A lot of analysis goes into trading and investment of any kind, at least if you’re at all interested in making money. Understanding how the market works and what certain indicators mean will help you adapt your decisions to market conditions. Do these numbers say you should buy or sell? Are the prices for a certain currency likely to go up or down? These questions, along with many others, can be addressed using three types of analysis: technical, fundamental, and sentiment.

Experts are divided as to which of the three types works best. The simplest form of analysis is technical, which deals largely with price movements. It’s based on the theory that price is a one-stop indicator of all market information. A second theory is that price movements tend to follow patterns that repeat over the course of history. So if the price of a currency in 2002 peaked at point A and started falling back, and the same currency approaches this point in 2012, a technical analyst would watch it closely and perhaps sell when point A is reached, expecting prices to fall back down afterwards.

Fundamental analysis looks beyond price and takes social, political, and economic factors into account. These factors influence the supply of and demand for a given asset, which in turn determines price—a basic concept we all learn in our economics classes. A fundamental analyst looks at which economies are doing well, because there is always more demand (and thus a higher price) for the currency of a strong economy. Sounds simple enough, but many things come into play when assessing economic strength, such as unemployment and political stability.

Finally, there’s sentiment analysis, which considers another factor—the trader himself. Sentiment analysts work on the idea that the market is really the product of every player’s views, from what the Fed thinks will drive the dollar up to what the guy in the next cubicle thinks about the euro. Therefore, they act based on how they think the market is feeling. Being the least fact-based strategy, this type of analysis is often used to supplement the other two, but many experts agree that it can’t be completely ignored either.

A typical trader will start by using one of the simpler strategies, either going by price alone or following their instincts. As you become more experienced, you might start reading your papers and letting such events as elections, mergers, natural disasters, and political scandals influence your decisions. In any case, a good decision is always informed—whether it’s by price, politics, or gut feeling.