If you are a new Forex trader, Forex technical analysis may sound like rocket science. You can even confuse it for basic analysis. Although both require critical thinking, they are obviously at the opposite end of each other in terms of the subjective-objective spectrum. Understanding how Forex works and how the two types of analysis can be performed will help you have better success in foreign currency trading.
What is Forex?
As with any investment, you need to know what commodity or security you are dealing with. In this case, you are dealing with foreign currencies that you can buy or sell to make a profit based on their changed values. The truth is that trading in foreign currencies can be very risky. This is because they can change their values drastically in a short time. But if you & # 39; is smart enough to analyze trends, you can make a big profit out of this.
Basic analysis in foreign currency
Since the risk is great when dealing with currency, it is important to have some kind of prediction technique. In which case different types of analysis can help you predict how a currency will perform. Basic analysis, for example, makes use of politics, economics and sudden events and then rolls these factors together to constitute the general situation. The trader looks at the general situation and predicts how this situation will affect the currency. For example, when a nation loses its leader, the nation's currency may suddenly decline in value.
Technical analysis in foreign currency
Forex technical analysis does not deal with situations, but with raw, unototional data. Instead of reading the news, the trader looks at the recent history of foreign currency values. The trader can even look at months & # 39; value of currency value if he or she wants to see the bigger picture. Then he or she will plot charts based on the data to make progression or trending easier to read. Through the use of indicators such as moving averages and Bollinger bands, the trader will discern a pattern or trend. He or she can also recognize when a currency experiences a stalemate. A stalemate or being in a state of congestion means the currency is locked within a small range of values. This may mean that the currency is low risk or that not much can be gained from trading at this value.
The benefits of Forex technical analysis
For some benefits, Forex technical analysis can be self-sufficient when making predictions and following trends. Through Forex technical analysis, you don't have to become an economist or a political analyst, you just have to be a Forex trader who can plot and read graphs. Through the graphs you can already find out what is likely to happen tomorrow or the following week. However, you should work with the knowledge that even Forex technical analysis can be fallible. But at least it can give you a better foothold when dealing with a high risk security such as a currency that is better than fumbling for your next trading move.