What is Forex Analysis

There are some core elements of forex analysis in the context of its main functions and principles. To begin with, forex analysis falls into two main categories and namely, fundamental analysis and technical analysis. If you read articles on forex analysis, published at some of the leading financial broadsheets such as Financial Times or The Economist, you will be overwhelmed by the amount of information that they are jam-packed with. Yet, you should be able to process and synthesize all the information. You have to do this against the background of the latest market developments that you follow. Also, you have to be able to analyze the current economic situation in the country whose currency you are interested in trading. In other words, just being able to interpret the various indexes and other figures that you find in the columns is far from enough. You have to be able evaluate and, ultimately, to benefit from the information that these publications provide. To put it simply, the small traders are good readers, as they meticulously cram into their heads every bit of information about forex analysis that they could possibly find in the press. The big shots read only what they need as to bring their financial operations to ultimate success.

The technical aspect of forex analysis boils down to the indexes and figures mentioned above. Those who want to understand the constant fluctuations on the currency market need to carry out a long series of accurate calculations - the backbone of every trading action plan or strategy. In this relation, forex brokers employ a wide arsenal of sophisticated numerical tools and software. The goal of all this is to forecast possible movements in the price of a given currency. For example, forex oscillators are numerical tools that brokers use to predict the forex price action, often compared to the ‘language’ of the foreign exchange market. Other tools like the forex trend indicators help brokers determine the strength and direction of a particular market trend. Here, it should be mentioned that forex traders decide what methods and tools of technical analysis they should use depending on the current market conditions.

Fundamental analysis, on the other hand, deals with the particular reasons that have triggered a given price action. To this purpose, experienced forex players have mastered the skill of determining the causes behind price fluctuations, based on the information they receive from the news. And while fundamental forex analysis mostly deals with the current market situation, it can also be used to predict some oncoming economic events, as the latter usually move at a much slower pace than the market developments. More important, however, is the capacity of fundamental analysis to produce information about possible future hikes in the value of a particular asset or group of assets. In this way, it enables brokers to determine the causes behind a particular market trend. It also helps them decide if the trend will remain ongoing over a certain period of time. This is what makes fundamental analysis so important to one’s profit or loss at the foreign exchange.