HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
XM information and reviews
XM
82%

The Importance of Analysis in the Forex Market


Forex market analysis comes in two distinct forms; technical and fundamental analysis. Discussions have raged since the birth of trading as to which analysis is best, or whether traders should employ a combination of both disciplines, in order to make more informed trading decisions. The efcacy of both technical and fundamental analysis is also disputed by what is referred to as the "efcient-market hypothesis", which states that market prices are essentially unpredictable.

Whilst discussions have been ongoing for decades as to which form of analysis is best, one issue all trading experts and analysts will agree on is that both forms have features and benefts that can assist traders. Analysts would also agree that it can take a lifetime of practice and application to become profcient at either, or both forms of analysis. The frst noted use of technical analysis was back in the 1700's by Dutch merchants and traders, whilst candlestick analysis allegedly began in China in the eighteenth century, courtesy a method developed by Homma Munehisa, to determine demand for basic commodities such as rice.

Many fundamental analysts will dismiss technical analysis, suggesting that the majority of technical indicators cannot and do not work, because indicators are "self fulflling and lagging". They may doubt the efciency and value of the most commonly used indicators such as the: MACD, RSI, stochastics, DMI, PSAR (parabolic stop and reverse), Bollinger bands etc.

However, there's many traders who employ technical analysis in their trading plan, who will categorically state that using indicators, to enter and the exit their trades, actually works. Not every time, but in terms of probability and average performance, their technical analysis works well enough over time to ensure they have developed a credible trading plan and strategy, "an edge" as traders often refer to it.

However, it is ironic that nearly all fundamental analyst-traders will still use forms of technical analysis, even on a relatively vanilla, indicator free chart. They will perhaps decide what method of price display they prefer: candlestick, Heikin-Ashi, line, pin-bars, etc. Or they will use a fairly basic strategy to trade including: higher lows, lower highs, moving averages, head and shoulders' patterns, fractals, pivot points, Fibonacci retracement and drawing trend lines etc. Once some of these formulas are placed on a chart, the chart can look as busy as a chart containing many of the afore-mentioned indicators. And are not calculations as to where to place stops and take proft limit orders also forms of technical analysis?

So even dedicated fundamental analysis traders still have to use technical analysis, they will just prefer to concentrate on news, events and data releases to make, or to confrm their decisions. And they will stay abreast of all releases, perhaps by using Twitter, or paying the extra expense of using what is referred to as "a squawk", in an attempt to be on top of the market and their trading decisions.

However, this section of our site is not here to discuss the relative merits of fundamental and technical analysis, we are developing an FX school in which we will do that at length, we are just going to provide a brief overview of the key diferences between the two distinct areas of analysis.

What is Forex Technical Analysis?

Technical analysis (often referred to as TA) is the forecasting of future fnancial price movements based on an examination of past price movements. Technical analysis can help traders anticipate what is likely to happen to prices over time. Technical analysis uses a wide variety of indicators and charts that display price movements over a selected time period. By analysing statistics gathered from trading activity, such as price movement and volume, traders hope to make a decision regarding which direction price may take.

Many technical analysis-traders pay little attention to news. They take the view that eventually the detail and perhaps the drama of an economic news release, will eventually reveal itself on a chart. Indeed, price on a chart can often react before traders have even seen data released, or had a chance to read the news and then make an informed decision.This can be as a consequence of algorithmic/high frequency traders being able to front run the news in lightning speed before many mortal traders can react.

What is Forex Fundamental Analysis?

Fundamental analysts examine the intrinsic value of an investment, in forex this requires the close examination of the economic conditions afecting the valuation of a nation's currency. There are many major fundamental factors that play a role in a currency's movement, many of which are contained in what is termed "economic indicators".

Economic indicators are reports and data released by a country's government, or a private entity such as Markit, that details a country's economic performance. Economic reports are the means by which a country's economic health is generally measured.

Released at scheduled times the data provides the market with an indication of a nation's economic situation; has it improved or declined? In FX trading, any deviation from the median, the previous data, or from what is been predicted, can cause large price and volume movements.

#source


RELATED

Mastering Market Liquidity: What Is It And How To Make Use Of It

The term "liquidity" is constantly being tossed around in the finance industry, but what exactly does it mean? Today, we will explore the concept of liquidity, its importance in trading and investing...

Guide to EOS trading for beginners

EOS appeared on the crypto scene with a record-breaking ICO that raised over $4 billion dollars for the development of the blockchain venture...

What Is Social Trading? Differences Between Social And Copy Trading

With the emergence and powerful influence of social media, new investors and traders often look to those who boast about their win streaks and share charts that demonstrate...

How to make money on Forex

Are you eager to make some profits on Forex? Get ready for some valuable insights. Ready for your Forex journey?

MultiBank Group: Top Macroeconomic Indicators To Look For

Macroeconomic indicators are a key part of fundamental analysis. Their statistics provide insight into the state of a particular country’s economy. Macroeconomic indicators...

How to Achieve Effective Diversification in Currency Trading Portfolio

In the intricate and fast-paced realm of currency trading, attaining success is not solely reliant on precise market scrutiny and sagacious decision-making but also on the meticulous construction and strategic composition of your trading portfolio...

A Guide to Foreign Exchange Trading

Foreign exchange trading (also known as forex or FX trading) involves the speculation on currency prices exchanging on a global marketplace (the forex market)...

How to stop qwertying your way to hackers: 5 internet security tips from OctaFX

Who will you blame if you wake up one day without a job and with no money on your bank card? Yourself. That is if you don't follow internet security tips. The global broker OctaFX outlines the main do's and dont's of staying safe online.

An Introduction to Technical Indicators

Technical indicators are calculations derived from price and volume data. They have plotted either as overlays on a price chart or below a price chart. Indicators...

What is a central bank?

A central bank is a financial institution that manages the monetary policy and currency supply of a country or group of countries. It is typically responsible for maintaining...

How to Invest in Stocks: A Beginner's Guide for Getting Started

A successful voyage of the Dutch East India Company ships brought great profits, but statistically, one sailing ship in three returned home - the others could not withstand storms and pirate raids...

Investing vs. Trading: What’s the Difference?

Over the past couple of decades, many people started showing interest in profiting from financial markets, whether through trading or investing. However, it has become evident...

Ultimate guide to trade Stellar Lumens (XLM) for beginners

Stellar is one of the early cryptocurrency networks that has managed to maintain a leading position in the crypto markets. With innovative services...

What Is the OTC Market?

Over-The-Counter markets are popular among investors and traders. This term is mostly associated with the trading of company shares. Yet, it's possible...

AUD/USD correlation explained

The AUD/USD correlation reflects how many US dollars are needed to buy one Australian dollar. It means that if the currency pair is traded at 0.85, then $0.85...

What Affects Forex Rates?

Currency exchange rates have always been a considerable factor used to determine a country's economic health and stability. This is typically defined as the rate at which one...

The Impact of Social Media on Trading

The paper seeks to illuminate the pros and cons of social media's influence on trading and how important it is to be a financially literate trader. How can a trader benefit from social media?

Oil Is Black Gold for CFD Trading

Oil is a mineral used to produce fuel. And it is also used as a raw material for household chemicals, cosmetics, clothes and many other products are made from it. But not only. Oil is also a popular commodity...

Grasping the Concept Of Hedging in Forex Trading

Hedging is a financial trading technique that investors should be aware of and employ because of its benefits. It protects an individual’s funds from being exposed to a problematic situation...

Spread, swap, quotes and other scary words

How to make money in Forex? This is the most common question asked by all newcomers to the world of finance. If you're serious about starting to trade on a stock exchange...

FP Markets information and reviews
FP Markets
81%
RoboForex information and reviews
RoboForex
77%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.