Retail day traders use forex research for forex trading, to decide whether to buy or sell currency pair. It can be of a technical nature, using resources such as charting software. The use of economic indicators and/or news-based events may also be fundamental in nature.
Forex Market Analysis Forms
Analysis may seem to a new forex trader to be an ambiguous concept. But in reality, it falls into three basic types.
The use of fundamental analysis is often to analyze changes in the forex market by monitoring data. Such as interest rates, unemployment rates, gross domestic product ( GDP), and other types of economic data coming from countries. For example, a trader performing fundamental analysis of the EUR / USD currency pair may find information on interest rates in the eurozone more useful than in the US. Those traders would also like to be on top of any major news releases coming from each eurozone nation to gauge the health of their economies.
Technical analysis is carried out in the form of both manual and automated systems. A manual system typically means that a trader analyzes technical indicators and interprets the data as a purchase/sale decision. Automated forex trading analysis means that the trader is “teaching” the program to scan for certain signals. And after interpret them for the execution of purchase or selling decisions. Where automated analysis could have a benefit over its manual equivalent, it is intended to take behavioral economics out of trading decisions. Forex systems use past price movements to determine where the currency can be headed.
Review of the weekend
There are two basic reasons for a weekend study. The first explanation is that you want to create a “big picture” view of a particular market relevant to you. Since markets are closed and not in dynamic flux over the weekend, you don’t need to react to situations as they unfold. But you can, so to speak, look at the landscape.
Second, the weekend review will help you set up your trading plans for the coming week and establish the necessary thought. The weekend analysis is similar to the architect preparing a blueprint for the construction of a building to ensure smoother execution. Are you tempted to trade without a plan? Bad idea: Shooting from your hip will leave a hole in your pocket.
Apply Forex Market Analysis
It is important to think critically about the principles of forex market analysis. Here’s a four-step outline.
Understand the driver
The art of successful trading is partly due to an understanding of the current relationship between markets and the reasons for the existence of such relationships. It is important to have a sense of causation, remembering that these relationships can and do change over time.
For example, the explanation for the recovery of the stock market could be investors expecting an economic recovery. These investors believe that companies will have better profits and therefore higher valuations in the future; and so it’s a good time to buy. However, speculation based on a flood of liquidity could boost momentum. And good old greed is driving prices up until larger players are on board so that sales can begin.
The first questions to ask, therefore, are: why are these things happening? What are the drivers behind the market action?
Graph the indexes
It is beneficial for a trader to map important indices for each market over a longer period of time. This exercise can help a trader to determine the relationship between markets. And whether the movement in one market is inverse or in concert with the other.
For example, in 2009, gold was driven to record highs. Was this move in response to the perception that paper money was declining in value so rapidly that it was necessary to return to hard metal? Or was it the result of cheap dollars fueling a commodity boom? The answer is that both of them, or as discussed above, it could have been market movements driven by speculation.
Look for a Consensus in Other Markets
We may gain an insight as to whether or not markets hit a turning point equilibrium by charting other instruments on the same weekly or monthly basis. From there, we can make the most of the consensus to enter into a trade-in. An instrument that will be affected by the turn. For example, the USD / JPY currency pair indicates an oversold position. The Bank of Japan (BOJ) could intervene to weaken the yen, Japanese exports could be affected. However, Japan’s recovery is likely to be impaired without any weakening of the yen.
Period of Trades
There is a much higher chance of successful trade if you can locate turning points for longer timeframes, then move to a shorter timeframe to fine-tune the entry. The first trade may be at the exact Fibonacci level or at the double bottom as shown on the longer-term map, and if this fails, a second chance will often occur on a downside or a support level test.
Patience, discipline, and planning will set you apart from traders who literally trade on the fly without preparing or analyzing multiple forex indicators.
Acquiring Forex Trade Systems and Strategies
The currency trading method of a trader may be applied manually. Or the trader may use automated forex trading strategies that combine technical and fundamental analysis. They are available free of charge, for a fee or can be developed by more tech-savvy traders.
Both automated technical analysis and manual trading strategies are available for purchase via the Internet. However, it is important to note that, in terms of success, there is no such thing as the “Holy Grail” of trading systems. If the machine were a failed-proof money-maker, the seller would not want to share it. Shown by how major financial firms keep their “black box” trading programs under lock and key.
The Bottom Line
There is no “true” method of analysis of forex trading between technical and fundamental research. The most viable option for traders depends on their timeframe and access to information. Technical analysis may be the preferred method for a short-term trader with only delayed details on economic data, but real-time access to quotes. Alternatively, traders who have access to up-to-date news reports and economic data may prefer fundamental analysis. In either case, it does not hurt to perform a weekend review when stocks are not in a steady state of fluctuation.