Main Points of Forex Analysis and What You Should Know

Published on: 02/13/18 2:53 PM

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There are three main areas for forex trading. Those who wish to get involved in trading online will need to know details about each of these areas. That way you will know and understand what type of trader you are.
1.The first type is called Fundemental Trading. You may have heard about this on the Forex news. Fundamental Trading mostly involves interest rates.
The other four components of Fundamental Trading are:
  • The Gross Domestic Product
  • Inflation
  • Manufacturing
  • The Economic Growth Activity
  The main concern here is still the interest rates. Investors need to keep track of the future movements of any interest rates. This will determine how well a product performs on the trading platform. Are some of you attracted to risk in trading? The money will follow the yield, remember that. The higher the rates, the more the investment will bring in. Are you looking to go the opposite route, meaning taking less of a risk? The money will leave the yield in search of safer currencies. The bottom line is: You need to follow the interest rates and the yield patterns. Fundamental Trading has more of a technical aspect to it. There is only logic here, no room for emotion or sentimentality.
2.The second type is called Technical Trading. You will spend a lot of time looking at the price history to determine the best forex position. Investors look at the probability rate to determine what is the best strategy for entering exiting the market.
This strategy is more technical than the first one, so it is more popular among investors. You need to look at the movement on the price charts. The price charts give you hidden messages for the level of supply and demand. Investors prefer indicators because they make things simple. There is an ongoing debate over which strategy is better, fundamental or technical? You should use your best judgment on that. Investors and traders work in different ways. You can ask a forex broker their opinion. There is no right or wrong answer here.
3.The third strategy is called Sentimental Trading. Simply put, you commit to one direction because others are already leaning that way.

An Example

You see a lot of traders placing their bets on the Euro market. They see the Euro going higher and they want in. We access the charts to see that most investors are sticking with the EUR/USD currency pair. Some traders have already bought their supply, which means they will sell some of their stock in the future. Sellers will want to close out their trades. Their desire to close out the trade makes the pair vulnerable to a sharp pullback. They may sell very close to the margin as the market closes, and that is what makes it vulnerable.
Now that you have a basic understanding of what these three are, you can now determine what type of trader you are.