FOREX ANALYSIS Is the study of determining whether to buy, sell, or wait on trading a currency pair.
TYPES OF FOREX ANALYSIS
Is the analysis that focus on looking at the forex market by analyzing economic, social, disasters and political factors that may affect currency prices. Fundamental analysis essentially informs traders and investors why the market advances and declines, and provides a trade decision: to buy, sell or trade flat.
Fundamental analysis is composed of three core elements:
These three components working in harmony should translate to clearer market trends and present potential trading opportunities. If one of these areas is in disorder, interpreting a fundamental picture becomes difficult.
CENTRAL BANK
A country’s central bank is charged with the duty of regulating banking institutions and implementing monetary policies.
Everything begins with the central bank and they’re assessment of economic indicators. Traders and investors attempt to anticipate a central bank’s actions by evaluating economic indicators and reacting to the outcomes from the forecast.
The market projects a forecast for an economic indicator and subsequently responds to the actual figure released
There are eight major central banks today:
ECONOMIC INDICATORS
Economic indicators, as their name implies, are statistics—often on a macroeconomic scale—designed to measure economic activity. Traders and investors use these indicators to analyses the well-being of a country’s economy. Government organizations and private groups release several economic reports on a weekly, monthly and quarterly basis, each measuring activity in a particular segment of the economy.
Economic indicator data are released on economic calendar that trader and investor use to analyses the market.
GEOPOLITICAL EVENTS
Geopolitical tensions can complicate technical analysis and fundamental analysis, distorting the general flow of key fundamental drivers in the market. However, absent of disruptive geopolitical events, trending markets become visible.
Geopolitics events are divided into wars and conflicts, terrorist attacks, floods, upcoming election, pandemic, political unrest and protest as well as international tensions. US-China trade is a good example and the ‘Brexit’ situation (United Kingdom exit from the European Union).
The announcements surrounding geopolitical issues are usually not scheduled, unlike the central bank announcements and economic data. As you can imagine, this may cause confusion in currency markets and make them difficult to trade.
Is a forex market evaluation methodology that helps traders to predict the next direction of currency pairs’ prices based on historical price movements, price action and chart patterns. According to technical traders, markets always move in repetitive patterns that can be seen and identified in trading charts. Traders who use technical analysis are known as technical traders.
Technical analysts focus on the following components
FOREX MARKET CHART
Price chart showing the historical price and volume data on one or more currency pairs, it is used by technical traders. Learning how to read forex charts is one of the first steps you’ll need to take if you’re looking to get into trading.
Common types of Charts
A line chart simply connects the closing prices of the timeframe you are viewing. For example, when viewing a daily chart, the line will connect the closing price of each trading day. Whether you are employing stock market or Forex technical analysis, traders mainly use line charts to identify long-term trends as it is the most basic type of chart available.
Candlestick charts were first used by Japanese rice traders in the 18th century and they are the most popular type of chart for Forex technical analysis. Candles show the open, high, low and close values of a chosen time period
A bar chart is a type of forex chart that depicts the periodic behavior of a currency pair. In contrast to line charts, the bar chart includes four price points: the opening price (O), high (H), low (L), and closing price (C). Given this information, bar charts are often referred to as OHLC charts.
Refers to the overall mood of all market participants who are trading a particular currency pair. How the majority of traders ‘feel’ can offer valuable insights into the possible future price direction of a currency pair. There are several different methods that can be used for sentiment analysis, but one of the most popular is to use sentiment indicators. These sentiment indicators consider a range of factors such as social media sentiment, analyst recommendations, and insider buying and selling activity. By analyzing sentiment, traders can get an idea of which way the market is moving and make more informed trading decisions.
Support and resistance” are one of the most widely used concepts in trading
Support is the area on the price chart that indicates traders’ willingness to buy.
Support levels indicate where there will be a surplus of buyers
Support happens when there’s a fall in the forex market that results in a downward trend when lower prices increase the likelihood of traders taking a long or ‘buy’ position. Once the demand rises and becomes equivalent to the level of supply in the market, the forex price will discontinue falling.
Resistance is a price level where traders expect selling pressure to increase, causing the price to fall or reverse, Traders a willing to take a sell at resistance level
Resistance levels indicate where there will be a surplus of sellers.
In this way, resistance and support are continually formed as the price moves up and down over time.
BREAK OUT AND RETEST
A break and retest happen when an asset makes a bullish or bearish breakout and then retests the previous resistance or support and then continues moving in the original trend.
When the price passes through resistance, that resistance could potentially become support and when price break the support, that the support become resistance
Retracement is any temporary reversal in price within a major price trend
A reversal is the end of the price trend and either the beginning of a new one or the beginning of a period of consolidation.
Consolidation refers to a period of time where the price of a currency pair moves within a defined range, without making significant progress in either direction. A market’s price during a period of consolidation will still fluctuate, but it won’t break out of a certain price range. As soon as the market breaks out and moves either above or below the stagnant trading pattern, the period of consolidation ends.
MARKET TREND Means a certain direction of price movement over a particular period. A trend on Forex and other financial markets is usually understood as a price movement formed within a certain period of time with a clear direction and strength. Direction is the key point that characterizes market trends - traders use it to make trading decisions and maximize their income.
Are simply characterized by a repeating pattern of higher highs and higher low in an up-trending market, and lower high and lower lows in a down trending market.
TRENDING MARKET TYPES
What is UPTREND MARKET? is an overall move higher in price, created by higher highs and higher lows. It describes when the price is moving upward or getting higher and traders will look to buy the dips during an uptrend.
What is DOWNTREND MARKET? is an overall move lower in price, created by lowers lows and lower high. A downtrend describes the price movement of a financial asset when the overall direction is downward.
Trending markets are characterized by two important moves, the first move is called, the impulsive move, and the second one is called the retracement move
What is Trendline? Trendlines are used when trading the financial markets to define an uptrend or downtrend of an asset’s price. They are a type of technical analysis, which many traders use to monitor price movements of a financial instrument in order to predict market sentiment. A trendline is sometimes referred to as a ‘trend support line’ because it shows the direction of a trend and it acts as a support line.
How to draw a TREND LINE?
To draw a quality trend line, you will need to find at least 2 minimum swing points, and simply connect them with each other. The levels must be clear, don’t try to force a trend line. Don’t use smaller time frame to draw trend lines, use always the higher time flame mostly 4hrs and the daily time frames to find obvious trend lines.
Means trading the sideways market where buyers buy from the support zone and sell from the resistance zone within the price range. Prices always move within this range, and it is called range trading.
When an asset's price shows no clear trend but instead experiences many smaller fluctuations. A choppy market can occur when buyers and sellers of a market are at an equilibrium.