How to analyze markets - fundamental and technical analyses

Author: Forex Live | Category: Education

How to analyze markets from RoboForex

How to analyze markets from RoboForex

There are conventional methods of analyzing the market situation. We will discuss 2 of the most popular of them - fundamental and technical analyses. Each method has its drawbacks and advantages. Keeping in mind the huge number of market players, we will not dare say that one method is right and the other is wrong - we will just discuss some examples.

Fundamental analysis

Fundamental analysis is based on fundamental data that includes all kinds of news: economic, political, and urgent. The main group of the news can be found in the economic calendar. It is quite simple to use: it reflects all the key news, the time of their publication, preliminary forecasts and expectations, and after the data is published officially, its factual meaning also reflects in the calendar. Based on the preliminary statistics, analysis can be carried out and a forecast made about the behavior of the trading instrument after the publication of certain news.

The main economic news is:

  • Interest rates of Central banks
  • GDP data
  • Speeches of the heads of Central banks
  • The unemployment rate in the USA
  • Non-Farm Payrolls - one of the most important pieces of news published on the first Friday of each month. This index can influence the movements of currency pairs dramatically. Unofficially, the day of the publication of this news is called the "trader's salary date".

Apart from the above, other pieces of news have little significance alone but taken together, can influence the market seriously.

Political news includes:

  • Presidential elections
  • Parliamentary elections
  • Coups and revolutions
  • Changes in the government
  • Force majeure events
  • Natural disasters
  • Technical disasters
  • Wars, terrorist acts, and strikes

In trading, fundamental analysis is used for forecasting mid-term and long-term market movements, based on the news among other things. For making money quickly, traders use the moment of the publication of a piece of news. At such moments, the market can demonstrate steep growth or decline of the quotations of trading instruments, which may become a good source of income.

Fundamental analysis can be good for beginners as well. Even without a good understanding of certain indicators and their influence on the market, the trader can if not make money then save it. Before the publication of serious news, for beginners, it is enough to abstain from opening new positions and protect the existing orders.

Technical analysis

Technical analysis includes all types of chart analysis, studying resistance and support levels, as well as the values of various indicators. The name "Tech analysis" itself implies using technology for making forecasts. The technology includes various indicators, that are more than abundant and are constantly modernized and modified.

For example: 

  • Moving Averages
  • Stochastic Oscillator
  • Ichimoku
  • Parabolic Sar etc.

Technical support and resistance levels

They can also be drawn in various ways, such as:

  • Pivot levels
  • Fibonacci
  • Gann lines
  • Classic support and resistance lines
  • Chart analysis patterns, etc.

With fundamental analysis, everything is more or less clear. Certain events have a certain influence on the market. In technical, there are plenty of options and strategies. For example, analyzing the trading instrument with several indicators, we can get contrasting results. This does not mean that tech analysis is better or worse than the fundamental one - this is just another way of analyzing the market. Currently, a trader may not only choose a type of tech analysis but also customize it.

Setting up indicators

As a rule, each indicator has default settings used by most traders. Such settings are not always efficient enough on major currency pairs and high-volatility cross-rates. Experimenting with the settings and entry parameters based on personal experience, one can adapt them effectively to the chosen trading instrument.

Tech analysis

In tech analysis (which is also called graphic), there are also variations of drawing support and resistance levels, as well as patterns of tech analysis. On the chart, the trader can draw the lines and define the patterns themselves, based on which they will make the trading decisions later. Tech analysis lies at the basis of many trading systems and strategies. Tech analysis is a complex idea aimed at confident forecasting the price movements. It is not impossible that in the nearest future new methods and ways of market investigation will be invented in accordance with the requirements of modern traders.

Bottom line

Traders have a great choice of options for evaluating the market situation. What is more, they can always combine different types of analysis as well as customize them in accordance with their needs and preferences. The main thing is not to forget that any trading strategy and analysis method requires a systematic approach to studying and applying it.

This article was submitted by Dmitriy Gurkovskiy, Financial Expert and Author at RoboForex Blog

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