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George Spencer

December 6, 2021

Best Ways to Analyze the Forex Markets

Forex analysis is the study of determining whether to buy, sell, or wait on trading a currency pair. Currencies trade in pairs, with the exchange rates based on the price of one currency relative to the other. It is used by forex traders who buy and sell currencies with the goal of making a profit. 

Forex analysis is the practice of determining which currency within a pair is likely to get stronger over a given period of time. Forex traders will study a range of sources to help them in making these predictions. These sources include fundamental factors, such as the state of the economy, the price of relevant commodities such as oil, or any major news events affecting international economics. Technical factors are also considered, such as the recent price history of the currency relative to its historical averages.

Types of Forex Market Analysis

There are generally three types of forex analysis traders use to anticipate market movements and analyse trends, and they are:

Fundamental Analysis:

Forex fundamentals center mostly around the currency’s interest rate. This is because the interest rates have a sizable effect on the forex market. Other fundamental factors are gross domestic product, inflation, manufacturing, economic growth activity. Although whether those other fundamental releases are good or bad is of less importance than how those releases affect the nation’s interest rate.

Traders reviewing the fundamental releases need to keep in mind how they might affect the future movement of interest rates. When investors are in a risk-seeking mode, money follows yield, and higher rates could mean more investment. When investors are in a risk averse mentality, then money leaves yield for safe-haven currencies.

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Technical Analysis

Technical analysis is the study of a historical price action in order to identify patterns and determine probabilities of future movements in the market through the use of technical studies, indicators, and other analysis tools. Technical analysis boils down to two things: identifying trends. Forex technical analysis involves looking at patterns in price history to determine the higher probability, time, and place to enter a trade and exit a trade. This is why technical analysis in forex is one of the most widely used types of analysis.

Technical analysis can also be conducted through the use of indicators. Actually, many traders prefer using indicators because the signals are easy to read, and it makes forex trading simpler. Technical vs. fundamental analysis is a widely debated topic in Forex. There isn’t a right answer to which one of them is better. Traders tend to adopt one, or a combination of the two, in their analysis.

–Sentiment Analysis

Another widely-known type of forex analysis is Sentiment Analysis. Sentiment analysis is used to gauge how other traders feel, whether it’s about the overall currency market or about a particular currency pair. Whenever you see sentiment overwhelmingly positioned to one direction, this means the vast majority of traders are already committed to that position.

Applying Forex Market Analysis

To apply Forex Market Analysis, traders need to utilize all three types of Forex Market Analysis. This can be done by:

–Understanding and Identifying the Trends: Understanding a country’s GDP, interest rate and inflation rate provides insight on the strength of that country’s economy and by extension, their currency. For example, if the US begins an interest rate hiking cycle, the US dollar will look more appealing. If enough investors or traders buy the US dollars, this will prop up the value of the USD.

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–Analyzing Ideal Entry Points: Using multiple time frame technical analysis and an indicator like the MACD or Relative Strength Index, traders can spot ideal entries into the market.

–Considering cient’s sentiment as the final check mark before entering a trade: Traders should analyze client sentiment either by observing the net number of traders long or short, or by trading the difference in net short/long movements. The main takeaway however, is that retail clients tend to trade against prevailing trends therefore, making client sentiment a contrarian indicator.

Acquiring Forex Trading Systems and Strategies

Forex trading requires putting together several characteristics to produce a trading strategy that works for you. There are countless strategies that can be followed, but understanding and being comfortable with the strategy is very important. Every trader has unique goals and resources, which must be taken into consideration when selecting the suitable strategy.

Measures that can be used to compare different strategies and their appropriateness include the frequency of trading opportunities, time and resource required, and the typical distance to target.

A day trader’s currency trading system may be manually applied, or the trader may make use of automated forex trading strategies that incorporate technical and fundamental analysis. These are available for free, for a fee, or can be developed by more tech-savvy traders.


Neither technical nor fundamental forex analysis is better than the other. The most feasible option for investors/traders will depend on their timeframe and access to information.

When considering a trading strategy to pursue, it can be useful to compare how much time investment is required behind the monitor, the risk-reward ratio and regularity of total trading opportunities. Each trading strategy will appeal to different traders depending on personal attributes. Matching trading personalities with the appropriate strategy is what will ultimately allow traders to take the first step in the right direction.