One of the most important things a trader in the forex market must know how to do is analyzing the market. This is the part where one has to study the market before making trade decisions to either buy or sell a currency pair. Except you are copying trades or depending on others to trade the forex market for you, you really need to understand how to analyze a trade in order to generate trade ideas and actions that will hopefully result to profits.
THREE TYPES OF FOREX MARKET ANALYSIS
In the world of foreign exchange business, there are three basis ways of making analyses. They are
- Fundamental analysis
- Technical analysis
- Sentimental analysis
All these three methods work hand in hand with each other. In other words, none is more important than the other. Anyone that really wants to analyze the forex market will have to know how to make use of all three of them.
- FUNDAMENTAL ANALYSIS:
In fundamental analysis, traders take into consideration factors that affect the forex market. They include
- Economic factors
- Social factors
What is expected in this method of analysis is to find out which of the factors are thriving (and invest in the relevant securities concerned) and the ones that are not (and stay away from them).
- TECHNICAL ANALYSIS:
Simply put, technical analysis is all about price movement. From historical facts, it has been verified that past price movements can determine future trading conditions or price movement. For instance, if there was a key resistance level in the past is likely to remain so for a really long time. So traders take that into advisement, and form their trade decisions around that.
To make it easier to spot a price pattern that can possibly be factor to technical analysis, traders make use of charts. Charts are so good for making this sort of analysis because they can show historical data of ten years till date in just one chart.
- SENTIMENTAL ANALYSIS:
After all said and done, a lot of traders will not be so forward in believing what the market is saying. There are times that one will go to bed and wake up the next morning to a total disaster in the market.
However, everything was perfect the night before. This is one of the reasons traders need to apply a bit of sentiments to their trades.
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.