Before committing your money to any investment, it is important to have a firm understanding of the assets you are dealing with, as this is the only way to accurately forecast where market valuations are headed next. For those willing to spend the time and effort, getting a proper forex education and learning how to trade forex is the key to long term success. But for some, it might seem difficult to know where to start. Here, we will look at some of the key elements that must be understood before any real money is deposited into your forex broker account.
Technical and Fundamental Analysis
First, it should be understood that there are two main reforms of market analysis: Technical analysis and Fundamental analysis. The differences are stark and important, and it will depend on your individual skill set to determine which overall approach you want to take. For those with a more “mathematical mindset,” Technical analysis offers ways to observe and assess price data on historical charts as a way of forecasting where markets will go next. For those with a more “literary, fact-based mindset,” it usually makes sense to use Fundamental analysis. With this approach, investors analyze economic data (like GDP or inflation) in order to forecast market prices. Any proper forex education will require some understanding of both these disciplies but, in practice, investors will generally prefer one approach over the other.
Any reputable forex broker will have free educational materials available for you to study, and it is important to take advantage of these offerings before making any trades with real money (that is, not using a virtual demo account). When you are still early on in your investment career, it is important to have patience and learn about what really drives markets, as this is the only way to avoid unnecessary losses in the future.
Starting with Economic Data Reports
Any major price movement in the forex markets is going to be driven by changes in economic data. Is GDP growth in the Eurozone expanding at a faster rate than markets had previously anticipated? Is inflation falling in Japan? Are jobs numbers in the US economy rising or falling? These are the types of questions you will need to be able to answer before any real trades should be placed. It might see difficult at first to not only interpret but to simply find this information. Luckily, these reports are released at scheduled times and can be easily located at many reputable sources.
Once released, markets will react based on whether a given data point comes in above or below market expectations. For example, if a report shows weakness in US GDP, forex markets would be more likely to sell the US Dollar on that day. So, as you can see, beginning with a proper forex education might seem daunting at first. But if this is approached with patience and hard work, these markets are something that can be easily mastered.
