How Do You Analyse The Forex Market?

By Richard Broomstick

The most important aspect of Forex trading is the market itself and the opportunities it can provide to traders. Analyzing it in the other hand can be quite tricky, often impossible to do without the proper tools and experience that might take years to master. As the aim is to profit by the predicting the price movement of a specific currency pair, different techniques and methods have been created in order to do just that. In this article we are going to present the two main ways used by traders today, technical analysis and fundamental analysis.

Technical analysis evolves around deciphering charts and looking at years of financial data in order to predict the movement of the market. It has been used extensively for decades in different investment sectors such as the stock market with positive results. The theory behind the technique is that the market repeats itself over and over again. Traders then use patterns of price movements observed in the past, try to predict where these patterns will appear in the future and how they can shape the market. As with every analysis method out there, technical analysis is fully subjective to the person performing it and requires a large sum of data in order to see the full picture. A few examples of such data is Fibonacci Ratios, supports, resistances, moving averages, Elliot's waves, Bollinger bands and more. With the evolution of computing, the process of doing an analysis was simplified making it easily accessible and more understandable to traders worldwide.

Fundamental analysis is based on a different set of data (or information) to predict the movement of the market with politics and economy being the most important ones. As every currency is interlinked to a country, it makes a whole lot of sense to monitor and stay updated about that country's political and economic progress. Traders perform fundamental analysis by constantly reading financial news, browsing through newspapers and having an eye out for important events. Many online portals provide access to tools such financial calendars, real time news, market trends and more free of charge. Nowadays with the economic crisis ongoing, traders should be aware that currencies are extremely volatile and every small announcement can cause panic in the market.

It is highly recommended for traders to understand the different ways of viewing the market and perform their own individual analysis based on their own data. Usually the best strategies are a combination of technical and fundamental elements.

Richard is a financial writer at FXMoz. Read our eToro review

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