Surely you already want to get profit from forex, and wonder, how to analyze the forex market trend with forex trend analysis?
In the previous chapter, we learned a lot about forex, from the history of retail forex trading, what is margin trading, to getting to know the type of broker, you can come back to read it if necessary.
Now is the time we will know how to analyze the market, which can be broadly divided into three types.
The first is technical analysis, the second is fundamental analysis and the third is sentiment analysis.
For those of you who are beginners may be wondering, why are there several kinds of analysis in one market?
This is indeed a bit strange but all three are analytical approaches using different methods, but essentially have the same goal, determine market trends.
Well, we will discuss how to analyze forex market trends one by one.
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Technical analysis of the financial markets
How to analyze the forex market trend based on technical analysis? Technical analysis is basically a way of analysis by learning price movements.
In theory, it uses historical data, to determine current conditions and possible future price movements. Technical analysts assume that all market information is reflected in prices. So all information out there is included in the formation of prices in the market.
This information will is used in determining their entry. Maybe you’ve heard the slogan, history tends to repeat itself.
This is more or less the theory in conducting technical analysis. Basically that’s how technical analysis when prices are in the area of support and or resistance.
Then using a technical analysis approach. This area will be a reference in determining the entry and or target profit that is likely to be achieved.
Technical analysis will pay attention to patterns that have occurred in the past and then describe patterns that are likely to repeat the same pattern in the past. As a reference in determining to buy or sell entries.
How to analyze based on technical analysis?
How to analyze the forex market trend. Usually, technical analysts often use various indicators which are typically mathematical transformations of price or volume.
This indicator is used as a tool to determine whether an asset is in a trend and the direction of the price of assets in the trend.
Technical analysis traders also study the correlation between price, volume, and margin in futures trading.
Other studies also use a correlation between changes in options and buy/sell options and their prices.
Essentially, technical analysis studies two areas of investment that are an analysis of market psychology and analysis of supply and demand.
Traders with technical analysis attempt to predict price movements. In order to gain success in trading and minimize the risk of loss and generate positive returns in the future through risk management and financial management.
When a trader uses technical analysis the first thing they think of is a chart. They will see chart patterns formed by market mechanisms. Then make an analysis using previous data by observing the market patterns that are formed.
For example in the picture below.
From the image above, we describe that when prices are in the area of support and resistance that are bounded by horizontal lines.
In that area prices often bounce back, on this basis, trades that use technical analysis open positions. There are several branches in applying this technical analysis.
From using candle patterns for example with Elliott wave theory, using indicators and there are only with the naked trading chart. For more strategies, you can explore with forex technical analysis course education for advanced trading. Technical analysis is a simple forex trading strategy for beginners.
Forex fundamental analysis
How to analyze the forex market trend. In the second type of analysis is a way to analyze the market with a fundamental analysis approach.
Fundamental analysis is a way of approaching the market by using economic, socio-political data, and analyzing government policies. And then estimating whether the news information has on a good or bad impact on a currency.
Fundamental analysis is a different way than technical analysis in calculating the importance of information obtained from a country’s political or economic development.
Whether the information will be a factor that will affect fluctuations in the exchange rate of currency or not.
Some principles of using fundamental analysis are as follows:
- Chain action: The greater the impact of information, the effect it will have on the forex and stock indexes.
- Interval Information: The closer information is to an asset, the greater the influence of the information. For example, information from within the United States will have a greater effect on the value of the USD compared to information from abroad.
- News Sources: The more official and popular news sources, the stronger the effect on the value of a stock index.
- News Type: Economic news has a stronger influence on a country’s stock index than other news, such as political, social, and cultural.
How to analyze based on fundamental analysis?
How to determine forex trend direction based fundamentally? All information about a country’s economy or politics can be used as a tool to predict the movement of a stock index or currency.
Therefore, fundamental analysis is very closely related to the news. In essence, the information and data will affect the demand and supply of forex or a country’s stock index.
In conducting a fundamental analysis method, a willingness to update or follow a country’s economic news release is required. The information media is also diverse, through official news releases on trusted news sites; through a country’s statistical center or certain ministries depending on the data.
How do you know the release schedule? You can see it through the Forex Calendar from a website like as forexfactory.
Good news will have an impact on the strength of the currency, and bad news will give impact on the weakening of the currency.
Bullish comes from the word ‘bull’.
These characteristics describe the movement of market prices as if they were going to go down but actually going up (similar to the movement of a bull gore at his enemy, that is, gore and then thrown up).
Meaningfully, this means that this news will tend to drive up the price of an asset. Be it a currency, index, or stock.
Examples of bullish news are that if a country’s Gross Domestic Product (GDP) is rumored to rise to above its initial estimate. It will tend to encourage its currency to strengthen.
Bearish comes from the word ‘bear’.
These characteristics describe the movement of market prices that look as if they will go up but actually prices will go down (similar to the movement of a bear gripping its prey, ie lifting and slamming).
Examples of bearish news from the media are if there are rumors of a decline in consumer inflation (CPI) to lower than initial expectations.
News about weak inflation can cause a currency to weaken.
However, it should be noted here that fundamental analysis requires carefulness in identifying news. Even though the example mentioned so, the effect in the field will not always be certain. Because there are many variables that occur at the same time. Fundamental analysis is uncertain, there will be a time when anomalous conditions will occur, though not often.
Therefore, the majority of traders combine technical analysis and fundamental analysis.
How to analyze the forex market trend based sentiment analysis? Maybe you will ask, what is sentiment analysis?
Sentiment analysis is the attitude of mutual agreement of market participants, to anticipate price movements under certain conditions.
This attitude is a mixture of various fundamental and technical factors. Including the pattern of price formation and the release of economic data or global news that is considered important. These variables all form an investment market community perception.
If you are a trader working based on the fundamental analysis you might have experienced and felt surprised when NFP went up but the USD actually dropped? Or when you see the price of currency even strengthen when the central bank cuts interest rates?
This is certainly contrary to the theory of fundamental analysis. The key to such conditions called market sentiment.
When learning forex, all traders will get acquainted with the general understanding of the effects of high-impact news.
Where positive news will trigger an increase and negative news can cause a fall in prices.
But in reality, it does not always happen because prices sometimes do not show a response or actually move in the opposite direction.
How to analyze based on sentiment analysis?
How to analyze the forex market trend in this way? If you are still surprised by this condition, then you must understand that the ups and downs of prices can occur due to market sentiment.
If it’s that important, then how to measure market sentiment? Even if there is an NFP release that gives a good effect, the USD will not strengthen if market sentiment does not support it. What influences sentiment can be by exploiting fundamental conditions.
For example, when the SNB cut interest rates in early 2015.
Why Swissy rises high because there are other fundamental factors and occur at the same time and are more important than changes in interest rates. Namely the revocation of CHF pegging against the EUR.
Another example comes from the BoE interest rate increase in 2017 which actually occurred a decline in the GBP. The news, which is usually positive in nature, is not able to trigger bullish sentiment. Because the decision of the Central Bank is motivated by the split voice of policymakers.
From the two examples above, the conclusion is that you can find out market sentiment easily if you are understanding the fundamental situation.
However, not all traders have the same interest in learning fundamental analysis. For those of you types of technical traders or even beginners who are not ready to mess around with the ins and outs of fundamental understanding.
Here is an easy way to measure market sentiment.
Use Price Action
In general, price movements on charts are a simple but reliable measure of market sentiment.
To easily measure market sentiment, you only need to look at how price action reacts after high-impact news appears.
If prices strengthen even though negative news previously appeared, then market sentiment towards the currency is very bullish. The greater the contrast, the stronger the sentiment.
Measuring market sentiment is different from just reading price movements. Price increases after positive news, it is indeed a good confirmation to buy. But actually, the accompanying bullish sentiment tends to be mediocre.
What often becomes good sentiment is when prices strengthen after negative news appears. At such times, the bullish sentiment is so strong that it can rule out the negative effects of the news that is usually high in impact.
One safe rule for trading with high-impact news is to wait for some time after the data release.
The reason is to make it easier for you to read market reactions. This is especially for you if still lack experience. The times leading up to and the release of the news are moments that are full of market speculation.
Volatility is very high and price movements have not stabilized in certain directions. Enter trade under these conditions is certainly very difficult, both technically and psychologically.
If you have lacked in experience, you should do an entry trading only when the sentiment can be read clearly.
In this case, how to measure sentiment after the news release can certainly help you to be more careful in reading market responses and determining the direction of entry.
Studying the three ways to analyze forex market trends will provide a deeper understanding of market conditions and reality.
If you prefer technical analysis, with the reason that this method is simpler, then in every order you have a good plan and do it with discipline.
Conversely, if you prefer to do fundamental analysis, you also need to pay attention to what is the market sentiment after the high impact news was released.
There is no one that is perfect for analyzing market trends because of the very large forex market participants have varied views on one currency.
To complete the deficiencies that occur in all methods of analysis, traders need money management and risk management to protect your trading account.
Are you ready to start trading?