If you are into forex trading, you must have done some forex market analysis at some point, if not extensively, a basic one. Forex market analysis refers to analyzing the market to know what would be the next step to take to make the most profit from forex. It helps to foresee the situation of the market and make a strategy to get better returns. Forex market analysis used to be a term used by only the professionals in the past. However, today, even the people who do it as a side business does market analysis extensively as it has become a crucial part of forex trading. Moreover, there are better and easy ways to do forex market analysis now, which enables even beginners to do some market analysis.
Need for Forex Market Analysis
Forex is a very fluctuating market. It is very difficult to rely on one source to make decisions. There are many factors that define the forex market position. Whenever an investor goes into forex, he or she needs basic knowledge about the forex market. However, if they don’t know what’s happening in the market, it is nearly impossible to make a profit out of forex. Market analysis helps the investor to see the best possibility to make a profit. It also helps them to get ahead of other people.
These days, there are agencies that do the market analysis for the investors, which enables the investors to save time and make more profit. Agencies use professionals who perform extensive research and gather all the market information and align them in the best manner to make a profit.
Types of Forex Analysis
There are mainly three types of Forex analysis, namely technical, fundamental, and sentiment market analysis. These are used individually by the beginners but collectively by the experts. However, to use these analyses collectively, it requires the experience of connecting different sets of data.
Fundamental analysis is based on basic information and news about a country or market. Fundamental analysis is done to predict the future movements of a particular currency. You can easily do this analysis with the help of different news websites or newspapers. However, you should have good knowledge about what factors can affect the forex market and which currency it will affect. The most part of fundamental analysis is based on the economic factors determining the economy of the country.
Most of the forex investors rely on fundamental analysis to predict the movement of a currency. It gives them the confidence to invest. Moreover, the beginners or the investors who make forex investments as a side business only does fundamental analysis as it does not require a lot of their time.
Some of the key factors of fundamental analysis are:
- Retail Sales
- GDP Growth
- Industrial Production
- CPI (Consumer Price Index)
- Interest rate
Technical analysis is based on the research about the past movements of a currency. It helps to predict the future movements of the currency if we are able to study the past movements and patterns of the value of the currency. Technical analysis needs extensive knowledge about reading charts and mathematical factors to analyze the movements. You can take the help of different kinds of charts to do technical analysis of a currency.
To make technical analysis practical and easier, there are some assumptions which the analyst has to keep in mind. One of the assumptions is that price is based on everything. The theory says that anything that happens in a market affects the price of a currency. Another assumption is that the price goes towards the trend. This statement is true for most of the cases anyway as trend brings more demand and the demand increases the price.
Every person has his or her own opinion about everything. Even with one fact, information, or data, people take particular sides depending on their views. These sentiments then go on to make the market slide towards one side. Sentimental analysis is totally based on the sentiments of people towards a particular company, country, or currency. Sentiments drive the market. So, if you are able to analyse the sentiments of the market, you can predict the future movement of the currency.
It is practically not possible to play on the market sentiments as it is nearly impossible to control it unless you are a large financial force having the power to control it. Most of the investors use sentimental analysis to foresee the market’s sentiments and use this data along with technical and fundamental analysis to make better decisions.
Tools for Forex Market Analysis
Economic News Calendar
The economic news calendar provides the time and dates of particular news which might have affected the market. It can help you to do technical analysis as it provides data about past news. This tool is mostly provided by forex brokers or other financial news websites.
Financial newswire is a site where all the financial institutions post their news. You can get a lot of information through this newswire. Along with that, if you get access to the financial newswire, you can even publish your own news, which allows you to provide information to the market.
Pip is the lowest trading unit, which helps to track the smallest movement in the forex market. Pip calculator helps you to check the value of a pip in any currency.
Currency correlation tool
As the forex trading happens in pairs, both the currency being transacted will move in opposite directions. This makes it harder to correlate both the currency. Hence, a currency correlation tool will help you to correlate any two currencies, which enables you to make a better decision while investing.
Forex trading is not easy in any way. It involves a lot of knowledge, research, and analysis to make a single decision, which can either make you a lot of profit or drown all your money. This was just a guide to make the analysis part of forex trading a little easier. You still have to put effort to invest wisely in the forex market.