One of the key indicators for a successful Forex trade is by correctly predicting the upcoming price movement of a market.
There are various strategies that are used when trading. Some traders follow patterns and some follow the various news to guide them in their decision-making. But these strategies are still categorized if it uses technical analysis or fundamental analysis. Some traders use fundamental analysis, some use technical analysis, some even use a combination of both.
As a trader, it is important to know this two analysis. It can help bolster strategies which can further provide consistent profit for your account.
Technical analysis is a methodology that forecasts the direction of market prices through the study of historical market data. It is one of the most common methods in trading. This analysis is very easy to learn and it is well-known to numerous traders especially those who prefer day-trading. Many people think this strategy is some sort of a trading hack because of its high probability to give profit.
This analysis uses various equations which are applied to personal charts. These equations are known as indicators — data that measures market conditions to calculate economic trends. These indicators provide historical information for a particular market. It presents the history of price actions and price volumes of that market.
To effectively use this analysis, a trader must understand how to use various indicators such as Relative Strength Index (RSI), Moving Average Convergence-Divergence (MACD), Money Flow Index (MFI), Stochastics, and many more. Profitable forex traders often use many indicators when trading. These indicators illustrate historical data in a particular aspect. Despite its useful method, this analysis does not guarantee a 100% prediction of the price movement of an asset.
Like technical analysis, fundamental analysis attempts to forecast the price movements of a particular market. One of the most popular traders who use fundamental analysis is Warren Buffet. Traders who excel in using this analysis claims that this methodology showcases a wider view of the upcoming price movement of a certain market.
When trading in Forex it is essential to learn about fundamental analysis. This analysis presents key economic indicators of the market. It is also one of the vital factors in analyzing the eight major currencies that are traded in the foreign exchange market (USD, EUR, GBP, AUD, CHF, JPY, ZAR, & NZD).
Here are some fundamental analysis traders should always check: Central banks’ Interest rate decision, Employment Reports, Customer Price Index (CPI), and Gross Domestic Product (GDP). These reports will always affect a currency’s price.
Another factor when using fundamental analysis is the economic calendar. This calendar indicates upcoming economic events. As a trader, it is important to always be aware of the worldwide economic happenings. Being caught in the wrong position after an economic announcement is a trader’s worst nightmare.
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