Forex is a type of investment based on exchange transactions between currency pairs, traded on a virtual market open 24/7. The Forex market has different types of earnings thanks to the advantage of being able to choose currencies and times in which to operate. However, to maximize your chances of making money, it is important to go beyond the Forex market, using specific tools such as technical analysis and fundamental analysis.
Fundamental analysis and technical analysis
The fundamental analysis implies a continuous observation of the related markets in certain elements, ranging from economic data to the thickness news, which can greatly affect the operating conditions both for the exchange of currencies, for both positive variations or negative of a currency rather than another.
If we take as an example the news of an increase in the exchange rate of the Dollar following some economic events, we can see how this can affect a greater or lesser exchange of Dollars on other currencies, or push the user to prefer a currency rather than another at that particular time.
The technical analysis, on the contrary, involves the use of advanced tools for the study and observation of the markets and concerns in particular bar graphs or candlesticks. The latter in particular are used to observe the main reactions of the different currency pairs, favoring one particular currency rather than another.
What are the advantages offered by fundamental analysis in Forex?
Now we will try to analyze more closely and in detail the elements that must be considered both for what concerns the fundamental analysis and for what concerns the technical analysis in the relationship with the Forex market.
The fundamental analysis is based on a general rule that concerns every operation carried out on financial instruments, which indicates that the markets are not in a stalled position, or rather they cannot be considered as static, since they are subject to variations that may affect one direction rather than another.
Even if there is no 100% safe method that allows defining these trends, there are different analyzes that can however approach these percentages and consequently lead the user to reach excellent earning possibilities. These mechanisms can be adopted mainly considering that all currencies traded on the Forex market can be influenced by some important factors such as economic data. These can be influenced by notable events such as the economy of a country and its way of governing, which definitely influence the value of a currency, and therefore these values can make the difference, turning into greater gains on the Forex.
The economic calendar is the most important tool of fundamental analysis
Among the most used tools in fundamental analysis, the economic calendar is certainly the main one. This calendar contains important elements such as Gross Domestic Product (GDP), employment data and central bank operations that influence the various Forex currencies.
In fact, GDP symbolizes the value of a country’s economy. This data used for a currency exchange with a country that has an excellent result in this sense, may already be a first important element to consider. Along with an excellent GDP impact, the level of employment is also added. This suggests that, since high unemployment creates more pressure on a country’s economy, this factor is a further signal of the opportunities or disadvantages in currency exchange.
Finally, the operations of the Central Banks, which are important players in the Forex sector, can greatly influence the exchange rate, demand and supply of these currencies. Finally, let us remember that the most influential Central Banks are the FED and the ECB. The first is the acronym of Central Bank America, which has a greater influence on the exchange of currencies with the dollar, while the second represents the European Central Bank, with a greater influence on the exchange of currencies based on the Euro.
What are the advantages offered by technical analysis in Forex?
The technical analysis pushes on a graphic observation of the main elements that can influence a currency exchange, leading the same user to prefer one currency rather than another.
The best graphs that best express the technical analysis are …
- Line charts;
- Bar charts;
- Candlestick charts.
The choice of one of the three graphs is at the user’s discretion.
Line charts are among the easiest to use and involve the graphic observance of a line. This combines the closing prices with a set interval, offering a first view of the general price trend with the final objective of understanding which currencies have achieved a better result, without however highlighting the minimum and maximum levels reached during the day.
The bar chart, on the other hand, is more specific than the first graphic type used and allows you to obtain important information on currencies, such as the opening and closing price and the minimum and maximum levels reached during the day by the various currencies (which on the contrary the line chart did not allow).
Finally, the candlestick chart or candlestick charts also allow you to observe significant changes in the currencies, offering graphic solutions that allow you to immediately understand the main results recorded.
For example, the green color of the candle may indicate that an opening price of a currency pair is lower than the previous closing price, while the red price of the candle may indicate that a closing price of a currency pair is less than subsequent opening price. The advantages of this last typology are very evident, that is timeliness in operations and ease in graphic observation of the main results, in order to better define which currencies to aim to maximize the possibilities of earning.
To conclude, we would like to point out that the best traders use both analyzes to optimize their earnings, since regardless of the fact that the basic principles of the two analyzes are based on different instruments, the common goal on which both are based is in detecting the main factors that influence Forex currencies.