Forex Trading Analysis If you are a Forex trader or aspiring to be one, then having the skill of analyzing the Forex market may be your greatest arsenal. Forex analysis is such an important skill that, if you are a Forex trader, you ignore it to your own detriment. It must however be mentioned that analyzing the Forex market is not always an easy task though it can be done by any individual who really wants to learn. Forex trading analysis is therefore not the preserve of Forex brokers. Analyzing Forex markets involves a lot of critical and analytical thinking. When it comes to the basics, there are two ways in which a Forex market can be analyzed. The first is called technical analysis and the second is fundamental analysis.
We will explore both approaches in this article.
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Forex Trading Analysis Technical Analysis This looks at the action or performance of the market in the past and based on that, predictions are made. You may wonder why this approach (in a technical field like Forex trading). The fact is that, history always has something to tell us. In fact, you can look at past trends in a particular season and compare it to a current trend. The fact is that, people really do not change and what motivate people to buy and react to the market in the past may not be different from today. I must admit that this process can be very daunting since you need to analyze the day-byday figures of the past and compare it to day-byday figures of the present upon which you can then make your predictions. For smart analysts, they have learned and mastered the art of looking at the big picture, skipping the minor details and analyzing trends over a certain length of time. Of course, if you are a beginner it is not advisable to go by this method. It is when you have mastered the skill of analyzing day by day that you gain the insight and experience to do it this way.
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Forex Trading Analysis Fundamental Analysis The second approach employs the use of current external market forces such as political, governmental, and social factors. This is usually more in-depth and requires a high level of accuracy as you need to be able to examine how these factors impact on the numbers in a Forex market.
Good external factors like favorable financial reforms, confidence in the economy, favorable political sentiment, and the rest affect positively on the Forex market and therefore analysts are able to predict how the market would fair. On the other hand, bad external market factors like political instability, unfavorable foreign exchange rates, unemployment numbers, and even natural disasters can affect negatively, the performance of the Forex market. Fundamental analysts always have a way of using these factors to analyze Forex trading in order to make predictions.
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Forex Trading Analysis
You may ask which of the approaches do you use when analyzing a Forex market? The fact is, most good Forex traders employ a combination of the two for their Forex analysis. Let me give you a typical example. If a country is currently facing a major disaster like earthquake (fundamental analysis) and from past Forex numbers he knows that during a similar season in the past there was a dip in the Forex market (technical analysis), he can then predict with a certain degree of confidence that, barring any other unforeseen circumstance, there will be a down-turn in the market. Forex Trading Analysis ( Courtesy of HenryLiuForex.com )