Forex traders can benefit from any trends if they anticipate them. Exchange rates are always moving up or down based on a multitude of factors. From domestic policies to international diplomacy, there is a lot to analyze. Fortunately, the trading community has developed reliable strategies that may be adopted by its new members. Here is how the two systems of analysis compare.
Managing the Risks
In South Africa and Nigeria, clients of international brokerage brands have access to advanced tools for analytical work. A trading environment like MetaTrader 5 is packed with charts, graphs, and other handy features.
On the one hand, the visuals supply relevant data for meticulous market analysis. On the other hand, the buttons ‘Stop Loss’ and ‘Take Profit’ enable automatic trade execution at favorable price levels. Generally, traders will look at data from two different viewpoints. These systems are described below.
System 1: Fundamental Analysis
Currencies lose and gain value based on a broad range of factors, both economic and political. Fundamental analysis refers to a trader’s ability to consider such drivers. From domestic fiscal policies to geopolitical clashes, the events are diverse. They propel volatility – changeability of rates. Knowledge of the volatile market meaning is vital for any trader.
Each currency pair is connected to two national money systems. Fundamental analysis requires that you study these in terms of both micro- and macroeconomic features. This means following the news closely. Events that affect the respective economies are likely to sway their currencies, too. Economic health is crucial, and it is evaluated based on a number of indicators. These include:
International investors pick locations based on their financial climate. The lower the interest rates – the more attractive the country is, and the more capital flows from abroad. As a result, the national currency becomes more valuable.
This is a vital indicator of financial health, which measures economic activity nationwide. The higher the GDP – the more likely the interest rates and currency are to grow. The value shows the sum of products and services produced over a period.
Countries with trade deficits import more than they export. This means the demand for local products is insufficient, which is another factor driving the currency down. When goods and commodities are in high demand internationally, this causes a high demand for the national currency and its appreciation as a consequence.
High unemployment points to the overall weakness of the economic system. Eventually, this is reflected in falling interest rates for investment and diminishing currency value.
There are other crucial elements, such as inflation, budget, and manufacturing. Geopolitics plays an essential role, as it is intertwined with national monetary systems. Most currency pairs include the US dollar. This means news that concerns the health of the US economy is always relevant. Even speeches that are given by politicians matter. All significant statements are referred to as ‘concrete economical announcements.’
Calendars to Help You
Given the sheer number of potential factors, keeping track of the news seems like an insurmountable task. Luckily, modern digital platforms are packed with aids that facilitate analysis. The standard economic calendar provided by FXTM reflects forecasts based on current and recent economic indicators. The tool shows the following details:
- new data,
System 2: Technical Analysis
As the term suggests, this form of analytical effort is based on precise data. By looking at price movements over a certain period, traders aim to identify regularities – patterns they can use for prediction. The method is based on the premise that all trends eventually repeat themselves. Any such patterns are known as signals.
Thus, the objective of technical analysis is to foresee future movements by looking at previous data. Traders who prefer the approach reject randomness. To them, everything happens for a reason that is predictable.
The arsenal of an analyst includes multiple visual aids. These are charts representing price and volume. Players try to foresee the most lucrative entry and exit points for each trade. A solid strategy will help you spot trends and determine their strength. Generally, you will be looking at:
- trends (upward, downward, or sideways),
- trend strength (based on volume or open interest),
- volatility (fluctuations throughout the day),
- cycle indicators (patterns that repeat themselves),
- support and resistance (points at which prices rise or fall before reversal),
- momentum (how likely the trend is to lose or maintain strength).
The Key Takeaway
Overall, with the convenient tools, we have today, online trading may be mastered by anyone. Accurate predictions require experience, but traders who are willing to learn can achieve consistent profits. Fundamental and technical approaches should be studied and understood. It is up to you to decide whether to apply them separately or together.