The forex market is the largest financial market in the world. It is also having the largest turnover among all the financial markets. The average daily turnover of the foreign exchange market is $6.6 trillion.
Trading in the forex market has to be done in currency pairs. The pairs are formed by the foreign exchange market and rates are determined according to various factors. The best ways to analyse the forex market depends on pairs of currencies only.
Several ways are used by forex traders to analyse the market. Here are the best ways to analyse the forex market. Traders need to analyse the market before entering into any trade. Based on the market events, methods of analysis are applied.
4 Best Ways to Analyse the Forex Market
There are four most common types of styles that are used for the analysis of the forex market. Traders can choose the most appropriate method that fits their requirements. Market analysis methods are used to identify trades so that profits can be maximised.
Here are the four best ways to analyse the forex market:
Interest rates are the common factors that affect the exchange rates of currencies. It has a direct impact on the forex market. Various other fundamental factors are Gross Domestic Product (GDP), unemployment, manufacturing, growth of an economy, and many more.
But these other factors are less important as compared to the interest rates of an economy. A higher interest rate of an economy means more investment is taking place in the economy. On the other hand, lower interest rates mean the economy is underdeveloped.
Usually, economies with higher interest rates are having stronger exchange rates in the foreign exchange market and vice versa. Those currencies are safer for investment and could yield higher returns for traders.
Technical analysis in forex means studying the historic price movements and patterns formed in the price chart. It is also known as one of the most used types of analysis by forex traders.
The forex market is known as the most liquid market. Therefore, using charts for studies can give traders a clue for further price movements. Many points of the charts can be studied by traders such as where the currency is the strongest and weakest as well.
These price indicators are easy to use and apply as well. Traders used to prefer these indicators above other indicators. Hence, technical analysis and fundamental analysis are considered the best ways to analyse the forex market.
This is also one of the most used types of analysis by forex traders. Traders who want to study the price movements and fluctuations of the whole week use the weekend analysis method.
The best part of this analysis is that traders can set a picture for the coming week. When a plan is ready with traders all they have to do is to execute the same to earn profits. Trading without a plan is like trading blindly.
Studying the past of a currency can help traders to predict the future of the same in a better way. On the other hand, traders also get the time to study the market as the market is closed for trading on the weekends.
Another widely used form of forex market analysis is sentimental analysis. Sentimental analysis refers to the analysis when a trader sees several other traders enter in any trade. This is known as sentimental analysis, trading on the sentiments of other traders.
For example, other traders are expecting a rising trend in the GBP and they are investing in the same. Meanwhile, you are also thinking that the price of GBP will increase because others are investing.
Exchange rates of currencies depend on the same, buying will increase the rate and selling will pull back the exchange rate of the currency. Sometimes sentimental analysis can bring huge profits and sometimes huge losses. Traders should study the market before investing.
Factors Need to be Studied During Market Analysis
After studying and choosing which method of analysis is suitable for the trade. Traders need to study the market based on the factors that can affect their trade practices. Here are the elements that a trader should keep in mind while trading and applying the best ways to analyse the forex market:
Understanding the Drivers
A successful trader is not one who understands the relationship between the market and the exchange rates only. But he is one who understands the reasons behind that relationship. The price of a currency changes due to those factors.
Various factors affect the market prices such as demand, supply, political events, and others. Traders need to study these factors before plotting their money in the market. These are known as market drivers and price actions depend on them only.
Keep An Eye on Indexes
It is recommended to chart all the important indexes for a longer time frame. Traders need to determine the relationship between the market and the price movement. Studying price charts will assist you in predicting the prices in similar situations.
For example, if an economy has suffered a recession a decade ago. Now the economy is repeating the same situation then traders can get an idea of how much the market will fall. Hence, studying price charts of indexes is very helpful.
Study the Turning Points
It is easier for traders to predict a turning point after studying the price charts of a currency. Therefore, it is recommended to analyse price charts before you are entering into trades. During the time of weekends, traders can study price charts for longer periods of time.
Support and resistance lines are the indicators for turning points. These indicators and analytical tools are offered by many online brokers. Traders can use them free of cost in their trading practices. Hence, analyse the turning points in rates of currencies.
Timing Your Trade
The most important thing in trading is to time your trade. In short, traders should learn to study those turning points to earn higher profits. After studying turning points, traders will be able to put and pull their funds at the right time.
Analysing price charts for a longer time frame will assist traders to make the best trade decisions. Some of the elements that a trader needs while trading are preparation, discipline, and patience. Hence, learn to time your trades for higher profits.
Reduce Your Trading Risk
If you are trading in the forex market then you should follow these pricing factors to reduce the trading risks. These factors can be applied with the best ways to analyse the forex market for better results and earnings.
Risk needs to be minimised if you want to maximise your trading profit. These are the factors that can directly affect the exchange rates of the currency pairs:
A trader needs to study the trade relations of two economies before investing in the same currency pair. The trade relations indicate the amount of export and import of that economy. There should be a balance between the imports and exports of an economy.
Higher amounts of imports will make the currency weaker and higher exports will enhance the price of a currency in the market. Therefore, before selecting any pair of currency you should see its trade relations with other countries.
The interest rate of an economy can directly affect the prices of an economy. Interest rates mean what are the rates of money lending in the economy. It also indicates whether the economy is developed or underdeveloped.
Higher interest rates show that the economy is developed and stronger than other economies. On the other hand, lower interest rates mean that the economy is an emerging one. It is riskier to invest in developing economies.
Another most important factor that can affect the prices of the currency pairs is political relations. The political relations of an economy with others matter the most in determining exchange rates.
Favourable political relations give rise to industrial and economical development and vice versa. That is why it is important to have good political relations with other economies. Traders should study the relations of one economy with another.
All the current and future economical events of an economy have an impact on the foreign exchange rates. Brokers are providing an economical calendar so that traders can make clear plans about when to invest and to withdraw their funds from the market.
Traders should study all the economical events carefully while choosing the best ways to analyse the forex market. This can enhance their profits and give them higher returns. Use other indicators also provided by the broker along with this tool.
Any natural or man-made disaster has an impact on the economy. It leads to the failure of the economic system of a country. During the occurrence of the disaster, it is recommended to invest in the market very carefully.
Traders need to think twice before investing in any pair of currencies. People are also afraid of losing their money, so they withdraw their funds from the market during such a situation. Hence it is recommended to put your funds carefully.
Choose Among the Best Brokers
Traders cannot deal directly with the foreign exchange market. A bank or broker is required as an intermediary to complete the transaction. Online brokers have made it easy to execute online transactions.
Now, traders just need to open an account with an online broker and trade in their favourite currency or financial markets. Apply these best ways to analyse the forex market with them to earn good returns. The top brokers are:
Traders can start trading with a demo account offered by HFTrading. A demo account is really good for beginners or to experience the trading platform. 1:500 is the trading leverage provided by the broker.
Educational material, analytical, and research tools are some of the additional features of the broker. Traders can choose among silver, gold and platinum trading accounts. Get 24/5 customer support from the support team of the broker.
MT 4 is the trading platform of the broker that is accessible from desktop, mobile or a web browser. It is one of the top platforms for easy and hassle-free trading.
TradedWell is offering 1:500 trading leverage and a demo account for trading. Traders can also opt among the silver, gold and platinum trading account. It is one of the best brokers for beginners.
Market research tools, educational material are some of the additional features provided by the broker. Enjoy dedicated support from the customer support team of the broker. Support is available for 24/5.
The broker works on the MetaTrader 4 trading platform. Traders can also access the trading platform from their mobile, desktop or web browser.
ABInvesting is offering trading leverage of 1:500 along with a demo trading account. These two features are a must for a trader. Beginners who are choosing a broker should compare this broker with other brokers also.
Get 24/5 customer support with the broker along with a wide variety of tools. Traders can use educational material and research tools to analyse the market in a better way. Along with this, there are several more features of the broker.
Traders get easy access to the trading platform via web, desktop, or mobile. The trading platform is MetaTrader 4 trading platform.
These are a few of the best online brokers for beginners or experienced traders. Traders’ funds are safe with these brokers as they are regulated by the regulatory authorities of the respective nation.
If you are trading with these brokers all you have to do is to focus on your trading and utilise the tools offered by the broker in the best possible way. Apply the best ways to analyse the forex market to get higher results.
The Bottom Line
Forex traders need to analyse the market in a better way so that their profits can be maximised. Try to apply the best ways to analyse the forex market along with price indicators. This can assist traders in better price prediction.
Select a broker among the best brokers to get effective results. As the trading platforms are designed to enhance the functionality of a trader. Some of the top brokers are listed in this article. The factors traders should consider reducing the trading risk are also discussed in complete detail.
Therefore, traders can earn higher profits with these tips for trading in the forex market. The market study is a must and if you are a beginner, it is recommended to start with a demo account.