So we know what the forex market is, and we know what we want to do with it: We want to make money. How do we make money? In this part of the forex course we will learn to understand forex analysis. See also forex technical analysis.
Forex analysis is the tool with which people aim to make sense of the seemingly random developments in a typical day’s price action. Without analysis, all we’d have is a massive list of price quotes that’s updated on our screens every single second, and there would be no way of making any sense of it.
How to Analyze the Forex Market
As with every other event in nature, developments in the currency market manifest themselves through cause and effect which are analyzed through the two branches of forex analysis: fundamental and technical. One problem people often have when studying forex analysis is failing to understand that price action is the result of a series of events that are independent of the price action itself. In other words: prices do not cause prices. The study of those economic and political factors which cause price movements is called fundamental analysis. Prices do, however, create patterns (such as head and shoulders, triangles, double tops or bottoms, etc.), the study of which is the subject of technical analysis.
What causes prices to move in a particular direction? Obviously this is the most important question that one must have answered in order to make a profit in currency trading. Major geopolitical and economic events undoubtedly create the powerful, long lasting undercurrents in the forex market. But, there are factors such as daily trade flows, cross-border mergers, currency options expiration-related activity, and other psychological factors which distort the underlying picture for those who are not very familiar with currency trading.
But let’s first briefly examine the two types of analysis that we just mentioned, before returning to the subject of the previous paragraph.
- Forex analysis is how traders make sense of the markets and identify opportunities
- The two main types of Forex analysis as Fundamental and Technical
- There are many different factors to consider when analyzing the forex market
More Free Forex Lessons
subscribe to get a FREE BONUS LESSON, plus course updates, trade ideas and market news - straight to your inbox
Forextraders' Broker of the Month
BlackBull Markets is a reliable and well-respected trading platform that provides its customers with high-quality access to a wide range of asset groups. The broker is headquartered in New Zealand which explains why it has flown under the radar for a few years but it is a great broker that is now building a global following. The BlackBull Markets site is intuitive and easy to use, making it an ideal choice for beginners.