There are three major types of Forex market analysis: Sentimental, Fundamental, and Technical analysis. Experienced traders combine the three techniques to increase their chances of trading profitably. But most traders are comfortable using only one type of analysis.
3 Types of Forex Market Analysis
1. Sentimental Analysis
Trying to understand how other traders feel about the market or a particular currency pair is called a sentimental analysis. Some of the questions that sentimental traders ask themselves before placing any trade include:
- Are other traders planning to go short(sell), or are they planning to go long(buy)?
- Are there many buyers in the market right now compared to sellers?
These questions can only be answered by interacting with other traders in Forex trading community groups.
As a beginner, always try not to trade against the trend. For example, if the majority are selling but you decide to go against the trend and execute a buy order, you will close your trades in losses. Trading against a trend is like holding a sharp knife by the edges.
The trend is your friend except at the end where it bendsEd Seykot
2. Fundamental Analysis
Fundamental analysis involves looking for the best trade setups based on economic news releases. For instance, all USD pairs are affected if economic news is released in the United States, and such news has a high impact.
If the result of economic news that involves the USD is negative, the value of the USD is going to weaken. That means that currency pairs such as EURUSD will buy in a longer time frame. If a trader buys the currency pair, he automatically sells(gets rid of) USD.
Do not be fooled by the spikes(giant candlesticks) you see a few seconds/minutes before and after the news release. Sometimes the Market Makers are closing their positions that they have held for some time. They are preparing to look for other setups based on the result of the news release.
3. Technical Analysis
Technical analysis is about making trade decisions based on price movement on a Forex chart. This type of analysis requires a trader to be well-equipped with Candlestick and chart Patterns knowledge. In addition, it’s a good idea to learn other things like Forex Order Blocks, Market Structure, etc.
While some traders make decisions based on what they see on the chart(Price Action), others depend on indicators to find their entry and exit points. What matters is the result. After all, all traders have one mission, which is to make money. So, stick to what works for you.
Always try to incorporate all three types of forex market analysis after identifying a trading strategy that works. If one is not blending in, don’t force things. Go with what works. In the next article, you will learn one of the best Forex trading strategies for beginners. Let us know in the comment section if you have any questions or ideas.