Types of Forex Market Analysis
There are quite a few different ways to analyze the forex market in order to perform good trading. Though kinds of analysis may be numerous, however, the main purpose to use the analysis is to identify good trading opportunities.
To begin, let’s discuss about the three main ways on how you would analyze and develop ideas to trade the forex market. The three areas are:
There has always been a certain debate as to which analysis is better, but to tell you the truth, you need to know all three.
Fundamental analysis is a technique of observing the forex market by analyzing economic, social, and political matters that may affect the supply and demand of a certain asset.
By means of supply and demand as an indicator of where price could be reached is simple. The most difficult part is analyzing all of the issues that may affect supply and demand.
The main theory following this sort of analysis is that if a country’s current or future economic forecast is good, their currency should strengthen. The better outlook a country’s economy is, the more investors and foreign businesses will invest in that country.
Forex technical analysis involves analyzing the patterns in price history to find out the higher probability time and position to enter and exit a trade. Thus, forex technical analysis is one of the most popular types of analysis.
The main idea behind using technical analysis is that, theoretically, all current market data is reflected in price. When price reflects all the information that of an asset, then price action is all one would really need to execute a trade.
Forex sentiment is another widely used type of analysis. If the sentiment extremely positioned to one direction that means the large number of traders are already taken position towards that direction.
Although you actually believe that the price of an asset is going to rise, but the majority traders are on bearish direction, there is nothing much you can do about it.
If you want to simply ignore market sentiment, that’s your decision. But wait, we’re telling you that, you’re gonna lose!