Efficient assessment of Forex currency market is the main aspect in a trader’s scope of competence. This aspect enables a trader to conduct trading operation in the comfort of his/her home and regularly earn good money. In order to do this, you just need to evaluate economic situation with the help of numerous tools provided to a trader, including two main methods of forecast and analysis of Forex market, which are: fundamental and technical analysis of Forex Market. Ideally, they should be used together in making trading decisions.
Tools of fundamental analysis of Forex market
Fundamental analysis of the currency market includes assessment of the political and economic situation, affecting currencies exchange rate. We know that finance world is a vulnerable and complex system, consisting of barely visible interconnections. Fundamental analysis helps to detect these connections and based on them make predictions about changes in the exchange rate of the national currencies of the countries.
In the process of technical analysis a trader uses a lot of tools, including macro-economic data, indices of the world economies, political situation, expectations and anticipations of the common people, declarations of the important people in the world of economy (and others), natural disasters, emergency situations, news and ect.
In order to facilitate a work of a trader, brokers offer them to use economic calendar. It will help you to stay informed of the most important economic news, enabling you to use them in good time and to your advantage. However, it is not sufficient just to use a calendar. The competence of a trader is of high importance, as well as his/her general knowledge and ability to identify consistent patterns. This type of analysis is the most complex and traders sometimes try to neglect it.
However, keep in mind that, you can make the most accurate forecast only if you perform two types of analysis.
Tools of technical analysis of Forex market
Favourite method of all beginners in the currency trading - is technical analysis. This method includes many tools, which are available and do not require deep knowledge of economic science. Technical analysis of Forex market is based on the price movement and has three fundamental principles.
- The price is everything. All information about the market, past and current is indicated in the price movement chart.
- What happens once can be repeated. In the same way as humans, currency market has its memory, which remembers past events and use them for making predictions for future.
- The price always has a trend. Price always moves in one of the directions.
In the technical analysis of the currency market we use two methods: mathematical and graphical. Mathematical method offers a lot of indicators of technical analysis to a trader. Using one of the indicators, you will receive trading signals. The choice of the indicator will depend on the currency pair. Graphical method uses patterns of the technical analysis, which also give a trader either a buy or a sell signals. As a rule, different tools of the technical analysis are installed in the trading terminal and are used there, which is very convenient.
What to choose?
As we said before, theoretically a professional trader uses both types of analysis. However, we should say that as a rule, fundamental analysis as a trading tool is rarely used by a trader from the very beginning. You definitely need knowledge and experience in order to perform this analysis. However, technical analysis is not the simplest method either. If you trade on the news, technical analysis is not suitable for you. In order to form a signal you need information. That is why technical indicators and patterns can be applied not only on the daily but on the other charts as well. Anyway, it is better to use several tools of the technical analysis and take into account all available information for making trading decisions.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.