A brief theory about working on the Forex exchange

In many articles devoted to trading on the Forex market, novice players are recommended to study the theoretical part first, and only then engage in real trading. After all, the currency exchange is a rather complicated structure, exposed to a variety of factors, and it is simply unrealistic to study them all.

Currency exchange rate forecasting

Let’s try to consider at least the main points. The theoretical basis for forecasting the behavior of the exchange rate consists of two types of analysis – fundamental and technical. They allow relatively accurate prediction of the price behavior for a particular currency pair.

Fundamental analysis

Fundamental methods of analysis are devoted to the study of external factors influencing the market. This type of analysis is easier to understand, and it also includes the basics of economic theory. This is necessary to determine the financial and economic state of the market. The following factors affect the value of the currency: unemployment, the state of the country’s financial system and economy, inflation, etc. All these factors are fundamental. The economic calendar will help you keep abreast of the main events. This approach is used for short-term trading. The calculation of a longer trend takes place using methods of in-depth analysis of the economic state. Here it is necessary to determine the most significant factors that affect the course.

Technical analysis

Technical analysis is devoted to the study of the internal state of the market (the history of trend changes, the value of the currency). The main rule of this analysis is that everything is included in the price. In other words, the subsequent development of events can be determined by analyzing the price. A rather ambiguous rule, but it works in many cases. Here the main object of analysis is the trend. Its strength, direction and existing patterns are being studied. Forex indicators are widely used in the analysis. They work according to algorithms that allow you to calculate the most necessary indicators used in forecasting. The main disadvantage of technical analysis is the use of only historical and current information in calculations. For this reason, the decision to enter the exchange is often slightly delayed.

The most effective option is to use both types of analyses at the same time. This is quite simply done in practice – a news feed is installed in the player’s terminal. This allows you to track important economic events when performing technical analysis. In addition to the theoretical basis, it is quite important to acquire your own trading strategy, in which the results of the forecasts made will be applied.

Published: 8 December, 2021

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