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  3. Start applying – Trading Central insights to your strategy

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To correctly interpret the market situation and determine the impact of certain actions and events, you must learn to “read” information from outside. To predict future exchange rate fluctuations, you must learn two types of analysis methods: technical analysis and fundamental analysis.

Let us look at the characteristics of each analysis method.

Fundamental analysis of foreign exchange

Fundamental analysis of foreign exchange is based on economic and political news and its impact on currency exchange rate changes. It includes a variety of methods used to predict price behavior in the foreign exchange market. The basis of these methods is the analysis of basic data of various countries. Because the same factors may have different effects in different situations, it is very difficult to conduct a basic analysis of the foreign exchange market. The success of fundamental analysis depends on its clear understanding of the impact of various factors on the currency market.

The following indicators should be considered when conducting basic analysis:

  • Central bank interest rate;
  • National economic policy;
  • The political situation;
  • The characteristics of economic growth;
  • Trade balance indicator;
  • Inflation rate;
  • National solvency;
  • Investor sentiment
  • Product competitiveness;
  • Consumer sentiment
  • Real estate market conditions;
  • Labor market conditions;
  • Other indicators.

The basic data is published in the form of an index for easy reference. In the data evaluation, the past index and the current index will be compared, and the economic dynamics and progress over the years will be analyzed. It is very important to acquire analytical skills to be able to link information and its possible impact. Analysis skills can be gradually mastered through continuous practice.

The basic analysis of foreign exchange is characterized by its directional effect on long-term transactions (annual, semi-annual, quarterly). This is why some traders refuse to adopt this analytical method. Nevertheless, it is a powerful tool that can not be ignored and can make predictions about the future situation.

Basic analysis and technical analysis is compulsory course for every trader every day.

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Forex technical analysis

Forex technical analysis is an exchange rate forecasting method based on the use of technical indicators and chart analysis. This analysis method can help traders determine the direction of future price fluctuations based on historical data. The advantage of this analysis method is that it can predict short-term and mid-to-long-term, and is suitable for trading operations within a day to trading that lasts for several weeks.

Technical analysis is based on three principles:

The market considers everything.
The factors that affect the market have been reflected in prices and have determined the behavior of market participants.
The price moves in a specific direction.
Any price change is one of three directions-trends. The trend may be up (up or “bullish”), down (or “bearish”), or it may be “flat.” The task of the trader is to identify the trend in the budding stage and follow the trend while trading until it changes.
The market has good memories (history repeats itself).
The previous market situation will repeat itself today. The laws that affect the market remain unchanged.

Charles Dow (1855-1902) is known as the “father” of technical analysis. In the late 19th century, he published a series of articles outlining his observations on the stock market. His theory became the basis of technical analysis.

Technical analysis includes a variety of methods that allow traders to determine the most favorable time to enter the market. All methods are based on the evaluation of transaction volume and price patterns. Tools that can help traders make decisions provide information in the form of charts (candle charts, histograms and other less commonly used charts) and other technical indicators based on historical price data.

All the signals given by the indicator have reference values. Indicators and other useful market analysis tools will make your work more effective.

The most effective market analysis method is to combine basic analysis and technical analysis. Of course, this is quite difficult, but it will help you obtain a stable income from trading in the currency market. Fundamental analysis is based on the exploration of the reasons, while technical analysis is more concerned with the changing trend of exchange rates. Therefore, these two analytical methods can complement each other.

Basic analysis and technical analysis is compulsory course for every trader every day. This is the only way for traders to make sure that their trading operations make the right decisions.

It is quite difficult to analyze the form of the foreign exchange market. In order to facilitate the traders, IronFX offers the Trading Central that can be used for analyzing the economic calendar and interest rate information area.

The trading platform MetaTrader 4 provides a variety of tools that can be used for technical analysis.

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