Fundamentals of Market Analysis
What is market analysis?
Market analysis is an essential attribute of a successful trading. Today the currency market has reached enormous proportions, market participants are faced with large flows of information that influence the market in one combination or another. Thereby, the value of a reliable market analysis is very high, and no news or rumor could be ignored, as they might cause significant fluctuations on the market.
Market analysis is also very important for better understanding of the market conditions; after all, successful trading is impossible without good command of market trends, patterns, and processes. Only understanding trends, that drive exchange rates, may guarantee the necessary result. A beginner trader should remember that working without market analysis is impossible. Its efficient use makes successful trade a realistic goal.
Market analysis is invaluable for a trader. Thanks to available analytics, it’s now very easy to build a profitable trading system. The more such materials are available and the more carefully they are analyzed, the more effective your trading system will be. Conducting market analysis on a regular basis, the trader not only improves the quality of their deals, but also reduces time spent on taking a decision. Market analysis that traders perform before striking a deal can be divided into fundamental and technical analysis. The knowledge of the basics of both is compulsory for each trader.
Types of market analysis
Fundamental analysis of the currency market lies in examination of interdependence of exchange rates with economics, politics, and social services of the country. Connecting together any events, determining their influence on change in exchange rates, and giving an accurate forecast based on the resulting data is the main objective of a fundamental analysis. Those who achieve this objective can maintain quite a successful trade.
Technical analysis is the study of historical data on price fluctuation of currency pairs. This type of market analysis is carried out primarily through the use of charts. The visualization of graphical information allows forecasting further price movements with utmost accuracy. There are a lot of special programs created for the effective conduct of technical analysis. A number of built-in terminal indicators give a trader signals to start trading or leave the market altogether. All that significantly simplifies the work of a trader and automates routine activities.
Market analyses and forecasts are issued on a continuous basis. A lot of companies and governmental organizations publish their reports on a periodical basis: daily, weekly, monthly, quarterly. This way, for purposes of conducting any market analysis, the trader is always equipped with enough information (reports, reviews, etc.), all that is left to do is to effectively manage and use that information. The trader should always use only reliable economic, social, and political data. That’s exactly where the difficulty of market analysis lies: in the reliability and correct interpretation of the data. The task of the trader is to interpret the signals on the market and choose that analytical tools which give the clearest and the most accurate information to conduct the most effective transactions. The successful traders always base their trading strategy on both fundamental and technical market analysis.