If you have read about technical analysis, you probably would have come across the phrase “The trend is your friend”. By recognizing trends, you will gain a better insight of the overall market direction and this will give you better clarity. This is especially helpful when traders are often distracted by ‘noise’ and clutter like shorter-term movements. To identify longer-term trends, it is ideal to use weekly and monthly charts instead. Once traders evaluate the overall trend, they can select the trend of the time period in which they wish to trade. Hence, they could effectively buy low during rising trends, and sell high during downward trends.

But technical analysis isn’t just about trends. Technical analysis is probably the most utilized means of making decisions and analyzing forex and commodities markets. It has become the main tool to effectively analyze and make trades in shorter-term price movements, as well as to determine targeted profit levels and stop loss levels.

In forex trading, technical analysis is aided by a variety of technical indicators, for instance MACD, RSI and moving averages, and each of which can be interpreted to forecast market direction or to generate buy and sell signals.

Introduction to Fundamental Analysis
A fundamental trading approach consists of making strategic decisions when trading a certain currency based on any criteria excluding the price movement. These criteria include, but are not limited to, the economic condition that the country the currency represents, monetary policy, and other elements that are economically fundamental.

The main focus depends on economic, social and political forces that drive supply and demand. Whilst there is no specific set of beliefs that guide fundamental analysis, most fundamental traders focus on economic indicators such as inflation, unemployment, GDP and interest rates. Currency prices reflect the balance between supply and demand for currencies. Interest rates and the competitiveness of the economy are the two primary factors that affect supply and demand. Economic indicators like GDP, trade balance and foreign investment depict the overall health of an economy. Therefore, they are accountable for the underlying changes in supply and demand for that currency. A substantial amount of data is released at regular intervals, and some of this data is significant. Data that is related to interest rates and international trade is analyzed very closely.

Fundamental analysis alone can be stressful when dealing with commodities, currencies and other leveraged products because it does not indicate specific entry and exit levels, and therefore can be rather difficult in risk management when using leverage techniques.

Nonetheless, the following are brief write-ups to help you understand Economic Indicators that might move the market.

Making Sense of Economic Indicators
Economic indicators refer to announcements by various government or private sector of quantitative data reflecting the financial, economical, and social sentiment of an economy.

These announcements are anticipated by many and are announced at predetermined times according to the economic calendar. A large number of market participants anticipate and use this information that often create a surge in trading volume that quickly results in price movements of various instruments.

It is generally advisable to master a few economic indicators than trying to keep up with the indefinite lists that are being released from time to time.

6 Simple Guidelines to Using Economic Indicators
1. Economic Calendar
It is important to know exactly when each economic indicator is due to be released. Most often, it is not just the announcement of the economic indicator itself that moves the market but the anticipation of one may move the market days or weeks prior to the release.

2. Understand the Announcement
Know which particular aspect of the economy is being released in the data. For aspects like growth, you would look at GDP. For inflation, it would be PPI or CPI. For employment data, it would be Non-Farm Payrolls. If you spend enough time to follow the data, you will become very familiar with the economic indicators and their relevance to various aspects of the economy.

3. Know the indicators
There are too many indicators being released everyday and it would be too effort-draining and ineffective to follow them all. It would be better if you zoom in on the indicators that you know well and more importantly, on those that move the markets.

4. Anticipation
The significance of such announcements is more of the difference between market expectation and actual result than on the data itself. It is important to know what the market is expecting as these expectations are factored into the market prices.

The wording and context of the announcement is also important. For example, an expected rate hike of 0.4% may not move the markets since it was anticipated. However, if it was worded such that there will be no further rate hikes and it was unexpected, then the markets might move.

5. Read and study the release carefully
Economic indicators are usually announced with new figures along with revisions to previously released data. They can sometimes be ambiguous so it is necessary to read them carefully.

6. Understanding Currency Pairs
In the forex markets, since one currency is traded against another currency, it is important to understand both currencies.

i. Interest rates
Generally, if a country raises its interest rates, the currency of that country will strengthen because the higher interest rates attract more foreign investors. For example, when the U.S. raises its interest rates, foreign investors are likely to invest in U.S. treasuries. This raises the demand for U.S. Dollars since they must sell their own currency and buy U.S. Dollars in order to purchase the bonds. The increase in demand for the U.S. Dollars theoretically increases the value of U.S. Dollars.

ii. Gold prices
Gold prices have an inverse impact on USD. That is, when gold prices go down, USD will strengthen and vice versa.

Hypothetically, if gold breaks an important price level, a trader would expect the gold prices to rise. To take advantage of this trend, a forex trader would attempt to sell USD against other major currencies like EUR and JPY.

It is also interesting to note that higher gold prices often have a positive impact on the currencies of major gold producers. For instance, Australia is the world's third largest exporter of gold, while Canada is the world's third largest producer of gold. Hence, a forex trader would long AUD/USD or CAD/USD in view of this.

iii. Oil prices
A country’s dependency on oil determines how its currency will be impacted by a change in oil prices. It is widely known that US’s massive foreign dependence on oil makes the USD more sensitive to oil prices than other countries. Hence, if oil prices increase, it could cause USD to weaken.

To make a trade based on that reasoning, a forex trader would buy AUD/USD or CAD/USD. Alternatively, he could also sell currency of other energy-dependant countries like Japan.

Carry Trade is a strategy in which a trader sells a certain currency with a comparatively lower interest rate and buys a different currency yielding a higher interest rate. Forex traders using this strategy attempt to profit the difference between the rates, which can potentially be substantial with leverage.

Like in all financial transactions, there are risks involved with Carry Trading. For example, a carry trader may short a million Japanese yen, which carries an interest rate of near 0.0%, in order to buy 100,000 Sterling Pounds (subject to prevailing exchange rate), which offers an interest rate of 4.75%. As long as the forex trader holds the GBP, the trader profits from the interest rate difference between the two. However, as long as he holds the position, the trader is at risk to a change in exchange rates.

If the GBP appreciates against the JPY, the profit is even greater since the trader can now own more JPY with the same amount of GBP. Should the GBP depreciate against the JPY, however, the trader could register a loss, which could potentially consume part of the interest rate profit or cancel it out entirely.