Types of Forex Analysis to be able to trade

Types of Forex Analysis to be able to trade
In order to be able to make our decisions about the direction that the price of a certain currency pair of Forex in which we want to invest will take, we can mainly use 2 types of analysis that we will comment below:

Types of Analysis

There are two types of analysis that you can take advantage of to do Forex trading:

• Fundamental analysis


• Technical analysis

There has always been a debate about which of these two types of analysis is best, but to tell the truth, it is necessary to know a little about both.

The greater is the one that we could consider as a third type of analysis: relational analysis that is a special case of the fundamental analysis focused on the real time and in understanding the correlation that the trends of the currencies have with each other and with other markets, including commodities (Gold, oil, etc.).

[caption id="attachment_489" align="aligncenter" width="462"] Types of Forex Analysis to be able to trade[/caption]

Fundamental Analysis

Fundamental analysis is a way of looking at the market from the economic, social and political point of view that affects resources and demand. In other words, with the fundamental analysis you observe which economy is going strong and which is, on the contrary, going through a bad run.

The Fundamental Analysis monitors the health of the economies of the countries and their influence in the price of the currencies

The idea behind this kind of analysis is that if a country's economy is well and stable, its currency will also go well. This is because the better the economy of a country, the more confidence other countries will have in their currency.

For example, the US dollar (USD) has been losing steam as the US economy is weakening. As the economy worsens, the value of the dollar will continue to decline.

Later in this Forex course, we will teach you the most important specific events that handle the movements of the prices of the currencies, for now, the important thing is to know that the fundamental analysis is the way to analyze a currency according to the force of the economy Of the corresponding country.

Technical analysis

Technical analysis is the study of movement that follows price. In a word we could say that the technical analysis are the graphs. The idea is that each trader can observe the history of price movements, and, based on this, can determine, at a certain level, where the price will go in the future.

By looking at charts, you can identify trends and patterns that can help you find good trading opportunities.

 

[caption id="attachment_490" align="aligncenter" width="782"] Types of Forex Analysis to be able to trade[/caption]

The most important thing you will learn from technical analysis is to identify the market trend. Many people claim that "the trend is your friend" (The trend is your friend). The reason for this, is that it is much more likely to make money when you can find a trend and operate in the direction of it.

Technical analysis can help find this trend in its primary stages and thus provide good opportunities to open operations.

So what kind of analysis is best in Forex?

This is the million dollar question !! As you progress on your journey through the exciting world of the Forex market, you will find strong trends towards technical analysis or fundamental analysis.

You will find people who say that only fundamentalism matters in the market and that any pattern found in the chart is mere coincidence. On the other hand, you will find people who claim that it is the technical analysis to which attention should be paid

Do not be fooled by these extremist people. No kind of analysis is actually better than the other! To become a Forex Expert, you will need to know how to effectively use both types of analysis.

If you do not think it is important to know both analyzes, let us show you how focusing on one type of analysis can turn out to be a disaster:

• Suppose you are looking at the charts and find an excellent opportunity to open an operation.


• You proceed to open the operation with a big smile from ear to ear!


• From one moment to another, the operation moves 80 pips in the other direction! Did you know that there was a decrease in the interest rate of the currency with which you were working and now all are operating in the opposite direction?


• The big smile from ear to ear turns to tears and you start to get angry with the graphics, you feel so angry that even you decide to throw your computer in the trash! Now you just lost a lot of money and a computer for making the mistake of completely ignoring the fundamental analysis.
  
  
  Do you remember how when you were a child they told you that extremes are bad?

Well, you should know that this also applies to Forex when deciding what type of analysis to use. Do not trust just one. On the contrary, it is important to learn how to balance the use of both, because only then you can get the most out of your operations

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.