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2023-02-12 21:06

Forex analysis types and the best analysis method

Introducing various analysis methods in the forex market and reviewing the best forex market analysis methods
Forex analysis types and the best analysis method اForex analysis types and the best analysis method
Like any other job, activity in the forex market has its principles and techniques. Since many people start working in the forex and financial markets without knowledge about the forex market analysis and the financial markets, their performance will suffer losses after some time. Usually, many of these people think of the forex and financial markets as a casino and gambling and attribute the success in these markets to luck.
Educating and learning market analysis is one of the most important pillars of activity in the forex market for any trader. The currency or symbol analysis allows the trader to predict the future price of the symbols, and the trader's analysis makes a trade with success possibility. The forex market becomes meaningful with analysis and makes traders profit.
There are three types of analysis in financial markets, such as forex, and the fundamental and technical types are two common methods, and the third type is the sentimental analysis.
Many users who plan to learn the financial market, have a negative view of learning types of analysis in the financial market and think that learning it is very difficult and only possible with a high cost, but it is not like that. Further, we will review the types of analysis in the forex market, the best forex market analysis method, and general points for learning it.

Contents

Fundamental analysis
Technical analysis
Sentimental analysis
The best method of forex market analysis

Fundamental analysis

Fundamental analysis is one of the analysis methods in the forex market, also called basic analysis . In fundamental analysis, traders and analysts review the general and basic situation of currencies and assets in the market and address a country's economic and political situation's impact on various currencies and assets. There are indicators and standard reports to check different countries' economic situations, and we can reach an important conclusion about a country's currency by reviewing these indicators and reports.

Different countries' governments' and central banks' policies analysis that affect the market and currencies are part of the fundamental analysis. Reviewing countries' economic recession, new technologies, oil and gold prices, and issues that affect the currencies' exchange rate are another part of fundamental analysis.

The economic calendar, which includes different countries' economic indicators' publication times, is another part of fundamental analysis. There are analysts' forecasts, data's previous and actual value at the time of publication for economic indicators, and data in this calendar. There is also other information in the economic calendar, which by reviewing them, we can analyze the effect of data and economic indicators on the general trend of countries' currencies. Trendo users can easily access the best economic calendar in the Trendo app. You can also click here to see the economic calendar on the website.

In fundamental analysis, traders review the news, data, and significant political and economic events that directly and indirectly affect currencies' price fluctuations and assets. Further, we will mention some important points about fundamental analysis.

  • Many users think that fundamental analysis is unrelated to price chart analysis. However, to accurately understand the fundamental factors' impact on price, we must review the effect of data and news on the chart and the price chart in this analysis.
  • In fundamental analysis, paying attention to the market's reaction to news and reports is much more important than its publication. Therefore, traders must understand how news affects the currency pairs' and symbols' prices.
  • Fundamental analysis is more complicated and time-consuming than technical analysis due to the various price-influencing factors. But the result of fundamental analysis is better and more accurate if done correctly.
  • Sometimes the price may move against the fundamental factors in the short term and confuse in trading, but we should consider that the fundamental analysis pays attention to the overall economic situation and affects the market's long-term movement.

Technical analysis

Technical analysis is one of the analysis types in the forex market, used in all markets, including the stock market, cryptocurrency, commodities, housing, etc.
Technical analysis is comprehensive because it only uses the chart and currency pairs' past price behavior or other assets. echnical analysts believe that in the price chart, there are necessary tools and data to predict the price path in the future. Traders and technical analysts analyze it based on their trading strategy, technical tools, charts, and currency pairs' and symbols' past and determine its price path in the future.

Technical analysis has three main principles: "Market action discounts everything," "prices move in trends," and "history repeats itself," all three of which we can see in the price chart.

  • Market action discounts everything means that in some cases, despite the emphasis of fundamental analysis on the price's rise or fall, the chart and price act against them and follow the technical analysis rules.
  • Prices move in trends, expresses the concept that the price has the desire to maintain its previous trend, and if it wants to change direction, this change will not be sudden, the possibility of price direction change can be predicted gradually and through technical tools in the chart.
  • The principle of "history repeats itself" is based on the belief that the situation that happened in the past can repeat itself. Meaning, if a commodity's price or stock has reached a certain level in the past and has gone down or up again from there, it is likely that the price will change again when it reaches that point again.

Technical analysis has several sub-categories, each of which analyzes the chart based on specific patterns and tools.

Price action is one of the most popular and simplest technical analysis methods, which has many fans. The basis of price action in the forex market is supply and demand. In price action, with the data in the chart and the price's past, the supply and demand area of the currency pair or asset is determined, which are called resistance and support levels. Traders whose analysis style is price action use resistance and support levels to trade and earn profit using their trading strategy.

You can use different strategies to learn price action, and there are many educational books and courses available online. The following methods are the most important price action strategies.

  • Chart patterns
  • Lance Beggs price action analysis strategy
  • Niall Fuller price action analysis strategy
  • Supply and demand price action strategy
  • Alfonso Moreno's price action strategy
  • Sam Seiden's price action strategy
  • RTM Price action
  • ICT price action
  • Richard Wyckoff price action
  • Al Brooks price action
  • Smart Money price action

Users should note that learning all the above methods is time-consuming and difficult, and learning all the strategies are not required. Learning one or two methods of price action strategy for trading in forex is enough for users to trade in this style, and they can make efficient analyses.

Another type of technical analysis is using indicators, which has its supporters. But indicators are mostly used as auxiliary tools for other technical analysis strategies. For example, some indicators are used to find resistance and support levels better, or to enter a better trade.

There are other types of technical analysis, such as price patterns, harmonics, Elliott, etc., each of which has its fans, and we will review the types of technical analysis in a separate post.

Paying attention to the following points about technical analysis is necessary.

  • The chart is the main element of technical analysis and indicators, chart patterns and trading systems are the tools applied to charts.
  • Technical analysts believe that even the fundamental data in the forex market charts are predictable with technical tools, and they are not attentive to the fundamental analysis.
  • As for a better result in fundamental analysis, basic training in technical analysis is needed, for better performance and more success chances, we can combine fundamental analysis with technical analysis.
  • The basic difference between the fundamental and technical approaches lies in the first principle. If traders did not act emotionally and the surrounding environment was consistent and similar, the fundamental analysis would have always worked accurately.

Sentimental analysis

The third type of analysis in the forex market, which you may have heard less about, is the analysis of traders' sentiments.In sentimental analysis, attention is paid to the emotions, behavior, and psychology of traders and market participants, based on which the market's general direction is decided. In sentimental analysis, by using the traders' behavior through existing indicators such as the market leaders' activity index, the fear and greed index, the vix index, etc., we can review the future price of a currency pair or an asset in forex. This type of analysis identifies the sentiments market's majority regarding whether the market is bullish or bearish, optimistic or pessimistic in financial markets such as forex, cryptocurrency, and stocks.

Sentiment analysis alone cannot be a trading reference for traders, because market sentiments may change rapidly due to fundamental or technical events. Therefore, sentiment analysis or traders' feelings are often combined with technical and fundamental analysis to give traders a better understanding of the market.

The best method of forex market analysis

Being biased is one of the reasons that cause many users to lose in the forex market. Suppose a trader has opened a trade at a small loss, and with the bias that his trade must be closed at a profit, he will not close it at a smaller loss, and this will cause the trade to be closed at a much larger loss. Many traders also have a large bias in their type of analysis. Technical analysts believe that all fundamental events in the chart are predictable with technical tools, that technical analysis is more suitable than fundamental, and that checking reports and economic data is not necessary. On the other hand, many fundamentalists say that technical analysis is nothing more than a painting and one cannot use the price's past for its future, and one should decide to trade according to the economic situation and fundamental reports. However, this is not the case, and the most successful traders use a combination of different types of analysis.

  • Traders whose analysis basis is fundamental must be familiar with the basic concepts of technical analysis, such as support and resistance levels, etc., to have a more optimal and better trade and a good entry and exit point for their trades.
  • Traders whose analysis basis is technical, to have better trades and to increase the success chances of their analysis, should be familiar with the basic concepts of fundamental analysis, such as reviewing the economic calendar and the publishing time of important news.
  • It is important to mention that both technical and fundamentalists can increase the success rate of their trades by analyzing the sentiments and emotions of market participants.

Another point that every trader should pay attention to when choosing their analysis is the type of strategy, trading time frame, and trading personality. For those who work in a low time frame like 5 minutes, it is not rational for them to use fundamental analysis, and they must be attentive to the news time in the economic calendar because there may be high fluctuations at the time of news release, which if there is no necessary awareness of it will cause wonder and loss. For those who use high timeframes such as weekly, the fundamental analysis coefficient is much more suitable to identify the trend and the right direction of movement.

Generally, one can analyze the forex market based on three types of fundamental, technical, and sentiment analysis, and it is not essential to learn each of them, as it would be very time-consuming and complicated. However, with the necessary understanding of each analysis, one can professionally learn one type of analysis according to one's personality and trading strategy and use the fundamental concepts of the other analyses for better success.

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