The riches up for grabs in the forex market don’t come easy. Having an edge in analysis and order placement is crucial to surviving the onslaughts always in play in the highly competitive marketplace. The edge often comes down to the kind of research one carries out in search of low-risk but highly rewarding trading opportunities.
Similarly, three kinds of analysis exist in the $6 trillion marketplaces.
Technical analysis: Entails the use of various technical indicators and tools to analyze past price action in a bid to try and predict future price movement.
Fundamental analysis: It entails analyzing news releases which often include economic releases. In this case, traders base their trading decisions on economic data, among other releases. With this type of analysis, the idea is to know any development likely to affect trader’s sentiments conversely price action.
Weekend analysis: Analyzing the market over the weekend is crucial for any trader looking to gain a competitive edge the following week. The weekend analysis allows traders to gain insight into what happened the previous week and what is likely to occur.
With weekend analysis, one does not need to react to situations, as is always the case with weekday analysis. Likewise, objective analysis is always guaranteed, ideal for preparing for whatever is likely to happen next week.
With weekend analysis, the idea is to develop trading plans to be executed once the right conditions are met in the coming week.
Applying market analysis
Once an analysis is carried out, it is important to have a clear understanding of various things. Below, we look into how different factors influence the market.
Market drivers
Whether carrying out technical, fundamental, or weekend analysis, it is important to have in mind what is likely to cause prices to move in a given direction. With drivers, it is important to have an idea of potentially market-moving events and their potential impact on trader’s sentiments.
For instance, an economic release such as the Non-Farm Payroll data, inflation, or GDP data could cause the U.S dollar to behave in a particular way depending on their outcome.
Indexes
Various financial instruments are correlated to certain benchmark indexes. The correlation between a security and an index provides valuable insight into how security could behave based on how an index is trading.
Therefore, traders need to ascertain the relationship between various currency pairs and their corresponding indices. For instance, the EUR/USD pair would often edge lower whenever the Dollar index is trending upward.
Consensus markets
While analyzing and trading the forex market, one should always know what is happening in other markets. For instance, whenever certain markets reach turning points, such incidents tend to impact various currencies.
Charting consensus in other markets makes it possible to simplify the process of determining how a currency pair is likely to behave.
Trades timing
In addition to carrying out market analysis and plotting a plan, it is crucial to time the entry and exit points. The probability of making a fortune is much higher when one can identify ideal points to enter trades and exit. The ability to time the market most of the time differentiates experienced traders from novice traders.
Practical trading tools
To carry in-depth technical and fundamental analysis, traders must have at their disposal an arsenal of tools. The top forex trading tools include:
- Trading Platform
- Charting software
- Economic Calendar
- News Source
- Trade Journal
- Volatility calculator
- Copy Trading Service
Trading platform
A trading platform is an essential tool as it is where actual trading takes place. The most popular trading platforms offered by brokers include MetaTrader 4 and Meta Trader 5.
While there are other trading platforms, it is important to settle on a platform with all the necessary indicators, among other features needed for market analysis and placing trades. An ideal platform offers access to common technical indicators such as Relative Strength Index, Moving Averages, Bollinger Bands, and Fibonacci expansion tools.
Charting software
While most trading platforms come with charting software, you can always integrate other features. The charting software provides real-time market actions allowing one to see what is happening around the world in relation to an instrument under study.
Economic calendar
Any serious trader should have access to a reliable economic calendar. Such calendars are designed to keep traders in check on potential market-moving activities or developments. An ideal economic calendar can provide real-time economic data that influence trader’s sentiments, conversely triggering price swings.
The economic calendar shares data on economic releases such as GDP and NFP numbers and central bank meeting dates and inflation numbers.
News sources
Currencies in the trillion-dollar marketplace fluctuate in response to how traders respond to real-time developments in the global scene. Likewise, any trader should have access to a reliable news outlet capable of providing real-time news sure to trigger significant market activity.
Trading journal
A trading journal is an important tool as it allows one to keep track of all trades taken. It is from the journal that one can get valuable insights on both winning and losing trades. A quick search online, you should get a good trading journal, perfect for keeping track of all activities pertaining to trading.
Volatility calculator
Volatility is what moves the currency markets and determines the ideal times to trade. There are volatility calculators in the market that take historical price action data and determine volatility in real-time. The real-time volatility data allows traders to get an insight into the amount of risk involved at any given time.
Copy trading service
For people just getting started, a copy trading service would go a long way in providing an insight into what takes place in the market.
Such services allow traders to replicate trades of experienced traders in their accounts. Instead of carrying out analysis, traders only have to duplicate trades initiated by those who know what they’re doing in the market.
Conclusion
Having an edge is crucial to staying long when it comes to forex trading. While traders leverage various strategies, everything boils down to the trading tools leveraged to execute trades based on market analysis. Carrying market analysis should always come into play if traders identify ideal entry and exit points in the market.
