Novice Trader How to Analyze the Forex Market
There is endless potential to earn big trading in the forex market. However, if you don’t know what you’re doing and how to analyze the forex market, there is endless potential to lose big too.
Part of your strategy to succeed in the forex market is to know how to analyze the market. Not knowing what you’re doing could easily lead you down the path of bad decisions and wrong trades, all of which cost you more money in the end.
Ready to dive deeper into the forex world? Alongside information provided through your trusted broker (find brokers in the UK here), we have three strategies for analyzing the forex market.
Technical Analysis
There’s always a bit of technical analysis happening with any kind of trading. The technical side of it helps you make an informed decision for your upcoming trade. Being a technical trader (focusing on technical analysis the most) means you’re analysing the current trading condition and possible price movement through historical price movements.
For a technical analysis of the forex market, you’re basically going with the old saying, history repeats itself. You focus on the trends in the price movement as a way to find the probability of what will happen in the near future. You’ll want to become very familiar with charts for technical analysis of the forex market.
Fundamental Analysis
Those who spend more time focusing on the currency’s interest rate will likely go through fundamental analysis. This analysis entails looking at factors that potentially affect the currency’s price, often social, economic, and political. Basically, you pay closer attention to anything that can contribute to the change in the price of what you’re trading.
Think of fundamental analysis as economics supply and demand. The supply of one thing with minimal or lots of demand often reflects in the price, and vice versa. Where it becomes tricky is all the additional elements that influence the price as well. When in doubt, a good rule of thumb is when the economy is good, you can expect a higher currency value.
Although often read to keep your emotions in check when trading, there is still a bit of emotion involved, which comes in the form of sentimental analysis. Yes, there are physical factors to watch for. You also have to take into account that traders trade based on their opinion too. How one trader feels about the market on one day can be completely different from others, which still impacts the price.
Sentimental analysis is basically when a trader is gauging how the market feels (bullish or bearish). Then, they make their decision on what they’ll do. It may not seem like much, but sentimental analysis can have a powerful effect. Think about it in this way – if everyone thinks the market is bullish, you could go opposite and short a trade to work in your favour.
A strong trading strategy will include a bit of all three types of analysis of the forex market. That way, you’re gathering information from multiple angles to help you make a fully informed decision. Having a regulated forex broker like InstaForex on your team can add that much more value to your overall analysis.
The journey to becoming a good forex trader is an exciting one and we have some great resources for you to check out. For starters, there are Brokersview..
Whilst you are it, have a look at JustForex review