WHICH TYPE OF ANALYSIS IS BEST FOR FOREX TRADING?
We already learned that there are three analyses in forex trading that are technical analysis, fundamental analysis and sentiment analysis. The question asked in the title of this article is widely searched in the Google search engine. This post is aimed to answer this question. The simple answer of this question is that no analysis alone is sufficient for a winning forex strategy.
When I first started forex trading on a demo account with fxglory, I got introduced with the popular RSI oscillator. First I thought forex trading would be very easy to me because RSI oscillator very clearly showed the oversold and over bought conditions.
My misunderstanding was cleared when I saw the EUR/USD currency pair had gone down for about 300 pips after an FOMC meeting though the RSI 14 was completely oversold on 4hr chart.
In another day, I was waiting for the CPI data of EuroZone, and the data came negative, as a result I placed a sell order on EUR/USD currency pair. But surprisingly the market went up for about 50 pips. "What the hell is going there ?" I was thinking myself. After analyzing very closely, I discovered that the EUR/USD reached to a strong Fibonacci support level.
In a week the COT index for commercial traders clearly showed that they are overbought. The EUR/USD pair was making bearish convergence with RSI oscillator. The fundamental news were negative for the Euro,but still the EUR/USD pair was bullish for about 48 hours.
A winning forex trading strategy must include the all of the three analyses. Focusing on one and ignoring other analyses can be the major reason behind the failure of a trading strategy. The analyses have relationship among them.
For example, suppose in a market situation a currency pair is technically oversold. Now If the fundamental data come against the technical condition, the trader will measure the strength of the released fundamental data to take the trading decision.
Sometimes before an economic data release, traders predict the data using the other economic indicators already released, and take the positions on the currency pairs according to their predictions. In such situations, after the economic data release currency pairs move little bit to the direction of the data release and then move against the data release.
To make a successful forex trading strategy, you have to focus on the overall sentiment of the traders towards the overview of the fundamental condition of a currency not only on a single economic news.
Okay !!! How to focus on the all of three analyses ?
If you know the way to interpret the technical indicators, to identify the price action chart patterns, to identify the harmonic chart patterns, to determine the support and resistance level using Fibonacci retracement levels, to identify the bullish divergence and bearish convergence and to use other technical analysis tools, then determining the condition of a currency pair under the theories of technical analysis is not hard to you.
But fundamental analysis is not an easy tusk in forex trading because there are numerous factors that are responsible for the change in demand and supply of a currency. The routine news are easy to track, but the uncertain political or other news are hard to keep abreast with.
Upcoming fundamental news and already released fundamental news create a short term sentiment in the market. The recent effects of the fundamental news in the market is created by the small traders, but the large traders generally focus on the overview of the fundamental condition of an economy.
Commitment of Traders (COT) report is very reliable tool of sentiment analysis for the all forex traders where the position held by the large traders can be found in the report.
The most effective technique of applying all of three analyses in your forex trading is to wait for the price to reach at a reliable support or resistance level, measure the probability of breaking the support and resistance level under the light of fundamental and sentiment analysis and place an order.
Dear traders, If you have any question, you can ask me dropping a comment below. If you want to receive the future posts from me, simply subscribe with your email, using the subscription box in the sidebar.
In a week the COT index for commercial traders clearly showed that they are overbought. The EUR/USD pair was making bearish convergence with RSI oscillator. The fundamental news were negative for the Euro,but still the EUR/USD pair was bullish for about 48 hours.
A winning forex trading strategy must include the all of the three analyses. Focusing on one and ignoring other analyses can be the major reason behind the failure of a trading strategy. The analyses have relationship among them.
For example, suppose in a market situation a currency pair is technically oversold. Now If the fundamental data come against the technical condition, the trader will measure the strength of the released fundamental data to take the trading decision.
Sometimes before an economic data release, traders predict the data using the other economic indicators already released, and take the positions on the currency pairs according to their predictions. In such situations, after the economic data release currency pairs move little bit to the direction of the data release and then move against the data release.
To make a successful forex trading strategy, you have to focus on the overall sentiment of the traders towards the overview of the fundamental condition of a currency not only on a single economic news.
Okay !!! How to focus on the all of three analyses ?
If you know the way to interpret the technical indicators, to identify the price action chart patterns, to identify the harmonic chart patterns, to determine the support and resistance level using Fibonacci retracement levels, to identify the bullish divergence and bearish convergence and to use other technical analysis tools, then determining the condition of a currency pair under the theories of technical analysis is not hard to you.
But fundamental analysis is not an easy tusk in forex trading because there are numerous factors that are responsible for the change in demand and supply of a currency. The routine news are easy to track, but the uncertain political or other news are hard to keep abreast with.
Upcoming fundamental news and already released fundamental news create a short term sentiment in the market. The recent effects of the fundamental news in the market is created by the small traders, but the large traders generally focus on the overview of the fundamental condition of an economy.
Commitment of Traders (COT) report is very reliable tool of sentiment analysis for the all forex traders where the position held by the large traders can be found in the report.
The most effective technique of applying all of three analyses in your forex trading is to wait for the price to reach at a reliable support or resistance level, measure the probability of breaking the support and resistance level under the light of fundamental and sentiment analysis and place an order.
Dear traders, If you have any question, you can ask me dropping a comment below. If you want to receive the future posts from me, simply subscribe with your email, using the subscription box in the sidebar.
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