Market analysis is an absolute necessity when trading Forex. This involves both performing technical analysis and analyzing economic data. Charts reveal a wealth of price information on currencies that simply cannot be found using fundamental analysis. Charting is the study of price movement of currencies and currency pairs. It is an essential part of Forex trading. With that said, studying economic reports is equally important because it discusses how much demand there will be for a currency. Both of these types of analysis provide essential information to currency traders.
Many people feel that market analysis is a new language when they start learning to analyze the currencies market.It can be difficult for people making their first steps into Forex trading. In part, price analysis is a new language and a code that needs to be deciphered for success in the currencies market. A basic understanding of this new language is necessary to trade currencies effectively. How fluently market analysis is learned and understood will depend on what kind of trading in which the person engages.
For example, a trader who uses an automated trading system does not need to learn in great detail how to interpret the employment report or how to use oscillators such as the Relative Strength Index (or RSI). However, for those traders who intend to trade Forex online, charting price movements and analyzing economic data are essential to survival and success in the Forex market.
This article simply cannot go into all the detail that a currency trader would need, but it can provide direction into which charts and economic reports would be helpful. Many of these trading techniques and charts are also used by stock traders. However, the currencies traders are different because they are very dependent upon market analysis. Fundamental analysis is also important, but most Forex traders rely primarily on technical analysis.
Technical analysis is studying the price movement of currency pair using indicators that are often shown on charts. There are literally hundreds of technical indicators that are used in Forex trading. Some types of indicators include Japanese candlesticks, moving averages, Bollinger bands, and Fibonacci retracements.
Trend Trading
Specific to Forex trading is the Average Directional Index (or ADX). It measures the strength of a trend. If the ADX is more than 25, then a trend has developed. A higher number means a stronger trend. Traders tend to get very excited when the ADX is above 30. There are numerous Forex classes for beginning and advanced traders that are offered on technical analysis. Any person who wants to trade currencies is well advised to take one of these important courses.
Fundamental Analysis: Studying Economic Reports
Fundamental analysis is the study of economic data to determine the demand for a currency such as the U.S. Dollar or the Euro. Like technical analysis, there are hundreds of economic reports released every month that affect currency prices. One of the most important reports is the employment report, which is released on the first Friday of every month. Though it is a US economic report, Forex traders around the world anxiously await the release of this report because it tends to move the entire currencies market.
Other market-moving reports or news includes Federal Reserve decisions and statements, rate decisions by other central banks like the Bank of Japan and the Bank of England, manufacturing data, retail sales information, housing data, and the Consumer Price Index.
Charts or Economic Data: Which is more important?
Many Forex traders ask whether technical analysis or fundamental analysis is more important for Forex trading. Experienced traders know that they work together. Charts help the trader to identify strong trends, price movements, and entry and exit points. However, economic data shows the trader which currencies will have more demand and give a macroeconomic view of the currencies. In short, charts and economic reports work together to provide a complete view of each currency.
Forex Market Research
Analyzing the market is a continuous endeavor for traders. Many find it thrilling. Others find it tedious. However, most traders find it necessary, particularly for Forex trading. A good Forex trading course is highly recommended. Currency trading requires research, work, and discipline.
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