Of all the moving parts involved in trading forex, interpreting the signals the market gives you is the most important. They are what allows you to make decisions about entering and exiting trades, position size and everything else that makes trading profitable. Here's the important stuff you need to know about analyzing the market to find those signals.
As a trader, you always need to be on the lookout for these signals the market is giving you, because they can turn up at any time of the day or night, and usually without warning. So what's the best way of learning how to recognize these signals in the forex market?
Honestly, understanding what the market is saying is a skill you only acquire through ongoing study and lots of trading experience. With that understanding, the first thing to master should be distinguishing between the useful clues, and those that aren't. But before you can interpret and profit from the market's activity, you need to understand the basics of the main types of analysis.
Broadly, there are two kinds of analysis used by traders to determine which way the market might be headed. Technical analysis and Fundamental analysis. Let's look at each each one so you know what we are talking about.
Technical analysis (TA) focuses on understanding and reading historical data that has been turned into price charts and indicators. You don't need special knowledge of economic events or politics to understand Technical Analysis. For that reason, it's usually best to start here, and then move on to fundamental analysis later.
Once you understand technical analysis and can read a chart, you'll be able to spot trend changes and continuations very easily. This will help you enter and exit the market at the right price and time, giving you an opportunity to maximize your profits.
Fundamental analysis on the other hand focuses on political and economic factors. It ignores price data (charts and technical indicators), and considers economic policy settings, government announcements, relevant news and current events.
Traders who favor fundamental analysts say technical analysis can only tell you what's happened in the past, and there's no way it can predict what is going to happen the future. According to fundamental analysts, currency prices relate directly to profits, GDP and economic activity, and that's why they spend more time looking at these factors than anything else.
Being able to understand the market and then acting on that analysis is the most important part of trading forex successfully. That's why you should endeavor to learn both types of analysis. Understanding both the technicals and fundamentals will help you identify and trade market signals profitably.
As a trader, you always need to be on the lookout for these signals the market is giving you, because they can turn up at any time of the day or night, and usually without warning. So what's the best way of learning how to recognize these signals in the forex market?
Honestly, understanding what the market is saying is a skill you only acquire through ongoing study and lots of trading experience. With that understanding, the first thing to master should be distinguishing between the useful clues, and those that aren't. But before you can interpret and profit from the market's activity, you need to understand the basics of the main types of analysis.
Broadly, there are two kinds of analysis used by traders to determine which way the market might be headed. Technical analysis and Fundamental analysis. Let's look at each each one so you know what we are talking about.
Technical analysis (TA) focuses on understanding and reading historical data that has been turned into price charts and indicators. You don't need special knowledge of economic events or politics to understand Technical Analysis. For that reason, it's usually best to start here, and then move on to fundamental analysis later.
Once you understand technical analysis and can read a chart, you'll be able to spot trend changes and continuations very easily. This will help you enter and exit the market at the right price and time, giving you an opportunity to maximize your profits.
Fundamental analysis on the other hand focuses on political and economic factors. It ignores price data (charts and technical indicators), and considers economic policy settings, government announcements, relevant news and current events.
Traders who favor fundamental analysts say technical analysis can only tell you what's happened in the past, and there's no way it can predict what is going to happen the future. According to fundamental analysts, currency prices relate directly to profits, GDP and economic activity, and that's why they spend more time looking at these factors than anything else.
Being able to understand the market and then acting on that analysis is the most important part of trading forex successfully. That's why you should endeavor to learn both types of analysis. Understanding both the technicals and fundamentals will help you identify and trade market signals profitably.
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