Analytics

Fundamental Analysis: Conclusion

Fundamental Analysis: Conclusion

Whenever you’re thinking of investing in a company it is vital that you understand what it does, its market and the industry in which it operates. You should never blindly invest in a company. (more…)

NFP Price Action Setups Around the U.S. Dollar

NFP Price Action Setups Around the U.S. Dollar

Tomorrow brings January NFP’s to the table, and next week brings the Bank of England’s Super Thursday. The U.S. Dollar remains pinned-down near three-year lows, and we look at a variety of setups around the Greenback in this webinar.

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In order to open deals, one must determine how the price is going to change – whether it will go up or down. That is why the most important step every trader should take is to learn how to analyze the market, as the ability to correctly predict market movement is crucial. Such a forecast can be based either on economic, social, political, environmental and other factors, or on mathematical calculations.

In this regard, the Forex analysis can be divided into two types: technical and fundamental ones. Let’s have a closer look at them.

Technical Forex analysis

This type of analysis forecasts the price of a traded currency, relying only on mathematical calculations without paying attention to economic, political, and other events. The theory of technical Forex analysis is based on the idea that the market has a memory, i.e. the technical trading analysis allows forecasting the way a trend will move basing on its movement in the past. When using such an analysis, Forex market participants use a variety of technical indicators.

The technical Forex analysis is based on three main principles:

  • The price moves in one direction. This statement is the key for the trend forecasts and serves as the core of all technical analysis.
  • Each factor affecting the price of a currency has already been accounted by the market and included in the price. In this regard, all you need to forecast a trend is to study the price’s schedule. Even though this definition seems quite simple, it is much more difficult to implement this knowledge in real life.
  • History repeats itself. This principle is based on the fact that all past actions are still valid now and may be used in the future.

Fundamental Forex analysis

Unlike the technical analysis, the fundamental one involves studying events and processes of individual states and global world community as a whole (such as political, macroeconomic, etc.) that occur in real-time and play an important role in the market movement. The fundamental analysis usually reveals the connection of exchange rates with different economic situations. Also, it explains the reasons why assets’ prices move up and down and shows an overall state of the global financial markets.

So, in order to predict price fluctuations, it is necessary to monitor all changes in the market and take into account all fundamental factors – and respond to them in time. The easiest way to stay informed is keep an eye on economic and political news. Traders call this process “trading on news” – it is very profitable and accessible method of work for beginners.

There is a set of factors that can affect the Forex market as a whole and have an influence on a particular asset. All these factors can be divided into 4 groups: economic, political, informational (like rumors and expectations), and force majeure.

For instance, a well-known American multi-billionaire Warren Buffett earned his fortune working with fundamental factors only and not paying attention to technical analysis. J. Soros, having studied only the state of the UK economy, discovered that the GBP is overvalued and made a bet on it – the results of these actions are known all over the world. So, correctly conducted fundamental forecast is a huge step to success.

As you can see, the mentioned types of analysis are extremely different. That is why traders often get involved in a dispute about the dominance of fundamental or technical analysts. But it is not worth it. Both methods of analysis help not to miss profit, so we suggest all traders to use them all, as it may significantly increase the chance of success.