Various types of forex analysis
In this article we will see the different forms of FX analysis with two main categories that most operators pay attention to. They are technical analyses and fundamental analyses.This is the juice that keeps forex traders alive. The more you understand the value of the analysis, the better the trader will be in due time. It is a general FX error newbie to ignore these, but it is often in its own danger. There are literally hundreds of books covering the forex analysis, so if you have any doubts, choose one.
Some traders only adhere to technical analysis and some fundamental analyses. It is better to be fluent in both-which is often easier said than done. That said, you have to remember that practice, makes it perfect. And the more you practice practicing, the better you develop as a trader. If there is a piece of advice you should ever remember about trade currencies it's just that-' practice makes perfect '. Don't expect to wake up a millionaire by Friday. Learn about these important aspects of trade first and of course, demo trade first with one of our selected brokers. Take baby steps.
Technical analysis
Examples of this include graph analysis and trend analysis. When most operators think of the technical analysis, the first thing that comes to mind is the graphics.
The basic work of a technical analyst in the trade is to look for patterns that happen and more importantly the last patterns. They believe that what happened in the past is more likely to happen in the future. They could be very successful, but in my opinion it is impossible to trade only with this theory. Other factors must be included. Technical analysts mainly seek what is known as support and resistance levels and use these to determine whether to buy or sell a coin.
Of course it's not as simple as that. There are many other indicators that technical analysts use to determine their operations. We're going to dive into the cards for a brief moment.
Technical analysts use graphical analysis simply because charts are the easiest way to visually represent historical price movements. As its name implies, it's just that. Reading graphics and deciphering what is the next likely step to happen to a pair of currencies. Many traders use similar letters and rules and ideas. This makes the market also behave in similar ways thus helping analysts techinal to make some decent profit of their operations if the predictions were correct.
Because Forex is a 24-hour market, it provides FX analysts with a large amount of data that can be used to measure future activity, resulting in increasing statistical data. This makes it perfect for operators to use technical tools such as graphics, indicators, and trendlines.
Fundamental analysis
The work of a fundamental analyst of Forex Trader is to evaluate the currencies and economic states of different countries. This includes social, economic and political factors. News reports, economic data and emerging social political events are in fact very similar to news coming out over a particular company for stock traders to speculate on.
You can see the relevance of the fundamental analysis and why some traders only use this type of analysis to determine whether to make a trade or not. It is highly effective and mostly used by long term FX traders.
There are practically thousands of fundamental strategies used by traders because of the large amount of fundamental data. Each one to his own as they say. Commodity prices are also used as key data to determine future monetary activity.
The underlined idea of the fundamental trade analysis is to determine who's economy is growing and who is not. Sounds simple. It could be if you know everything. But, of course, this is never the case. Later I will delve into the fundamental analysis and how you can use this to your advantage to execute profitable trades. This is very useful for news enthusiasts.
Feeling analysis | Sentiment Analysis
Another form of FX trade analysis that cannot be allowed to ignore is the analysis of feelings | Sentiment Analysis. Some say it's easier to read people than machines. You decide. The important thing to know here is, essentially, people just like you run these markets. They do the trades. Well you can argue that there are automated robots, but just remember that they were programmed by someone like you. They weren't born from the air.
As a merchant in any market, you have to make decisions. You need to know whether to buy or sell. This decision rests firmly. For example, you may want to shorten the euro by having read a news article or studied some graphics. Firmly believes that this will be shortened. You wait and wait and you decide to cut it anyway. For your total surprise, it goes a long way. You can't stop him. Now you are looking at a red screen and all your moneys have vanished into thin air!
That's why it's important to measure the market sentiment. Remember that a person or individual cannot control the market. It is a mixture of all the opinions, ideas and opinions of all the participants in the markets. This combo is what is known as market sentiment. The emotions of all the combined traders explain the current direction of the markets.
In the previous scenario, it would have been clearly better to leave the trade alone or spend a lot of time because that is what the market sentiment was suggesting against all fundamental and technical logic.
In other markets such as stocks and options, traders can look at the global volume of trade as a sentimental indicator. If the price has been increasing, but the volume declines, this could indicate that it is time to sell and vice versa.
With Spot FX, the analysis of the feeling can be a little more difficult as it is marketed on the counter (OTC) and therefore does not pass through a centralized exchange. If you read the previous article about Forex trading types, you may have picked this up. There are weekly reports that you can see to measure the market sentiment, but as a novice, it is not important at this time. Later on your forex trip, you will learn about these.
In conclusion, the analysis of the sentiment but not as important as the technical and fundamental analysis, should not be ignored. Understanding the market sentiment will help you and you will arrive in time.
Ready to start Trading Forex? Find a recommended forex broker now!