How to make your first market analysis.
You get to a point where you want to analyze or feel the need to analyze the market, you are on the right track as a trader. Often a lot of traders make a big mistake by neglecting to analyze the market. Sometimes, you need to know how currencies are affected, economically, politically and/or socially.
The methods used to analyze the market are not complex at all. One most commonly used method is through price charts by looking at recent prices of a currency pair compared to the other period.
You use the line chart which will simply show a clear line of change in price movements over a period of time.
Bars and candlesticks are one of the other ways to check and analyze how the price movements have been moving. Switch between different timeframes to broaden your analysis theory.
The bars and Candlestick charts are designed to display a detailed price movement of a currency pair within a chosen timeframe. These charts are defined by four points, and thus each bar or candlestick has a high, low, open and close.
In most cases, this helps a lot in discovering repeating patterns. This is called technical analysis, analyzing pattern movements in the market by traders across the globe. This helps the trader monitor both current and historical price movements of a currency pair.
When one has had an opportunity to use the technical analysis to study all patterns and market trends, you can forecast your entry and exit point of your trade.
Technical analysis is broader than one can think, as there are so many technical tools and methods that one can use to determine trends and patterns.
However, even though there could hundreds of technical analysis, there will always be those common analysis methods used by a lot of traders such as:
- SUPPORT AND RESISTANCE LEVELS
In Forex Trading, it is best to understand everything before dwelling in deeper, the professionals have a vast knowledge of trading and thus it is best to learn it as an amateur because it is where professionals used to be.
We will get deeper and deeper, and refine your knowledge about forex. Now, having said that, the Support level and the Resistance level, are price points that the market repeatedly hits and then reverses its direction.
The Support is when the price drops
The Resistance is when the price rises
They never breakthrough before they reverse their direction, and this can help you determine which way to go.
As with Indicators, they simply display trend lines on your charts, it can either be on recent price movements of a currency pair or just below.
Here’s a list of Indicators.
- Average True Range (ATR) Indicator
- Bollinger Band Indicator
- Commodity Channel Index (CCI) Indicator
- DeMarker Indicator
- Envelopes Indicator
- Force Index Indicator
- Ichimoku Indicator
- Moving-Average Convergence/Divergence (MACD) Indicator
- Momentum Indicator
- Relative Vigor Index (RVI) Indicator
- Relative Strength Index (RSI) Indicator
- Stochastic Indicator
- Williams Percent Range (WPR) Indicator
- Average Directional Index (ADI) Indicator
- Moving Average (MA) Indicator
- Moving Average of Oscillator (OsMa)
- Parabolic Indicator
Indicators have some of the two factors that a trader ought to know – they will either display an analysis based on past market price movement (lagging Indicators) or provide a forecast future price movements (leading indicators).
The Forex Market has so many technical analysis tools such as patterns. This will display a very neat series of price points of a currency pair and will forecast market price movements when completed. Patterns also come with types, and some of the common types are flags, channels, and triangles.
The Market has very complex patterns to look into when you are ready for complexities, you may analyze your movements using the Fibonacci levels or ABCD patterns.
At the beginning of the article, we explained factors affecting forex currency movements, namely: economy, politics and social – and you should know that news has as much potential to affect currency value as with government decision, interest rates and much more.
These factors make a currency pair to be volatile, and when a trader tracks these factors it is known as fundamental analysis. As with MT5 now you get news in a form of the economic calendar (This will help you forecast the market movements.