And another chapter in our daily forex mini-lessons.
Did you know that forex trading requires an analysis? Well of course you did, but for those who are only starting to trade and are only coming to our website – forex trading requires an analysis. It is connected to the fact that the markets are always moving and it is necessary for us to know when and where the next movement is going to be.
For these purposes several ways of forex analysis were developed.
First one is based on the overall currency performance and the chart studying. This type of analysis is called technical analysis.
The second one is the fundamental analysis. It is required when a trader wants to assess the while economy of the country, the currency of which is used for a certain trade.
The third one is a sentiment analysis. This type takes the whole situation of the market and sees whether the markets is bullish or bearish.
As you could probably guess, none of these types of forex analysis is good on its own. Using only one of them is simply not going to work. Remember when people though that the Earth stood on the three elephants? Well, those are the three elephants of our trading world. and if even one of them goes away, a crash is imminent.
And here the situation is just like this. For example.
Take sentimental analysis. For the last decade the markets have been bullish. And does that mean that there were no rapid falls and losses? Well of course. And those, who counted on the bulls to take up the assets were sorely mistaken as probable lost a lot.
Imagine. you want to rely on the technical analysis, sure, the USD/JPY looks so good right now that you just can’t stop imagining yourself in that red Lamborghini you always wanted. And WHAM! United States impose sanction on Japan out of nowhere. Yen falls and you lose precious pips as well as your money.
Of course, taking into consideration all of the analysis points would surely help you lose less or not to lose at all.
My point is as follows – do not rely on a single type of analysis at a time. There are so much factors in Forex trading that it is simply not wise to say the least.