To know how to properly analyze the market is equal to making money on it. The whole essence of work in the financial markets is the ability to predict the price movement. Therefore, leading analysts of the world come up with all the new ways and patterns by which the price moves. But still, at the moment there are two types of analysis:
- Fundamental analysis
- Technical analysis
There are several other methods: candlestick, wave and fractal analysis. But all of them can be attributed to the technical method, as charts are used there, and the forecast is built on the price history.
Technical analysis is an analysis of the history of the behavior of a currency on a chart for a certain period of time. It is the most popular method of forecasting and the easiest to master. Advisors and robots that trade automatically are built on the basis of technical analysis.
For example, if our strategy is designed for trading on a 5-minute timeframe, then the decision is made based on the price movement over the last 24 hours. While good traders take into account the general trend with higher timeframes.
It is a more complex method compared with the technical one. As for making a decision, one should take into account a multitude of macroeconomic factors, the political situation, world events and possible changes.
It is difficult to process so much information, so only the most significant are taken as a basis, which already adds errors to the forecast. Moreover, it is impossible to prove that fundamental analysis works in practice.
However, using knowledge of trading on news is very helpful in trading or reducing risks when using technical analysis.
Alternative Analysis Methods
As already mentioned, there are several methods that are attributed to the individual, although in essence they are technical tools.
Candlestick analysis is a non-indicator analysis method for which a candlestick chart is used. It came from Japan and was originally calculated to work on the daily chart. The essence of the analysis is to find the figures of candles and on their basis to predict the future of the price movement.
Fractal analysis – trading is based on an indicator created by Bill Williams. It is rarely used as a separate trading strategy and is used more as an additional signal to break through the resistance or support line.
Wave analysis – created on the basis of the psychology of traders, is a separate strategy. Although it can be used in combination with others. According to the theory of the creator, Eliot, any price movement can be divided into 5 waves according to the trend and 3 waves against the trend. Beginners are hard to understand it, but professional traders active;y use this type of analysis.
Technical vs Fundamental analysis. What to choose?
This dilemma touches everyone who has decided to take forex seriously. But everyone comes to the same conclusion: they should be combined. It is impossible to deny that macroeconomic indicators strongly influence the market at the time of their release. So, you need to know about it in advance and be ready to it.
It is also not to say that the methods of technical analysis do not work, because every year there are more and more successful traders. And they mainly use technical analysis. Especially for beginners, this will be the best option. And when you gain experience, you can try to combine both ways and thus increase your income.