Predicting the future prices of currency prices requires the study of different types of analysis, and since forex trading depends mainly on the future expectations of prices and knowledge of buying and selling prices, therefore, the different types of analysis must be studied well that help in trading in forex and determine buying and selling decisions for currency pairs.
There is an ongoing debate among forex traders about the different types of market analysis that enhance your ability to achieve greater success. Some are asking whether it is better to be a fundamental trader or a technical trader? In fact, there is no data that indicates that one form of analysis is better than the other. Rather, it is a personal trait of the trader and the attitude that would dictate which analysis is most useful.
Some forex traders will spend more time focusing on price action and technical analysis methods, while others prefer to study the data and economic news that causes market volatility which is fundamental analysis, but most traders combine two different types of analysis and feel that this approach is the most Sustainability because it allows to achieve the greatest success.
There are three ways to analyze the forex markets:
1 .basic analysis
Fundamental analysis works on understanding the financial markets by studying economic data and news flow. Based on this analysis, the future of the currency is clear.
Fundamental analysis is a way of looking at the forex market by analyzing the economic, social and political forces that may affect the supply and demand forces of an asset. its currency.
The idea behind this type of analysis is that if the current or future economic outlook of a country is good, this will strengthen its currency. The better the country’s economy is, the more foreign investments and investors will flow into that country, and this results in the need to buy the currency of that country.
The basic analysis consists in analyzing the results of economic indicators data, studying inflation levels, central bank decisions, changes in interest rates, changes in global stock indices, political events and general elections.
Advantages and disadvantages of fundamental analysis
By understanding the market dynamics and drivers of an economy, a fundamental analyst has the confidence and composure to withstand market fluctuations and stay in longer positions, the higher the trading time frame, the more accurate the fundamental analysis becomes. When making a decision it can also be a waste of time and difficult to understand for some.
2 .Technical Analysis
Technical analysis is the framework in which forex traders study price action. The trader studies historical price movements and determines current trading conditions and potential price action.
The basis on which technical analysis is built is that history tends to repeat itself, so if a price level has been established as a major support or resistance level in the past, traders will monitor it and link their trades around the historical price level.
Technical analysts look for similar patterns that have formed in the past and will form trading ideas in the belief that the price will act the same way it did before.
Technical analysts use the charts provided by the trading platforms, led by the MetaTrader4, MetaTrader5, AvaTrade Go, WebTrader, and AvaOptions. Because it is the easiest way to visualize historical data and it helps identify trends and patterns that can help you find some great trading opportunities.
Advantages and disadvantages of technical analysis
Technical analysis is easy to understand as traders follow a set of technical indicators, so it is easy to control the emotion during trading by focusing only on the price and this reduces the role of guesswork and prediction, by understanding technical indicators you can make a faster and more accurate assessment of the market, but the disadvantages of this The kind of analysis that traders get is a herd mentality because millions of traders are watching the same chart.
3 .Psychoanalysis
In theory, we said that price action should reflect all available information, but in reality it is not that easy. Forex markets do not reflect all the information that exists because traders behave in the same way, so analyzing market sentiment is important.
Each trader has his own opinion about why the market behaves the way it does and whether trading is in the same direction or against the market. All the thoughts and opinions of traders that are expressed by taking a particular position help to form the general feeling of the market regardless of the information present.
The ability to gauge market sentiment and sentiment is one of the most important tools that can help you make a profit.
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