Forex assets are some of the most volatile assets on the market. Inherent fluctuations are to be expected given the macroeconomics involved that in turn govern how assets behave. However, this does not mean that one has to be at the complete mercy of market forces when making forex investments. There are tools and techniques that can be employed to effectively analyze and anticipate the movement of currency pairs, which you can find out more about on Forex Loft.
Here are a few recognized methods that newbie and expert currency traders can use to make informed decisions on forex trading.
- Technical analysis. This type of analysis requires meticulously pouring into the charts and historical data to look for trends that can indicate how currency pairs will behave in the future. It is also important to correlate the behavior of currency charts to past events to see how these affect the behavior of currencies. For example, extremely close elections tend to dampen currency values as investors adopt a wait-and-see strategy. Conversely, intervention by Central Banks tends to buoy currencies up. Correlating these events to actual charts can help provide a reference in anticipating how future events impact the performance of currencies.
- Fundamental analysis. This type of analysis is typically reserved for the experienced trader as it requires analyzing a country’s economic fundamentals to determine how its main currency will behave in the future. This includes analysis of a plethora of economic indicators like debt, GDP, investment grade, quarterly growth, inflation, and many other factors. A newbie trader with minimal experience in analyzing macroeconomic indicators can easily be overwhelmed with this type of analysis; hence, the recommendation that fundamental analysis should only be done by experienced traders with a background in macroeconomics.
- Sentiment analysis. Some traders base their decision on gut-feel and while it may not always be true, it is certainly a viable option for making investment decisions. In truth, sentiment analysis isn’t really subjected as most traders still rely on common market indicators to determine if a market is bullish or bearish. The gut-feel approach also requires experience in order to develop the right “feel” for currency behavior so only experienced traders are able to wield this analysis approach to their full advantage.
Currency trading is all about reading the data to point you in the right direction. Choose which analysis method gives you the most comfort in your decisions and then use that analysis approach to grow your investments in foreign exchange and currency trading.