Market analysis is the basis of professional forex trading.
And there are three types of analysis.
Fundamental analysis, Technical Analysis, and Sentimental Analysis.
Knowing all of it and applying it for your trading is the right thing to do.
Some traders concentrate on any one analysis.
With the aim of mastering only one section of the forex market.
But combining the analyses is essential.
To get a comprehensive idea, you need all three analyses.
It increases the chances of finding profitable trades.
It has one more advantage.
A weakness in one analysis could be corrected by the other.
1. Fundamental Analysis
It focuses on various economic factors.
The factors that affect the value of a currency.
Like inflation, interest rates, GDP, political issues, and unemployment rate.
The underlying macroeconomic conditions reflect the value of a currency.
Traders try to interpret whether a currency will appreciate or depreciate.
And the traders often look for major economic reports.
Even before the release of the reports, experts come to a consensus.
The reports may fall in line with the expectations.
Or it would be better than expected.
And sometimes, worse than expected.
How the reports differ from the expected level decides the volatility.
A good report indicates a strong currency value.
And the value of the associated currency will increase.
2. Technical Analysis
It involves the analysis of the past behavior of the market.
With this, you can predict the future direction of the currency prices.
Traders rely on different systems to identify trading opportunities.
Candlestick chart patterns and indicators like moving averages are some tools.
Traders mainly focus on price movements.
And they look for and follow the trends.
Technical analysts often place trades in the direction of the trends.
In general, market movements form some patterns.
So, traders can predict the movements with some accuracy.
3. Sentiment Analysis
It analyses the feeling or attitude of the traders.
Every participant in the market has a definite feeling.
About the behavior of the currency pairs they trade.
Based on their perception, they enter long or short trades.
You can see the bullish or bearish trend of the market.
And you can assess what most of the traders think about a currency pair.
It is also helpful in assessing the level of saturation and plan.
Using all three analyses is important to be successful in trading.
Relying on someone’s/anyone’s analysis is not good and would be a disaster.
When you analyze all, you can get the best input for your trade.
You can make good trading decisions and become a successful trader.