Stocks & Commodities V. 31:13 (42-45): Triple Approach To Forex Markets by Solomon Chuama

Stocks & Commodities V. 31:13 (42-45): Triple Approach To Forex Markets by Solomon Chuama
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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

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:

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