Forex trading can be tricky especially if you don’t have enough experience in trading. Trading is not just about picking currency pairs, and start buying and selling right away. And forex trading won’t certainly make you rich overnight. If you’ve entered the market and expecting to get rich overnight, then you’ve come to the wrong place.
There are three main types of forex analysis. Serious traders use these analyses to get a better grasp of the market. Traders analyze historical price movements to determine future movements. While beginners may think that it’s not useful, experienced traders highly recommend it.
Let’s take a look at the three types of analysis.
Economic news largely affects the value of a currency. That is why fundamental analysts base their trades on a country’s economic status. They use economic data to forecast moves in currencies.
Let’s say Europe has a strong economy and the US has a weak economy. A fundamental trader might buy the pair, because the trader expects the Euro to rise against the US dollar.
Fundamental traders hold trades for weeks, or months due to economic factors don’t cause immediate spikes of a currency’s price. One good example of this is interest rates. Other fundamental factors to look for are gross domestic product, inflation, manufacturing, and economic growth activity.
This analysis involves studying of patterns in price history to determine the higher probability time and place to enter and exit a trade. This analysis is one of the most widely used types of analysis.
Since the forex market is the largest, and the highest liquidity, the movements on a chart from the price action gives signs about hidden levels of supply and demand. Other patterned behavior, such as currencies that are trending the strongest, can be acquired by reviewing the price chart.
However, if thousands of technical traders use the same analysis, they will trade the same way. The fact that they are all trading the same way moves the price in that direction.
Additionally, technical analysis is not easy and simple. Making a mistake in your analysis can lead to disastrous results. It takes a lot of patience and time to learn technical analysis.
Sentiment is a popular form of analysis. Each trader has his or her own opinion of why the market is acting this way, and whether to trade in the same direction of the market or against it.
Each trader’s opinions are express through the position they may take. It helps develop the overall sentiment of the market despite what information is presented.
On the other hand, no matter how strongly you feel about a certain trade, there’s no way to move the forex market in your favor. It’s all up to you on how to decide how the market is feeling, whether it is bearish or bullish.
These three types of analysis are essential for every trader. If you want to be successful in forex trading, you have to consider every strategies and analyses. You can learn more about them with your broker to give you an overview and in-depth explanations of each analysis.