What is forex & different types of forex analysis?

Introduction

The Forex market is the most liquidated market with so many benefits and cons. There are numerous ways to analyse forex by using technical indicators and tools. In this article, we will discuss what forex is & the different types of forex analysis and the application of the forex market? Let's dive right into it:-

What is forex?

First, let's talk about forex. Forex is trading or dealing in currency. Buying and selling of currency can be done for purposes like business, tourism. You can trade from anywhere because there is no central place to trade, and a single organisation does not regulate the forex market. The forex market has spot and derivatives markets with futures, currency swaps and options.

There is no specific time to trade in the forex market because it is open for 24 hours and five and a half-day—major financial centres like Hong Kong, London, New Tokyo, and other trade in currency.

Different types of forex analysis:

Fundamental analysis:

Fundamental analysis is a type of analysis in which we measure the security value by looking at the figures like GDP, unemployment rate, interest rate and other types of economic data. In fundamental analysis, we look at everything that affects that value of the security.

The goal is to come up with a number that can be compared with the current price of that asset to know whether the asset is overvalued or undervalued. If the fair price is higher than the current price, it is recommended to buy if the share is undervalued. But if the fair price is lower than the current price, then the asset is overvalued, and it is recommended to sell.

Technical analysis:

Technical analysis is a type of forex analysis. We observe the trading opportunity by looking at the trading activities, charts and Charles Dow developed it in late 1800. It is believed that prior price and price change of assets are essential indicators of the asset's future price. Technical analysis can be used to study the supply-demand, the volume of the company, price of assets—technical help to analyse the strength and weakness of assets in relation to the sector or market.

There was further contribution of P. Hamilton, Edson Gould, John Magee and Robert Rhea in Dow Theory. Retail trader makes decisions based on technical analysis. However, some analysts only look at the supply and demand to know the price movement of assets.

There are numerous patterns and signals developed to help in technical analysis. Some indicators focus on the current trend, which includes support and resistance and others look at the trend's strength and the chances of continuation. Technical analysis includes moving average, trendline and others.

Sentiment Analysis:-

In sentiment analysis, you observe the sentiments in the market. Thus, sentiment analysis helps you to monitor whether you should long or short that position. But there is a problem with it because things might go wrong if you follow the sheep mentality.

For example, if sentiment is to buy US dollars and then news breaks out, there will be a lockdown and travel restrictions due to the spread of new variants. In that case, the price of the currency will drop sharply.

Application for forex analysis:

Determine the price drivers:

The part of successful trading is looking at the relationship between markets and the reason behind the existence of the relationship. It is essential to know the relationship can change, and you should be aware of it and move cautiously. The changes can be sudden, and it can be overwhelming for a trader. But it would help if you looked at why it is happening and the reasons behind the market actions. Emotional control and a logical approach are essential if you want to be successful in trading.

Consensus in other markets:

Markets reach a turning point by putting other assets on the same week and monthly basis. The benefit of consensus is that we invest in instruments that will be affected by turn. For example, if the EUR/USD pair is oversold. The Bank of the US will interfere with decreasing the value of the US Dollar, and exports of the USA will be affected. As a result, the recovery of the US will be weak, But the value of the USD will not fall.

Time Those Trade:

It would be best if you timed those trades properly to be successful in the forex market. Patience, preparation and discipline are the keys to be successful in the market. These things give you an edge over traders who trade on the fly without any preparation, and it will help you time those trades right.,

Charting:

It would be best to chart an index to observe the relationship of a particular market with others and understand whether the movement in the market is inverse or with the other markets.

Conclusion:

Forex is trading in currency. It was developed centuries ago, and it is the most popular market because there is high liquidity and few regulations in the market. The rate at which currencies are exchanged is called the exchange rate. There are two types of analysis: fundamental and technical analysis. In the fundamental analysis, we look at the data like GDP, unemployment rate and others to know the current value of assets. In technical analysis, we look at the past prior price of assets and previous trends to know the upcoming opportunity.

You need to observe the reasons behind market action to make proper decisions, consensus with other markets to get more opportunities, time those trades with patience, discipline and study and chart index to understand the relationships between markets. You can trade in the forex market but with a broker like ABInvesting because it is a verified broker with low-cost trading options. The reason behind the recommendation is the number of scams that happen every day, and you should be cautious about it.