Have you ever played Charade? Charade is a popular party game usually played during office occasions or even in family gatherings. Even though it doesn’t require critical thinking, you need to be able-enough to process the signals that your partner is acting out. The challenge of this game is to understand the message without even saying a single word. Careful analysis and paying keen attention to details is the key in winning the game. A similar situation is also done in Forex.

Traders does not trade blindly with just their instincts to aid them. They analyze the situation. Ideally traders catch the indications on where the wind is blowing and analyze it in order to serve as a favorable guide for their strategy. There are two ways in analyzing the situation, namely Fundamental and Technical analysis.

The concept of technical analysis is based on the statement that the relation between demand and supply represented in the price chart is complied with rules of mathematics.

There are three general principles under Technical analysis:

1. Look at the price!

The price should always be the center of your analysis. Although changes in the price consist of many factors such as political, economical, and psychological factors we should not be distracted by all of this things. Our main focus should still be on the supply and demand of the currency that we are trading.

2. Understand the trend

Before using it to our advantage, we should understand it first. There are three types of trend; Bullish, Bearish, and Flat.

Bullish means that the price is moving in an uptrend.

Bearish means the price is on moving in a downtrend.

Flat means when there is no price movement.

3. History repeats itself

No matter what happens, the way you analyze it would always be the same. The tools that you would use to analyze the market a month before would also be the tools that you would use today. The main tools are as follows: Oscillators, Japanese candlesticks, Bar char (intervals) , Line char, Trend indicators, and Wave analysis.

Contrary to the Technical analysis, is the Fundamental analysis. It says that economic news, either financial or political, would directly or indirectly affect the currency market. Elections, economical reforms, undertaking of international agreements etc. are some of the common news.

GNP, GDP, inflation rate, unemployment rate, CPI and PPI indexes, commodity and industrial price index, trade balance and balance payment are the most significant indicators that would most likely affect how the currencies behave most especially the main ones.

The GNP reflects how well a country’s economic status is doing. Consumption, investments, government expenditures, import and export rate are the main components that determines GDP. A high GNP rate indicates a good economic climate that in turn attract foreign investors thus strengthening the demand for the currency.

On the other end, the Unemployment rate determines how bad the economic climate is. Inflation would turn off the investors thus lowering the demand for that particular currency.

Aside from the former two; natural disasters and calamities, terrorist attacks, and other unpredictable occurrences could also affect currency movement.