Forex Analysis
Theoretically speaking if you are considering currency trading in the Forex market, or you are already involved in Forex currency trading, below mentioned money-making lesson that you can borrow from investors who use technical analysis to help them make investment decisions in the stock market.
It is worth mentioning in this regard that the goal of performing technical analysis when currency trading is to predict profitable currency pair movements by analyzing price trends. If experts are to be believed, the principles of technical analysis in the equity markets are the same as those in the Forex currency trading markets. In fact, believe it or not the only real difference between the two is that the Forex market is open 24 hours a day while the equity markets are not.
In an ideal scenario this clearly emphasizes that certain analytics that take time periods in consideration will need to be adjusted for Forex currency trading. Other than that, it is worth remembering that any of these common forms of equity technical analysis methodologies can be used when currency trading:
First and foremost there is Elliott Waves which can be termed as an technical analysis developed by Ralph Nelson Elliott, this methodology is based upon the simple fact that market performance can be predicted by studying wave patterns that develop over a period of time.
Next in line is the Fibonacci Studies. It is worth noting that the Fibonacci studies developed by 12th century mathematician Leonardo Fibonacci, this methodology is based upon the simple fact that changes in trends can be predicted based upon prices interacting with lines based upon certain
sequences of numbers. Parabolic SAR was developed by J. Wells Wilder, theoretically speaking this methodology is based upon the examination of prices in comparison to "stop and reversal" (SAR) numbers that indicate entry and exit points for a trade. Pivot points can be termed as a mathematical formula used to determine when to exit a trade based upon the numerical average of the high, low and closing prices.
As pretty much been described earlier in the piece, the key difference between technical analysis in the equities market, and technical analysis in the Forex currency trading market, is the fact that it is possible to participate in Forex trading 24 hours a day, seven days a week. In simple terms that key difference is also the primary reason that technical analysis works so well in currency trading.
According to experts in order for technical analysis techniques to deliver maximum results, there needs to be extended periods of time available for patterns to develop and repeat. As you know that the Forex market never closes, and currency pairs are traded around the clock, definable patterns develop more quickly. On the other side of the coin the technical analyst has a plethora of Forex currency trading data available to work with.
There is no denying that more data means more accurate forecasting results, technical analysts can see better results, in quicker time, when combining technical analysis and Forex currency trading. There is no hiding the fact that the Foreign Exchange or Forex Market is potentially more profitable and easier to trade than the stock market, yet few people take the time to learn about Forex trading principles.
But keeping these things aside the good news, whether you are experienced in Forex trading, or if you're an equity trader looking at the Forex market for the first time, is that many of the techniques that are used when trading equities are equally as valuable when they are used in Forex trading. In an ideal scenario the principles of Fundamental analysis are a good example, so let's take a closer look.
It is worth mentioning in this regard that when you are trading in the equities market you use fundamental analysis techniques to determine the long-term value of a company and the likelihood that it will continue to generate returns that are in line with your investment goals. On the other side of the coin when you are trading in the Forex market, you are attempting to predict long-term currency trends. It is worthwhile remembering that you can do this only by utilizing basic financial data about the country pairs behind the currencies you are considering trading.
In an ideal scenario many traders in the Forex market use Forex trading fundamental analysis techniques to predict long-term economic trends. More often than not this will affect a currency pair and it is worth noting that it is not a technique that suits short-term Forex traders. Though, fact remained that the dedicated Forex trading professional who keeps up-to-date on the data used to predict these long-term trends can also easily become adept at spotting "mini-trends" that become obvious when the collected data is analyzed.
In an ideal scenario always remember that the use of fundamental analysis in Forex trading requires you to analyze economic indicators such as Inflation Rate, Unemployment Rate, Interest Rates, Gross National Product (GNP), Retail Sales, Consumer Price Index (CPI), Non-Farm Payroll, and the sales of Durable Goods. While there is no denying the fact that all of these indicators are readily available, it is worth mentioning in this regard that fundamental analysis in the Forex market also requires you to be aware of each country's political climate as well as world trends that could have a trickle-down effect. For example modifications in tourism to that particular region as well as trade embargos, threat of war, and the potential for economy-disrupting natural disasters to occur within the region.
If experts are to be believed, while there is no denying that the process of performing technical analysis on a company is much easier than performing it on two separate countries, point to be noted in this regard is that both the time as well as the effort to learn the techniques will be mandatory. This is especially the case if you want to be "ahead of the pack" by being able to predict Forex market trends before most of the world's Forex trading investors wake up to an opportunity that you spotted long ago.
Other Articles
