Triple Approach To Forex Markets by Solomon Chuama
Which Works For You?
Fundamental analysis, technical analysis, or sentiment
analysis: which do you prefer? Find out how you can
determine which type of analysis is best suited for you.
Price moves in the forex markets are correlated to fundamental
data, given that you are trading world currencies.
To master fundamental analysis, you need to know enough
about micro and macro economics. In addition to that, you
need to be able to identify trends, since currency markets trend
more often than not. To master technical analysis, you need a
grasp of analyzing charts and knowledge of indicators.
The third approach, sentimental analysis, entails your sense
of judgment on the market. It is the overall thoughts and opinions expressed by traders that form the basis of sentimental
analysis. When you effectively master the three types
of analysis, you can call yourself a forex master. But if one
type of analysis is preferable, why do you need to consider
all three? Letís take a look at each.
Fundamental analysis is the process of looking at the forex
market by considering the economic, social, and political
factors that influence demand and supply and in turn have
an effect on the currency value of a particular country. In
trading any currency pair, your analysis should be based on
the economy of the currencies in question.
For instance, if you want to trade US dollar/yen (USD/JPY),
you should analyze the Japanese and US economies, looking economic news, micro and macro data, and the pace at which
these data are changing. Put together, these factors will determine
whether the economy is doing well. A good economy will make
the value of its currency higher in value while a bad economy
will make its currency lower in value against other currencies.
Most of the examples will be linked to the US economy because
its currency is tied to major currencies.
These micro and macro economic variables will affect the
economy of a country: