If you persist in browsing Forex forums and websites, you will surely notice the repetition of basic analysis and technical analysis terms, which refer to two different methods of market analysis in order to determine the levels of entry or exit from the deals. You may want to ask what exactly these terms mean?
Fundamental analysis: trading news
The use of fundamental analysis is usually called the news trading strategy. This method involves analyzing the news issued in the market, which is issued according to a predetermined calendar, and using it to achieve profits. Important news usually affects the Forex market even before its actual release, as traders resort to forecasting their expected impact and engineering their deals in a manner that reflects the expected reactions in the market immediately after the news is released.
This is why basic analysis users follow the well-known principle of “buying the rumor and selling the news” which you may have heard heard on many occasions before.
Fundamental analysis: oscillators and technical indicators
As the term “technician” suggests, this type of analysis relies on statistical and mathematical indicators in order to help determine the date for opening or closing deals.
Examples of the most common technical indicators we will find moving averages, RSI, Bollinger Bands, stops and reversals and many others. These indicators are usually divided into two main groups, “oscillators” and “indicators”. While oscillators try to predict a trend change before it occurs, indicators are used as aids to confirm the strength of the trend.
There are countless indicators to choose from, so a trader can only understand the basis for some of the major indicators. The trader can then combine two or more indicators in order to confirm the signals issued by one of them and thus obtain more accurate forecasts of future price movement in the market.
For example, among the common strategies for combining indicators is the intersection of the moving averages, during which the trader draws two lines of the moving average, one is simple and the other is Asian, then making buying and selling decisions at the intersection of these lines.
Combining different methods of analysis
Despite the explanation that we mentioned above, it is rare to find a trader relying on one of the methods of analysis exclusively, i.e. ignoring the other method of analysis, as both technical and fundamental analysis play an important role to help the trader in choosing the right moment to open or close the deal. This is why it is necessary to learn how to combine the two types of analysis if you are serious in your pursuit of profits from currency trading.
The Forex market is considered the largest global financial market because it provides great profit opportunities for traders and the huge trading volumes that exceed in recent years 5 trillion during the day, which makes it a destination for major commercial and central banks and international financial institutions in addition to large investors. But with the development of the Internet and modern means of communication, it has become very easy for the investor and the regular trader to access the Forex market and take advantage of the great profit opportunities it provides. In this article we will discuss the most important concepts and basics that you must know to understand how the Forex markets work and how to make a profit through currency trading.