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How to Analyse the Foreign Exchange Rate

Foreign Exchange Rate Chart

When you are looking to trade on the forex market you have to know about the different ways to analyse the foreign exchange rate.  When you analyse the foreign exchange rate you will be able to predict what could happen in the future.  This prediction is the basis of all forex trading and you need to know how this is made.  There are a number of tools and analysis techniques that you can employ in order to determine what the rates will do.  Of course, you should find the analysis methods that best suit your trading and your personality.

There are two ways that you can analysis the market and they are through technical and fundamental analysis.  Of course, you do not have to use one or the other because there are many traders who use both methods.  It is important that you find out about both methods and how they can be used together.

Analysing the Foreign Exchange Rate with Technical Analysis

Technical analysis looks more at the historic data of the forex market in order to determine what the FX rate will be doing in the future.  This is the method that most traders will use to try and predict the FX rates.  It should be noted that this method works most of the time with all currency pairs.  The level of success you have with the method relates to how much experience you have and how much knowledge about the method you have.  There are a number of tools that you can use to help with the technical analysis of the market.  These tools will overlay the analysis on charts of different timeframes.

How to Use Fundamental Analysis

Many traders look at fundamental analysis as a more in-depth method to predicting the FX rates.  Fundamental analysis looks at different information than the technical analysis.  The FX market is affected by a number of political, economic and social events in different countries.  This analysis method will look at this news and determine how it will affect the market.  There are a number of trading systems and strategies that use only this analysis to determine what to trade and when.

One of the main problems that many individual traders find with this method is that they cannot get the news and information before it affects the market.  To make the most profit with this analysis you should technically place the trade before the market turns.  The traders that benefit the most from only using this method are financial institutes and trading teams.  The reason for this is that these traders are able to get the news before it affects the market.

Which Would Work the Best?

You may be wondering which method would be best to use.  The fact is that you should use both of these methods.  There are certain aspects of the two methods which can be combined and used to create the best prediction method.  Most of the successful traders will use a combination.  The combination will be based on personal preference and what works for your trading style.

 

 

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