Your success as a trader will depend on your commitment and the constant efforts to gain more and more knowledge.
There are 3 basic methods used to analyze trade market.
1. Technical analysis
2. Fundamental analysis
3. Market sentiment analysis
Which Forex trading analysis is better?
In your journey you will come across strong advocates for each kind of analysis. Never rely on one-sided enthusiasts! Remember, there are others that might be better at it, but their way to perceive the market is different.
In the end, your trade market decision needs to fit your personal comfort. However, it is important to understand each of these styles of analysis because ignoring one of them can make you lose good trade opportunities.
Technical analysis theory sends the message of an old proverb: ‘History is inclined to repeat itself’. Forex traders use it to study the historical price movements. This concept helps you to monitor the past price movements and the current trading condition. This way you can figure out the trends and predict potential price movements.
If the price level is held as main support or resistance, then technical analysts will seek similar patterns which appeared in the past. They will recommend trade decisions based on specific historical price level targeting similar price movement.
Charts and indicators are used to read the patterns. You’ll have an edge if you know how some trading tools and indicators function, for example, the Pivot Points and Bollinger bands.
Make sure you choose the broker that provides you with the best tools for conducting technical analysis. Many successful traders will vouch for the effectiveness of Keystock trading tools.
Fundamental analysis examines the social, geopolitical, and economical factors which impact assets’ supply and demand. The direction of currency exchange rates is influenced by supply and demand. So, if you want to know which economy rocks and which sucks, you’ll have to compare these two aspects.
Employing supply and demand indicators to predict where the price is headed may seem easy but you cannot make conclusive trade decisions based solely on those two factors, especially when it comes to trades with short time frames.
You will also need to understand the reasons and impact of specific events, such as unemployment rate increase or changes in financial policies. Such events can affect the demand and supply of currencies.
Fundamental analysis implies that a good present and future economic status of a country should strengthen the currency. A better economy means more foreign business and more investment opportunities. It will result in a need to buy that country’s currency, to make profits with leverages on exchange rates.
However, fundamental analysis alone is not enough to make trade decisions. Even on the rising or falling trends, there will be fluctuations, which will affect the short trades.
Market Sentiment analysis
The market sentiment analysis tells whether the market is bearish or bullish for existing or future positions. Each trader will have their own methods and styles for judging the financial market swings.
Forex market is a complex network where each trader’s thoughts are expressed differently. You may think that dollar prices will raise while everyone else predicts that it will be bearish. There is not much you can do in such a situation. You will need to consider all these points and conduct a market sentiment analysis.
Although your feelings will make you gauge on the market environment being bullish or bearish in, this should be supported by technical data, and fundamental analysis. You cannot overlook the overall market sentiments in your trading strategy.
The fundamental aspects shape the sentiment, and technical analysis. If you put them all together, you will get higher clarity related to your trade plans. Thus, the three kinds of Forex market analysis work co-operatively.