Technical, Fundamental and Sentiment Analysis
There are several different ways to analyze the foreign exchange market in anticipation of trading. While analysis categories can be plentiful, keep the ultimate goal in mind, which is to use analysis to identify good trading opportunities.
Let's look at the three main areas of analysis and how to learn more about them. Try each of these types of analysis to determine which of the three methods or combination of methods works best with your strategy.
Forex Technical Analysis involves looking at patterns in price history to determine the most likely time and place to enter and exit a trade.. As a result, forex technical analysis is one of the most widely used types of analysis.
Forex being one of the largest and most liquid markets, movements on a price action chart often give clues about hidden levels of supply and demand. Other standard behavior, such as which currencies are the strongest, can be obtained by reviewing the price chart.
Other technical studies can be performed using indicators. Many traders prefer to use indicators because the signals are easier to read and make forex trading simple.
The other major type of analysis is the Fundamental Analysis The Center tries to measure the real value of a currency based on a country's various economic news and indicators. Similar to a stock trader who analyzes stocks with company news, forex traders analyze the currency with news from a particular country. To do this, traders follow news, reports of economic data such as GDP growth and inflation rates, political and social events of a country to reach the true value of a country's currency.
The third type of analysis, called sentiment analysis, attempts to give an idea of how market players are feeling about a currency - if they are Bearish, Bullish or neutral.
Psychologically, people tend to follow the majority and unconsciously act similarly. This is where sentiment analysis comes into play, which is especially useful when combined with technical and fundamental analysis. It's always good to know how market participants feel about a currency, whether they are optimistic or pessimistic. In the end, it is supply and demand that drive the value of a currency.
What is the best kind of analysis? This is the debate traders have always had, the answer is not clear. We suggest trying all of these types of analysis and even a combination of several or all. At the end of the day, it depends on the type of analysis that best fits your trading strategy!