How to analyze the market?
You have been taught the basic knowledge about the forex market and then, now is the time to learn how to analyze the market. The next lesson will guide you to the different methods to analyze the market, because this is one of the most important things that you need to know when the transaction.
There are three methods to analyze the forex market: technical analysis, fundamental analysis and analysis of market psychology.
Technical analysis is technically read graph of past prices to predict the future. This method is based on a theory that markets tend to repeat what it did happen in the past. Graph patterns and trends in the past are used to determine what will happen in the future. Technical analysis can be applied to any pair of money would also like other trading products such as stocks, indices, precious metals, etc. In addition, because of computer logic should technical analysis method allows convert the principles of transactions into a computer program (also known as robots) to each transaction automatically when there is a certain logic conditions of price graphs are satisfied. Recently, this type of trading is becoming a preferred choice of many trader.
Today, more and more applied technical analysis trader on his trading strategy. The more the trader's market analysis and action in a direction similar to each other, the more the market tends to go in that direction, as a result. For that reason, you should not ignore technical analysis methods if don't want to fall behind.
Fundamental analysis
Basic methods of analysis using the reports and economic news to assess the health of the coins, which identified the potential trends of the market in the future. The important elements of the method of analysis is the ratio of the GDP index, interest rate, inflation, unemployment, etc. These factors act on each coin of every country, which represents that country's economy. When you buy or sell the currency of a country is like you are buying or selling shares of the countries in the world economy. In other words, bet on the economy. If a country's economy, the growth of their currencies also strengthened and vice versa. As you learned in the previous post, two important members of the forex market is the Government and the Central Bank, is also the main source of information of basic methods of analysis. So, what you should do is read the news, watch TV channels on finance, alignment reports and economic news. Fundamental analysis is also the traditional methods used in the stock market.
While technical analysis more efficient with the short-term strategy, the fundamental analysis proved to have the advantage over the long term strategy. This is also the typical approach of the serious investors here's your change. Fundamental analysis requires you to have a general view about the global economy. But don't worry, you will be guided to focus on what and how to understand them in a different section.
Analysis of market psychology as a method to evaluate the market by finding out the views of the majority of the market participants. As you know, there are many members participate in the forex market and each Member again using different methods as well as various other decisions. This is called "market psychology". Remember that no one can control the forex market, therefore the trends of the market in the future is the tendency to be more people going by. Assuming that people everywhere are convinced that the European economy will soon grow and they started to buy in to make EUR price increases. But you do not know this and sold it off. Of course you will lose the hole because you did not analyze the market psychology.
Maybe there is a little misunderstanding between fundamental analysis with psychological analysis. The distinction is fundamental analysis applied to the economic news has been announced officially, while psychological analysis back related to what people are thinking, comment or predictions about the market. To evaluate the market psychology, you have to keep track of discussions in the community, the expert's analysis, comment or prediction of the organizations or individuals. Another way to analyze the market psychology is to measure the purchasing power and to know the sales trends are a dominant trend in the market.
The method is best?
You may ask is "so then the method would be best?". The answer is you have to combine all three methods to analyze the market in a comprehensive way. The method that has both strengths and weaknesses, but they can be complementary when combined. Each method of analysis requires a deep knowledge about the respective field (logic, economics, psychology). You don't have to become a perfect trader, skilled in all areas. You can select a main analytical methods that best suits your personality, but you should still learn all the other methods in order to have an overview about the market.
Let's assume you're looking at a chart of the EUR/USD price and found a signal indicates that the price may increase coming. You start the slope off the account out to buy EUR/USD. But suddenly, a member of the Eurozone area declared insolvent on TV and you will see that all your makes them unable in capital suddenly evaporate. So is the only technical analysis without attention to fundamental analysis can lead to mistakes.
Another example: in those days, a lot of the bad news from the Eurozone were coated with a black ball up psychology all people. You're following the interview he President of a Central Bank. As soon as he says that him and gig will try to resolve the crisis, you rush to buy EUR with all hope that there will be a brighter future. But you will soon realize that not only the strong increase of the EUR which even then still deeper price fall because everyone was still disappointed and not those who believe in the words of the other. Fundamental analysis that ignores the psychological analysis of what is sometimes a disservice.
The example above shows why the analysis in the forex market is so important. So you will have no way to win in this market if not learn more.
The above is just the general concept about the methods of market analysis in the forex market. You will learn about the specific techniques of each method in the next section.
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