Retail forex day traders use the forex analysis to choose whether to buy or sell decisions on currency pairs. It could be technical in nature with the use of resources like charting tools. But also, it could be fundamental in nature, using economic indicators and/or news-based events.
Types of Forex Market Analysis
The analysis might look like an ambiguous concept for new forex traders. However, it only falls into three basic types.
- Fundamental Analysis
Traders typically use the fundamental analysis to analyze changes in the forex market by monitoring figures like interest rates, unemployment rates, gross domestic product (GDP), and other kinds of economic data coming out of countries. For instance, a trader conducts a fundamental analysis of the EUR/USD currency pair. And they will find information on the interest rates in the Eurozone that are more useful than the ones in the U.S. Also, these traders will wish to be on top of all significant news releases coming out of every Eurozone country to assess the relation to the health of their economies.
- Technical Analysis
The technical analysis consists of both manual and automated systems. And a manual system often indicates a trader is analyzing technical indicators and interpreting the data into a buy or sell decision. Aside from that, an automated trading analysis suggests that the trader is training the software to seek specific signals and interpret them into executing buy or sell decisions. Also, where the automated analysis could have an advantage against its manual counterpart that it is meant to take the behavioral economics out of trading decisions. Forex systems utilize the precious price movements to know where a given currency might go to.
- Weekend Analysis
In conducting a weekend analysis, there are two primary reasons. The first one is that a trader wanted to build a ‘big picture’ view of a specific market in which they are interested. With the markets closed and not in dynamic flux during the weekend, traders don’t need to react to situations as they are unveiling. Instead, they can survey the landscape.
The other reason is that the weekend analysis will help a trader set up trading plans for the coming week and build the necessary mindset. A weekend analysis is akin to an architect gearing up a blueprint to construct a building to guarantee a smoother execution. Trading without a plan is tempting, and always a bad idea. Remember, shooting from the hip can leave a hole in the pocket.
