Forex Analysis Techniques and Tools
Forex Analysis Techniques and Tools

Forex Analysis Techniques and Tools

 
Traders and investors use forex analysis to find the best trading opportunities for different currency pairs and determine whether to buy, sell, or wait on trading a currency pair.
 
Types of Forex Analysis Techniques
Some traders focus their analysis on predicting how the market is likely to react to the economic and political news coming out of countries, we call this fundamental analysis. Others study price action on charts to make their trading decisions, we call this technical analysis.
Fundamental Analysis.
This forex analysis technique aims to study related financial and economic factors to measure the intrinsic value of a currency in the market.As a country’s economic health is a primary factor in the exchange rate of its currency, a fundamental analyst will study macroeconomic factors affecting a country’s economy. These often include the political climate, national GDP and unemployment rates and liquidity factors such as inflation and interest rates.Because some nations are driven by particular industries, for example, the economy of the UAE has traditionally been driven by the petroleum and petrochemical industries, some advanced fundamental analysts will also study the microeconomic factors of key companies within those industries, such as the effectiveness of the company’s management, revenues and supply chain factors.If the market has undervalued the currency, the trader buys it, aiming to sell it later at a higher price when the market catches up with its intrinsic value.On the other hand, the trader will sell the currency if the market has overvalued it and buy it back later when the market value has decreased in line with the trader’s assessment.Either way, the investor makes a profit.
 
The Key Pillars of Fundamental Analysis
The concept of the intrinsic value
Intrinsic value is the actual value of a financial asset, and fundamental analysis has its roots on the presumption that the current price of the asset does not fully reflect its actual value. The asset is either overvalued or undervalued by the market.
Ultimately, the market catches up with the fundamentals
The assumption is that the market catches up with the fundamentals in the long run and reflects the intrinsic value of the asset. So, undervalued assets can be bought now at a low price and sold later at a higher price, while overvalued assets can be sold now at a high price and bought later at a low price.
Fundamental Analysis Tools
Fundamental analysis relies on both quantitative and qualitative tools. A quantitative tool is anything that can be measured or expressed in numeric terms. They include:
•Economic data such as interest rates and unemployment rates
•Financial statements i.e. cash-flow statements, income statements or balance sheets Qualitative tools relate to quality or character, as opposed to size or quantity.They cannot be expressed in numeric terms. They include:
•The political climate and government policies
•Corporate governance
•Business model
•Company management
•Competitive advantage.
 
Technical Analysis
Technical analysis is the most widely used forex analysis approach by traders and it entails the use of various charting tools to generate short-term trading signals. It is a technique that is applicable to any financial asset with historical trading data. Analysts study the historical trading data of an asset such as price movements and trade volume to assess how supply and demand affect changes in the asset’s price, trade volume and volatility. These changes are referred to as “price action”.Technical analysis can be used to study price action in different financial assets, but it is most prevalent in forex and commodities markets where traders seek to profit from short-term price movements.
The Key Pillars of Technical Analysis
There are three important assumptions that form the basis of technical analysis.
History repeats itself
The assumption is that past price action and patterns reflect the market psychology based on investor sentiment. Since these investor's emotions are predictable under the same market conditions, past chart patterns can be studied to understand current and future market price movements and trends.
Price moves in trends
Most trading strategies assume that, regardless of the timeframe being observed, technical analysts expect prices to exhibit trends. The goal of the trader should be to identify either an uptrend, a downtrend, or a ranging trend in the market.
The market reflects everything
This technique presumes that all factors from economic factors to market psychology are already priced into the current market price of the asset. With all those factors already priced in, the only thing an investor needs to do is study price movements which technical analysts believe to be subject to the law of demand and supply of the security in the market.Technical analysis boils down to the use of charting tools to identify a bullish, bearish, or ranging trend in the market, and use of different types of tools and indicators to spot ideal entry or exit points.
Technical Analysis Tools
•Charting tools are used to generate buy or sell signals e.g. candlesticks.
•Technical indicators indicate trends or patterns in the market.They come in two basic types:
1.Overlays like Fibonacci lines, moving averages, and Bollinger bands.
2.Oscillators like Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD).
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
The Client agrees the Company provides execution only services and that any information, reports, opinions, commentary or other materials received from the Company directly or from its employees or through any analytical tools provided or third party research provided from the Company shall not be deemed as investment advice and it cannot be relied upon to make investment decisions.The Client commits to make their own research and from external sources as well to make any investment. The Client accepts the Company will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The contents of this document should not be construed as an express or implied promise, as a guarantee or implication that clients will profit from the strategies herein, or as a guarantee that losses in connection therewith can, or will be limited.
Credit Financier Invest (Mauritius) Ltd is an award winning global financial markets provider with over 23 years of experience and regulated entities in several jurisdictions, focused on offering impeccable execution and trading conditions including very low spreads, professional services, dedicated support and powerful tools.
Credit Financier Invest (Mauritius) Ltd has regulated subsidiaries in
London • Larnaca • Beirut • Amman • Dubai • Port Louis
Credit Financier Invest

Important Disclaimer:


We would like to remind that while we endeavour to provide best possible services, CFI provides execution only services and any information, reports, opinions, commentary or other materials he receives from CFI directly or from its employees or through any analytical tools provided to him or third party research provided to him from the Company shall not be deemed as investment advice and it cannot be relied upon to make investment decisions. The Client commits to make his own research and from external sources as well to make any investment. The Client accepts that CFI will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The contents of any report provided should not be construed as an express or implied promise, as a guarantee or implication that clients will profit from the strategies herein, or as a guarantee that losses in connection therewith can, or will be limited.


Forex and CFDs are leveraged products that incur a high level of risk and a small adverse market movement may expose the client to lose the entire invested capital. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The possibility exists that you could sustain a loss in excess of your deposited funds even if a stop loss is used and therefore, you should not speculate with capital that you cannot afford to lose and be aware of trading risks. Credit Financier Invest (Mauritius) Ltd provides general information that does not take into account your objectives, financial situation or needs. The content of this website must not be interpreted as personal advice. Please ensure that you understand the risks involved and seek independent advice if necessary.

niss
forme
The Best Online Financial Trading Services, Middle East, 2020
Entrepreneur Magazine

Please publish modules in offcanvas position.