In this lesson we take a look at the types of forex trading analysis. Forex traders use a variety of strategies and techniques to determine the best entry and exit points as well as the timing to buy and sell certain currencies.
Entry Level
An entry level is the process at which you place your trade. The price at which you enter the trade on the chart is always know as the entry level.
Exit Level/Point
This is where you go out of the trade you have entered. This could be in many ways, it’s either price hits your stop loss or price hosts your take profits.
Market analysts and traders are constantly innovating and improving upon strategies to device new analytical methods for understanding the currency market.
If you want to find out the total number of trading strategies, well there are a lot of them. Every trader out there uses a different kind of strategy but all these strategies falls under three types of analysis and these are:
Technical analysis
Fundamental analysis
Sentimental analysis
In this lesson, we will learn in-depth about different types of analysis in forex trading. Without wasting much of your time, let’s get into each one of them.
Technical Trading Analysis
This is one of the most widely used type of analysis in the forex market. In technical analysis, traders study the price movement. I know that most of you must have heard or seen this. There is a saying that goes “ history turns to repeat itself”.
Some of the most popular styles of technical analysis are, the smart money concept, the supply and demand concept and many more
In technical analysis, a trader can look at a historical price movement and determine the current trading conditions as well as the potential price moment. Traders believe that all the current, previous and the future markets are hidden inside the chart.
With that, they also believe that technical analysis is the way to recall that formation. The person who uses technical analysis to trade is called a technical trader. There are different types of strategies under this type of analysis, I mentioned a few above.
Also there are different tools and indicators that technical traders use. If you trade with this method, there are a ton of indicators on platforms like tradingview like the Luxalgo SMC indictors, the VWAP and The EMA.
Fundamental Trading Analysis
Every country has different economic news scheduled throughout the day. These news directly reflects the conditions of the particular economy. As we have learnt earlier in the course, the economy has direct impact on the price of a currency.
If the country’s economy is weak, the currency will be weak and if a country’s economy is strong, the currency will be strong.
For example, let us say you are trading with USD/JPY. You study your fundamental analysis and got to know that USD (United States Dollar) is going to get stronger and JPY (Japanese Yen) is going to get weak.
What you’ll have to do is open a buy trade for USD/JPY, this means you are buying USD. Fundamental traders use this to do a complete analysis to predict where the economy of a country is heading. Either getting stronger or weaker.
Based on this, traders predict the future of the price movement in the forex market. The traders who use fundamental analysis to place a trade are called fundamental traders.
Sentimental Trading Analysis
There are millions of trader out there in the forex market, and every trader has their own believes. For instance, at some point in the market, there are traders who buy and at the same point there are traders who sell.
The outcome of where the price will move depends on on the number of buyers and seller present in a given market. At some point, if the buyers are more than the sellers then price will move up but if the sellers are more than the buyers then the price will move down.
In the sentimental analysis, the traders look for data on what other traders feel about a particular currency pair and then look out for what the bias of most of the traders.
If the buyers are more then they look for a buying opportunity and if sellers are more, they look for selling opportunities.
Traders who use sentimental analysis are called sentimental traders. The types of analysis in forex market is a very vast topic and involves a lot of other things that in the future we might delve deeper into as I want to keep things simple so you can understand as a beginner.
I have tried my best to give you a proper understanding of this and I hope you have understood everything correctly, if not then feel free to ask anything in the comments section. If you missed the previous class you can find it below as well as a link to the full course.
Precious class: How To Use MetaTrader 5 | Guide To MT5
Full course: Forex for beginners
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