To Trade Price Consolidations

Trading on price consolidation breakouts is a popular choice among Forex traders. In this article, I will present to you one of the most effective and simplest ways to trade consolidations.

What Is A Price Consolidation?

Price consolidation occurs when there is no obvious uptrend or downtrend in short-term time frames. Ranging markets are not considered to be consolidating because prices are still fluctuating up and down. In a true consolidation, market prices don't fluctuate and typically stay within a 10 to 15 pip range.

What Time Frames Should I Trade?

Consolidating prices don't usually last very long. That's why you'll usually trade using intraday time frames (i.e. hourly charts or minute charts). Occasionally, daily charts may show flat prices as well! but these are more the exception rather than the norm.

How Do I Trade It?

Most people enter into a trade when prices break out of the highest price (or lowest price) of the consolidation. If prices break upwards, they buy. If prices break downwards, they sell. The decision to trade on breakouts is based on the assumption that the momentum of the break will be strong enough to push price further in the same direction.

How Effective Is It To Trade Breakouts?

In my experience, breakout trading can yield rather consistent profits. This is because they usually follow through. The hard part is deciding when to exit your trade once it's in-the-money, because breakouts sometimes reverse directions quite quickly.

What Should Be My Profit Target?

Usually, a profit target of 30 pips is good enough. Sometimes, you may want to try for 50 pips. I don't usually hold breakout trade positions after I'm in-the-money for 50 pips because then the price action will usually turn erratic.

Forex Trading Education - How To Trade The Trend

If you haven't heard of the phrase "the trend is your friend", you're either new to trading, or have been living under a rock. Trend trading is one of the most popular methodologies used by most people today.

What Is Trend Trading?

As the name suggests, it simply means trading in the direction of the prevailing trend. You buy in an uptrend, and sell on a downtrend. It's a simple concept.

However, the specifics of this way of trading are often overlooked by amateur traders. Also, there are some complications about trend trading that they don't know about. In this article, I hope to be able to explain to you a little bit more in detail about how to trade trends.

When To Buy/Sell

I've known many people who enter into trades at the wrong time while trend trading; and I found out that the reason for this is because they listen to the advice of so-called online "experts".

Here's what these "experts" tell you: in an uptrend, buy on a downward retracement. Although this piece of advice is probably well-intentioned, it's actually quite dangerously misleading. The people who follow this advice often end up finding themselves right at the top of a reversal.

The RIGHT Way To Trade Retracements

When trading a trend retracement, you should first identify significant support/resistance points where the retracement is likely to end, such as at Fibonacci levels or at pivot points. Wait for the retracement to hit that level.

Next - and this is the part most people ignore - you must wait for a confirmation candle/bar before you enter into the trade. This means that on an uptrend retracement, you should wait for a green up-closed candle to form before you enter. Never enter into the trade before the candle/bar is completely formed!

The reverse is true for downtrend retracement.

Forex Trading Education - 3 Aspects of Confident Trading

When you open up your trading charts each day, do you feel calm and confident or do you feel uncertain and nervous? Many traders often find themselves feeling the latter.

To be a successful trader, you'll need to constantly feel confident about the happenings in the market. Good traders are certain about whether it's a bull market, a bear market or a ranging market. They either understand what they're seeing in the trading charts today, or they don't. They're confident about their opinions, and aren't afraid to say that they're uncertain when they are.

Gaining Confidence

One of the best ways to start each trading day with confidence is to keep to a concise, carefully-considered 'plan of action' just before you begin bring up your trading charts. Here are 3 aspects you should consider to include in your 'plan of action'!

Aspect #1: Monitor the market with a check list

Have a list of news websites and analyst reports where you can find out the latest happenings all over the world. This is helpful in alerting you of world events that occurred while you were sleeping. The Forex market runs around the clock and doesn't go to sleep at all, except on weekends. You'll thus need to have a handy list of news sites to update you on the events that you've missed out on.

Aspect #2: Be an expert of few setups

Most new traders spend too much time trying to learn all the different trade setups in the hopes that they can have the most money-making opportunities. Unfortunately, they usually get mixed signals and mess up their trades. You should instead strive to master two or three types of trade setups and become an expert on them. Don't worry about the lack of trading opportunities; the market is large enough and you'll find usually be able to find good trade entries at least once every week.

Aspect #3: Money Management

It's almost impossible to over-stress the importance of this aspect. A reliable money management system will make it almost impossible for a trader to feel scared and uncertain. It's your safety net. Never trade without one.