From time to time, Forex traders need to analyze the situation of the market. It’s important to analyze correctly and try to figure out the correct actions and anticipate the upcoming events. Traders need to learn “reading”, grouping and analyzing the information they found. In order to be able to predict the future fluctuations of currencies, traders can learn two analysis types. The first one is technical and the second one will be fundamental.
This method of predicting currency rate is based on chart analysis by properly using the technical indicators. It’s an irreplaceable analysis method and always been used in many years. Its main advantage is the chance of using the short-term as well as middle-term forecast from the process carried out in one day all the way to the transactions that will last for weeks. There are three axioms in this analysis:
- Prices move in particular direction. There are three price directions, rise (“bullish”), down (“bearish”) and “flat”. Trader needs to identify trend and the infancy then follow it during trading until it finally changed.
- Market has good memory. History will repeat itself. The patterns found in previous situations in the past will be reflected to the present. The laws those influence market will remain the same.
- Market considers everything. Every factor that influences market will be reflected in the market behavior and price. It will further influence the behavior of people involved in the market.
This one analysis is based on the influence coming from the news of economy and politic. These are actions and from them, predicting the behavior of Forex market is possible. Sometimes, the similar factors will have different influences to the situation in Forex market and thus they bring different consequences. A clear understanding to the impact of the components of currency market will be important. In fundamental analysis, the following indicators will be considered:
- Political situation
- Economic policy
- Central banks’ interest rates
- Inflation rates
- State solvency
- Trade balance indicator
- Product competitiveness
- Economic growth characteristics
- Real estate market state
- Sentiment of investor
- Labor market state
The fundamental data will be published in form of indexes those can be reviewed and reevaluated. When the data is estimated, there will be comparison to the current and the previous indexes. The economic and dynamic data will be analyzed properly. Therefore, the analytical skills will become important in order to associate the information with the possible consequences in the near future. Thus analytical skills need to be trained from time to time.
In Forex trading, the most effective analysis involves both technical and fundamental analyses. This is not something easy to be done but will certainly be useful. Both of the analyses are meant as the complement of each other. Considering this fact, conducting both of the analyses will need to be a mandatory of every trader. This is the way for traders to identify the situation and able to take the right decision.