Fundamental and technical analysis of the Forex market
When participating in international currency trading, it is necessary to minimize all possible risks. Luck alone will not get you far in such a matter. It is required to correctly predict the development of relations in a currency pair and take into account numerous aspects of the relationship of participants in the foreign exchange market. Fundamental and technical analysis becomes the most important element in this issue. Forex.
This is a complex tool of the trading process. The forecast of the development of quotations, prices, and the exchange rate is based on specific data on the international situation of states, international events that have occurred. Price charts used within the trading platform are not taken into account.
Main forecast criteria:
- Data on refinancing interest rates of Central Banks of various countries.
- The level of Gross External Product.
- News about political stability, economic growth.
The use of this method is useful only if the information received is correctly interpreted during the initial data collection period. There will be a lot of them. At the same time, the reliability of the information received is considered an important point. Therefore, you need to get them from official state news resources.
As a result of the analysis, you can make a short-term (from a few minutes to several days) or long-term (from two to three months to several years) forecast. The long-term forecast is based on key macroeconomic indicators.
The research process of fundamental Forex analysis follows the principle of from more to less:
- Macroeconomic international relations of countries.
- Domestic economic indicators.
- Industry revenues of a specific market segment.
- Specific representatives of the market.
When studying macroeconomic indicators as the main ones for starting the application of further types of research, it is worth paying special attention to the following types of macroeconomic indicators:
- the discount rate of the national bank;
- inflation rate;
- unemployment rate;
- the level of GDP;
- trade balance (the difference between imports and exports).
It is mandatory to use an economic calendar that is integrated into the trader’s workspace.
This process is understood as market research in order to create forecasts of the behavior of the price criterion in the short term. The basis of the technical analysis of the Forex market is the correct interpretation of the quotation data. The tools for obtaining the final data are:
Taking into account the volume of incoming information, it is possible to accurately predict the direction of the development of the currency movement. However, there is a risk of statistical error, since not all data are taken into account. In fact, the behavior of traders is quite easy to predict. With the growth of quotations, everyone is trying to make a purchase. At a decrease, sell the lot.
There are a number of main positive points that speak about the popularity of Forex technical analysis:
- it is simpler, so it can be mastered by most beginners;
- the principles of technical analysis are applied when working on any foreign exchange market, and not only in the framework of Forex.
At the same time, there were some negative sides:
- the results obtained are purely subjective (based on the same data, two traders can draw opposite conclusions);
- the conclusion is the probability of occurrence of certain events in the market.
That is, when a trader uses technical analysis instead of fundamental analysis, Forex trading becomes more of a lottery than a system of calculated actions.
As methods, it is customary to use graphical (based on the data of charts in the working interface of traders) and mathematical.
Which specific method of Forex market analysis to apply is decided solely by the trader. Technical analysis is much simpler. At the same time, the chance to burn out is considered greater than when using fundamental analysis. Among beginners in trading, technical analysis is more popular.
Published: 24 July, 2021