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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.
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.
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.
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 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.
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.
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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