TOOLS USED FOR FOREX ANALYSIS
In my last article about Forex, I introduced you to the world of Forex and shown you both the benefits and risks, so if you still with me that’s mean you interested in making money with Forex trading. Today am going to simply introduce you to how you can analyze your Forex so as you can make your chances to make a profit from Forex a possibility. There are 2 tools of analysis of FX as briefly explained today.
If you missed My recent article explaining everything you should know as a beginner in trading click here to read it before you read this one
FUNDAMENTAL ANALYSIS .
Fundamental analysis is the tool of analyzing Forex trends by observing geo-political and geo-economic trends.
Trends; are movements of Forex prices either going up or down
Geo-political trends are political news of certain geography that has an effect on the economic environment of that specific geographical area. E.g. (USA and CHINA trade war,)
Geo-economic trends are economic news of certain geography with a direct impact on the overall economy of that same geography(the USA corona Stimulus package)
So am going to be talking about my favourite fundamental tools I used to grow my trading account by 70%, so as you could try practising with them and see if you could attain the same result as me or exceed mine, you may grow your trading account to over 120-150% with this techniques so be courteous.
INFLATION RATE .(commonly known as CPI)
Inflation rates are in layman language in the change in commodity prices of a certain country. To increase the price of foodstuff changing from $100 to $130 then the inflation rate will be 30%. Inflation has a direct effect on the currency of that country in several ways. First, you have to understand there is both good inflation and bad inflation as I categorize it.
Good inflation is where there is steady inflation in the economy making producers in the economy realize a fairly higher price for these products hence attaining high profits and the same applies to real estate prices and other commodity prices in that specific economy
Bad inflation is what they call hyperinflation which is simply when commodities prices are way too high for anyone in the economy to afford anything making the government increase more money in circulation hence rendering the money of that economy worthless. For example Venezuela, Zimbabwe and others.
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The only thing an fx trader have to put in mind when it comes to inflation rates is that when inflation of a country exceeds a desirable rate the central bank of that country will have to raise the interest rates of the country to curb the growing inflation rates. So everybody in the investment world wants to put their money where they can get it again and that’s the same reason you reading this article. For how interest rates come in we will need the interest segment below
INTEREST RATES.
As we saw in the inflation segment interest rate are applied both as a fiscal and monetary policy to control inflation so when interest rates are increased the currency of that economy will grow in value because of the following reason. Interest rates are set by the central bank of a country which shows the percentage return on loans extended to the government and this cuts across both commercial bankings whereas the money you keep in a commercial bank account receives a bonus interest rate every financial year. So these two factors are what drive the value of a currency when it comes to interest rates. when interest rates rise many investors will see an opportunity to buy bonds of that country hence buying the currency and other investors and retail investors will transfer money from the native country banks with low-interest rates to those of the country with high-interest rates. We all get selfish about the benefits of that economy resulting in high demand for the country’s currency making it rise in value. The laws of demand and supply at work.
EMPLOYMENT DATA.
Employment data is the statistical data of the rate of employment of a specific country and their average payroll. The employment level has a direct effect on the economy as so as on the economy’s currency in this manner. When the level of employment in a country increases it’s a good indicator of economic growth as people’s disposable will have increased making a demand for that countries goods and service increase. There will be much activity done with that country’s currency increasing its demand. You don’t need to worry yourself about the economics of it all you have to know is that an increase in the country’s employment rate increases the demand of that economy and vice versa.
The employment data you have to be mindful of is the USA Non-form payroll data. It’s the most accurate indicator of the movement in trends of the USA dollar; it’s released every Friday of the first week of every month.
GROSS DOMESTIC PRODUCT (GDP)
Gross Domestic Product (GDP) is basically everything bought and sold in an economy expressed in monetary value. I won’t be going deep into the economics of it as our interest only lies with its effect on a country’s currency. For me, GDP is my second best indicator of a country’s economic strength and this has a direct effect on the country’s currency as explained below.
When the GDP of a country increases, let’s say by 10%, this means that the country’s economy has grown giving investors these 2 ideologies in mind.
Investors will have confidence in that economy’s financials making that economy’s capital market attractive to them like stocks, bonds (both treasury and commercial), and commodities and by buying these assets they will be directly converting their home currency into that attractive economy’s currency creating an increase in demand for that currency hence increasing the value of that currency.
Investors will also be interested in that economy because an increase in that country’s GDP will be a direct indicator of an increase in business activity resulting in an increase in employment rate hence increase in the country’s population overall disposable income resulting in an increase in currency’s attractiveness as explained in the employment rate segment.
I WILL BE WRITING A SEPARATE ARTICLE ABOUT TECHNICAL ANALYSIS AND LOT SIZES TO CREATE A BETTER UNDERSTANDING OF THE TOOLS OF FOREX ANALYSIS SO SUBSCRIBE FOR MORE
