FOREX: TECHNICAL AND FUNDAMENTAL ANALYSIS

TECHNICAL ANALYSIS   Technical Analysis is an analysis of the movement of the price through history and based on that, predicting the price movement in the future.   Technical analysis is very useful in forex since it is decentralized and prices are highly dependent on the big players. 

TRENDS Uptrend: The main characteristic of the growing trend is that each new bottom formed should be higher than the previous bottom also every new top formed is higher than the later   Downtrend: Each new bottom is lower than the previous and each new top is lower than the previous   sideways trend: No specific rule followed by highs and lows. Very difficult to predict the movement.  

TREND LINES Trend lines are obtained by connecting at least two lines within the existing trend.  Trend line represents support and resistance levels 

Support: Below the current price from which we expect a rise Resistance: Above the current price from which we expect to fall.  Trend lines obtained by connecting bottom points on a growing trend.  Once a support trend line is broken it may act as a resistance trend line.  

CHANNEL Made by two parallel lines, which are connecting the bottom points and the top points, i.e. the support and the resistance trend lines. Bottom line is the support line which signals buy and the top line is the resistance line signaling short. As with any other trend, the price trend can be reversed and the first signal of it is when the price oscillating between the channel doesn't touch the top or bottom line. 

ZONES Instead of having a support line there is a support zona because not one price can be defined as the price from where the price bounces off. But its easier to define a zone below which the price doesn't go. Similarly, with resistance there isn't a resistance line but a resistance zone.

FUNDAMENTAL ANALYSIS The most important tool in investing and long term trading  

2 kinds of fundamental analysis factors: 1) Predictable: Interest Rate, Inflation, Unemployment, GDP. etc. The most important factor is the monetary policy- set measures which the government carry out in order to regulate the economic activities.   2) Unpredictable: Political Situation, military events, Terrorist attacks, Natural disasters.*Read on the effects of the 2011 Japan Tsunami on Japanese Yen*   The goal of each monetary policy is achieving certain economic effects. There are two groups of objectives and those are: 1) Development Goals: Specific measures to improve the economy of the country. This is an expansive monetary policy. This is found in economies that have a tendency to decline. This is achieved by: - Decreasing the interest rate - Increasing the volume ion Loans - Reducing the rate of required bank reserves   2) Stabilization Goals: This is a restrictive monetary policy. The policy of expensive money and difficult credit situation.   applies in situations where demand is bigger than supplies and there is a risk of inflation. The   most common instruments are the : - Increasing the interest rate - Decreasing the volume of loans - Increasing the rate of required bank reserves *Follow closely the monetary policy of both currencies*