To become a profitable forex trader, you need to know how to analyze the market. The proper analysis provides you with the best currency pair to trade. Also, it gives you the best point to enter and exit a trade profitably.
There are three different methods of forex market analysis. You need to understand and use all three methods to make a profitable trade.
Here is how to analyze forex markets to become a profitable trader.
Fundamental analysis in forex involves analyzing underlying factors in the price of a currency. These factors include interest rates, economic announcements affecting the currency, political events, and other factors.
These factors affect the price of the currency you intend to trade. If you don’t consider them when trading, you are likely to make a huge loss.
Economic data and events are the basis of fundamental analysis. These form the basis of currency price movements.
If you ignore these, the price of your currency pair will change suddenly, leaving you to suffer losses.
A good economy means a higher price on the currency. This is created by a high demand for the currency by investors investing in the country. This causes a price rise.
During an economic downturn, the price of the currency lowers. With this information, you can trade profitably.
Analyzing various factors surrounding the economies of the currencies you want to trade, is fundamental analysis. It is one of the pillars of forex market analysis for profitable traders.
Technical analysis involves the use of charts and patterns to come up with indicators of how the price of a currency moves.
When using technical analysis, traders are only concerned with how the price moves. Traders make historical analyses to predict the future price of the currency pair of interest.
Technical traders are traders who rely on technical analysis to make their trading decisions.
To become a good technical trader, you need to learn how to use charts. All trading platforms have charting capabilities.
Traders need to know the different formulas and theories that can be used to help predict the price of a currency pair.
One of the most common technical analysis price indicators is the moving average. There are different types of moving averages.
Moving averages help traders identify a trend in the movement of the price of a currency pair.
A trader can identify an upward or a downward trend. They can also identify a point at which they can enter and exit the trade.
The best exit is at a point where the price is the highest or lowest. Technical traders can easily predict these price points and easily make trading profits.
As the name suggests, sentiment analysis means analyzing the feelings of traders or the market.
How will you know what other traders around the world are feeling?
You can easily follow the trades of other traders. Pick any currency pair and investigate how most traders are trading it.
If they are feeling bullish about the currency pair, there are many long positions taken. If many traders feel bearish, there will be many short positions taken on the currency pair.
As a trader who identifies the sentiment of the market, you can trade like other traders or in the opposite direction.
If there are many buy positions, it means that all these traders will need to sell to make a profit. If a majority of these traders sell at the same time, this is likely to lead to a decrease in price.
Sentiment analysis can help you to identify this price that you can then take a position and profit latest.
During weekends, the forex market is inactive. As a trader, you can carry out a weekend analysis to review your ended week and to plan for the week ahead.
The weekend analysis allows you to have a feel of the market without having to be alert for price movement.
As a trader, you need to know and use all the types of analysis available to you. In this way, you can easily predict the market and price movement. The proper market analysis allows you to profit from every trade you make with the right information.