Let’s start with the basics. There are three types of Forex analysis:
Technical Analysis
Fundamental Analysis
Sentiment Analysis
All three combined together will help you open profitable trades, or at least come up with good Forex trade ideas. To do that, you must understand the purpose of each type.
Technical analysis is the study of currency price movement on the charts. The fundamental analysis examines the economy of the country. Finally, sentiment analysis determines whether the market is bullish or bearish on the currency or future fundamental outlook. Seems easy, right? So here’s why and how should you be using all three.
If you exclude any of the analyses from the process, you might just as well be a gambler. It’s only with all three that you can have reasonable grounds to believe that your trade will be thriving.
Let’s imagine that you identify an opportunity on a chart and open a trade, but due to a news release you didn’t check, the sentiment of the market changes and everyone starts to trade in the opposite direction. So much for feeling lucky, now you’re distressed and angry, and you’re ready to throw your laptop out the window because you’ve lost all your money.
And that is why you should always remember not to rely on just one type of analysis.
But how do you stay up to date and use all three? It’s very easy! All you need to do is look at the trader tools available to you. An economic calendar, technical analysis and news will all help you understand the mood and direction of the market.
An economic calendar shows world news that affects the market (fundamental analysis). It provides you with previous and forecast values but also indicates the importance of each economic event. Look at it daily.
Technical analysis as we said before is the study of financial market activity. Thanks to the technical analysis we can identify trends, momentum and pattern that repeat over time.
And lastly news. We don’t want to explain as we understand that this term is quite self-explanatory, but we do want to stress the importance of glancing at the news from time to time. This will help you understand the overall sentiment and direction the market might take.
Of course, if you have any other tools available to you, use them too! The more, the merrier.
