Analysis in Forex Currency Trading

While we have already stressed the importance of having a forex trading strategy, analysing and being up to date with news in our earlier posts, we go slightly more in depth in this one to discuss how to improve your chances of making gains in the forex currency trading market. We have also discussed the importance of news for all forex traders and how key it may be in making forex currency trading decisions and now we will amalgamate and extend it in this post.

Analysis is key to making strategies for both the equity markets and also the forex currency trading market. There are two distinct but equally important forms of analysis that are integral to the formation of effective strategies for forex traders: Fundamental analysis and technical analysis.

The key to fundamental analysis is by most accounts a process that involves making trades based on news and press releases as well as announcements from various influential (to forex markets) sources.

These include but are not limited to non-farm payrolls (this is a monthly statistic compiled by the U.S. Department of Labor that is a highly influential economic indicator), purchasing managers index (PMI), consumer purchasing index (CPI), retail sales and durable goods.

Other key reports to watch out for are those from committees and boards that watch over prices, interest rates, inflation and other indicators that affect forex trade. Examples of these might be the Humphrey Hawkins Hearings and the Federal Open Market Committee. Any statements made by people in influential economic positions such as the finance minister or the federal reserve’s chairman are also to be scrutinized carefully.

Technical analysis on the other hand involves a lot more number crunching and poring over graphs and charts. Making comparisons is of course a part of life these days but in the forex currency trade it might be the difference between a profit made and a loss suffered.

There are various types of analytical techniques now in common use and more often than not a combination of two is used for greater accuracy in predicting movements in the foreign exchange market. Amongst the commonly used analytical techniques in forex currency trading are: Parabolic SARS, pivot point analysis, Elliott Waves and Fibonacci studies.

Forex trading like any business involves a lot of work (in this case mainly research) however that does not mean that forex currency trading is not profitable or viable for those with limited time or resources. On the contrary it is our belief that forex trading is an easy and simple way of earning money that can be significantly profitable even if done only as a pastime.

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