Forex analysis is used by forex day traders to create a better understanding and determination to sell or buy on particular currency pairs. Analysis can be a very technical approach, but if the art is mastered, it can be a utilizable tool to benefit all of your trading decisions. Trading forex in Singapore, Australia, the US, and just about anywhere is made easy with proper analysis creating a more coherent understanding of the different markets available. Here are some of the basic types of analysis and some key information on how they could help you.
Technical Analysis
Both manual and automated systems are used for technical analysis. Trading manual systems usually involve analyzing technical indicators and making decisions based on those indicators. Traders instruct their software to interpret certain signals and execute buy or sell decisions based on them through automated trading analysis. In comparison to manual analysis, automated analysis has the advantage of eliminating behavioral economics from trading decisions. A currency’s price movement in the past is used to determine the direction it may take in the future.
Weekend Analysis
When it comes to completing a weekend analysis, there are two main reasons. The first is the perfect moment to try and grasp an idea of the big picture. Knowing the big picture allows you to centralize an area of the market you have more interest in. As the market is closed over the weekends, there is no contention against changes within it, removing the chance of emotional or drastic decisions that could be detrimental to your overall trading plan.
The second reason for completing a weekend plan is that it will allow you to work out parameters to follow during the upcoming week. An archetypal blueprint is great to follow as it helps promote an overall smoother approach to trading. It’s just like going to the store with a list; you’ll have lots of ingredients for your meals ahead. Just shopping by hunch always results in ingredients with no meals. Be prepared.
Fundamental Analysis
By monitoring figures like interest rates, unemployment rates, GDP, and other economic data, fundamental analysis is commonly used to analyze changes in the forex market. For example, a trader conducting a fundamental analysis of the EUR/USD currency pair would find information about European interest rates more useful than the US interest rate. It is also important for them to follow any major news releases from Eurozone countries to gauge their economic health.
Always think critically about the tenets of forex market analysis. This is the perfect four-step outline to abide by.
1. Chart Indexes
The important indexes for each market should be charted for a longer period of time for a trader to be more effective. In this exercise, traders can determine whether market movements are inverse or in concert with each other and whether movements are inverse or in concert between the markets.
2. Understanding Drivers
The art of reading market trends is often down to having an understanding of the current relationships between markets and what makes these relationships. It is critical to grasp a keen understanding of causation while always remembering these relationships can change over a period of time.
3. Perfect the Timing
Successful trading is much more achievable if the trader can find turning points surrounding longer timeframes to switch towards smaller versions that can be fine-tuned at entry. The first trade entry could be the same Fibonacci level or even double-bottomed as projected in longer-term charts. If this then falls, a second opportunity will arise on a test or pullback of the support level. Having discipline, patience, and thought-out preparation will keep you a step ahead of the competition who are making simple trades with only a hunch to go on.
4. Compare Other Markets
A great way to gain perspective on the market and whether it is reaching a turning point is by charting other markets and instruments on the same weekly/monthly basis. From this information, we can make educated trades in places we hadn’t originally thought of, such as trading forex in Singapore, Japan, or Thailand.
Final Thoughts
Overall there is no ultimate way of analyzing forex trading when you compare fundamental and technical analysis. Viability is mainly derived from the time frame the trader has with access to information. The preferred method for traders with real-time access to quotes, rather than economic data, could be a technical analysis. On the other hand, traders with minute-by-minute news at their disposal, along with economic data, could prefer fundamental analysis. It doesn’t hurt to produce a weekend analysis in either case when there isn’t a constant flux of volatility to contend with.
