How to Analyze the Forex Trading Market before Entering a Trade
The very first basic step of forex trading, before opening a trade in any currency pair is to analyze, as what is the current situation of that particular currency pair in the Fx market, and it is only after that we are able to determine the possibility of what is likely to happen next so that we would benefit from it. There are 2 ways to analyze and develop ideas to find great opportunities and profit from the foreign exchange market.
The 2 Methods of Analyzing the Forex Market are as following
• Fundamental Analysis
• Technical Analysis – Charting
Every trader has its own unique way of analyzing the market condition; however, every trader’s way of analyzing includes either fundamental analysis or technical analysis or a mixture of both.
There is a great debate on this, and every trader wants to know as which is the best type of analysis among these two. Is it better, to follow a technical approach or be a fundamental trader? In my opinion is we cannot trade on the basis of any one approach, in order to be successful, and we need to use both of them, to benefit from every market situation and/or be safe from the upcoming situation, in short, we need to understand both of them and make the best use of them.
Forex Fundamental Analysis
Fundamental analysis is basically an approach to analyze the currency by its fundamental strength; it is similar like investing in stocks by analyzing the company’s health, which include the company’s earnings, liabilities, assets and expenses.
In currency trading, instead of a company, a country is analyzed on the basis of its news reports, economic data, social health and political events; it is basically analyzing all the economic figures to determine the strength of the country and make an investment to profit from its strength.
Basically, all these economic figures are analyzed in order to determine the current economic outlook of the country if the current conditions are good and the country has bright prospects, then automatically the country will have more business, and everybody would like to invest in it, and it is very obvious that the currency will strengthen.
In the later lessons, we will see, what are the types of economic data, that affects the country’s economy and determine its future movements.
Forex Technical Analysis – Charting
Have you ever heard of the famous saying “History tends to repeat itself”? If not then, you have heard it now
Technical analysis is all about trading currencies on the basis of the historical price action. The first thing that pops up in mind whenever someone uses the word technical analysis is “Charting”. The mind, body and soul of technical analysis are charts, and this is the reason all technical analysts are also called “Chartist”.
Theoretically, whatever is the current situation of any country or any of the currency pair; it can be seen within a glimpse by only observing the price action of that particular currency chart. The outcome of everything that happens with the currency is reflected in its price if there is any positive news, reports or events, then the currency will surely appreciate and vice versa, this is the only reason; technical traders use the simple price action and charts for trading.
By properly analyzing the previous price resistance levels, support levels, price swings and repetitive patterns, we can find many great trading opportunities, but do remember, technical analysis is very subjective, it is not necessary that every trader sees the chart same way and understand the price action in the similar way, every trader sees the chart and analyzes the trend in its own unique perspective with the help of different time frames.
Fundamental Analysis vs Technical Analysis, Which is the Best?
This is a very common question and many traders still debate as either one is the best and blah blah …
In my opinion, in order to be successful, both the analysis is important
, both the analysis walks hand in hand, by charting properly and by keeping the important economic events and figures handy; we can very creatively make the best use of the current market scenario. It’s like this “It takes 2 hands to clap.”
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