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Types of Analysis When Trading Forex

The forex world offers a myriad of opportunities for successful currency pair trading, particularly if you have already done your homework and are familiar with key informational and analytical sources. In many ways, it is similar to the stock markets of the world, where you need to know what a corporation is up to (and why) in order to make a correct decision about whether or not to buy (or sell) its stock. Where forex trading differs is that it is not limited by national boundaries or by the time of day. It is also dominated by some of the biggest financial institutions on the Earth, armed to the gills with computing power and research abilities.

Forex technical analysis can help you see the trees in this forest. Indicators, such as moving average or stochastics can flush out trend changes. News and research websites can keep you up to date on what is going on. Realising that different forex markets key off different metrics can help increase your bottom line.

Why You Need To Analyse In Forex

Viewed from the outside, there appears to be almost no rhyme or reason as to why certain forex currency pairs go up, down or sideways. Yet, viewed on a short-term basis (i. e., on an hourly or 4-hour chart), you can see logical patterns emerge, continue or dissipate. This is why in-depth technical analysis is important. It allows you a chance to see what is really going on through the more dispassionate eyes of moving averages, stochastics, Bollinger Bands, etc., which allow you to spot a trend before it becomes common public knowledge. While you can rely on an outside expert (or one or more computer programs) to do such analyses, if you teach yourself, you have such knowledge for life.

Fundamental Forex Analysis

Fundamental forex research plays an important role in forex trading. Traders are always watching the next release of any kind of official economic data, particularly if it’s coming from either the European Union or the United States. Rapt attention is given to any report about potential inflationary pressures, changes in manufacturing or unemployment levels, as traders are always trying to figure out whether a currency pair’s current price is an accurate portrayal of economic reality. If an announcement confirms what was expected, nothing may happen. On the other hand, if something very unexpected is announced, then tremendous volatility can occur. For this reason, many economic calendars have little exclamation points to help a trader understand which announcement is relatively more important.

Technical Forex Analysis

If you want to trade forex in a profitable manner, then you need to learn how to use technical analysis. This means that such terms as “S1”, “pivot point”, “smoothed 10-day moving average” or “38.2% Fib. retracement line” are not Greek to you any longer. Why is pretty simple. Firstly, such indicators (and there are more than 50 of them) can help you trade more profitably, since your eyes may not be able to see what these indicators can flush out into the open. Secondly, almost all institutional investors that trade forex are routinely use indicators in their trading models, which tends to produce herd-like behavior. Knowing which way the herd is moving, in forex, is a very good idea.

 

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