Forex Trading Analysis
If you are a Forex trader or aspiring to be one,
then having the skill of analyzing the Forex
market may be your greatest arsenal. Forex
analysis is such an important skill that, if you
are a Forex trader, you ignore it to your own
detriment.
It must however be mentioned that analyzing
the Forex market is not always an easy task
though it can be done by any individual who
really wants to learn. Forex trading analysis is
therefore not the preserve of Forex brokers.
Analyzing Forex markets involves a lot of critical
and analytical thinking. When it comes to the
basics, there are two ways in which a Forex
market can be analyzed. The first is called
technical analysis and the second is
fundamental analysis.
We will explore both approaches in this article.
Forex Trading Analysis ( Courtesy of HenryLiuForex.com )
Forex Trading Analysis
Technical Analysis
This looks at the action or performance of the
market in the past and based on that, predictions
are made. You may wonder why this approach (in
a technical field like Forex trading). The fact is
that, history always has something to tell us. In
fact, you can look at past trends in a particular
season and compare it to a current trend. The fact
is that, people really do not change and what
motivate people to buy and react to the market in
the past may not be different from today.
I must admit that this process can be very
daunting since you need to analyze the day-by-
day figures of the past and compare it to day-by-
day figures of the present upon which you can
then make your predictions. For smart analysts,
they have learned and mastered the art of looking
at the big picture, skipping the minor details and
analyzing trends over a certain length of time. Of
course, if you are a beginner it is not advisable to
go by this method. It is when you have mastered
the skill of analyzing day by day that you gain the
insight and experience to do it this way.
Forex Trading Analysis ( Courtesy of HenryLiuForex.com )
Forex Trading Analysis
Fundamental Analysis
The second approach employs the use of
current external market forces such as
political, governmental, and social factors.
This is usually more in-depth and requires a
high level of accuracy as you need to be able
to examine how these factors impact on the
numbers in a Forex market.
Good external factors like favorable financial
reforms, confidence in the economy,
favorable political sentiment, and the rest
affect positively on the Forex market and
therefore analysts are able to predict how
the market would fair. On the other hand,
bad external market factors like political
instability, unfavorable foreign exchange
rates, unemployment numbers, and even
natural disasters can affect negatively, the
performance of the Forex market.
Fundamental analysts always have a way of
using these factors to analyze Forex trading
in order to make predictions.
Forex Trading Analysis ( Courtesy of HenryLiuForex.com )
Forex Trading Analysis
You may ask which of the approaches do you use when analyzing a Forex market? The fact is,
most good Forex traders employ a combination of the two for their Forex analysis. Let me give
you a typical example. If a country is currently facing a major disaster like earthquake
(fundamental analysis) and from past Forex numbers he knows that during a similar season in
the past there was a dip in the Forex market (technical analysis), he can then predict with a
certain degree of confidence that, barring any other unforeseen circumstance, there will be a
down-turn in the market.
Forex Trading Analysis ( Courtesy of HenryLiuForex.com )