- Forex Fundamental Analysis
- Forex Technical Analysis
- Money Management
- Forex Trading Psychology
- Forex Broker Comparison
Understanding and implementing these principles is an absolute prerequisite for being successful in forex trading.
Fundamental analysis of Forex trading
Fundamental analysis of Forex Trading Also fundamental analysis is the analysis of the forex market based on real events and Macroeconomics data related to the currency pairs to be trading. In contrast to the technical analysis, the analyst does not look at chart patterns and historical course histories but rather establishes his trade decisions based on fundamental data and news from politics and business, which are the exchange rate Influence.
The fundamental analysis is not only used in the forex market but can also be used for the analysis of other markets, such as the stock market. Components of the fundamental analysis of the forex market are, for example, the key interest rate, meetings, and decisions of central banks, all macroeconomic news, the global industry or weather news. For example, the fundamental analysis must always be based on a particular currency pair, and subsequently, only data that could affect the course of this currency pair should be analyzed.
As an example, the currency pair EUR/USD can be cited here:
If one wanted to fundamentally analyze the EUR/USD, one would look at the economic situation of both States, in this case, the US and Europe. If, for example, the economy of the European Union is on the rise, but the economy of the United States is in a downturn, this would, from a fundamental point of view, mean that the value of the US dollar will fall against the euro. The euro is becoming stronger because of the good economic situation in Europe. This should not only take into account the economic situation of the respective States. Other factors, such as the political situation, should also be taken into account in the fundamental analysis.
As you can see, in the fundamental analysis as well as in the technical analysis, not only is one factor to analyze the future price development of the foreign exchange pair, but it analyses a number of different factors and forms an overall picture of it. From this overall picture, one can then form an opinion about the future course of the analyzed currency pair.
Just like the technical analysis, the fundamental analysis, in theory, works wonderfully. However, they are also usually used in conjunction with technical analysis.
Technical Analysis of Forex trading
Technical Analysis in Forex Trading Die Technical Analysis describes the technique to analyze the forex market based on market data, price markers, charts, as well as simple and complex indicators, market volume, supply, and demand or historical market data. The basic idea of the technical analysis is that certain situations in the market participants repeatedly evoke the same reactions and chart patterns or mistakes from the past always recur at certain intervals. With the help of technical analysis, analysts and forex traders are trying to make predictions about the future development of underlying assets such as foreign exchange, equities or futures. Based on historical data, the analyst is looking for specific chart patterns in order to draw conclusions for future price developments.
An important point in technical analysis is so-called trends. Since the technical analysis assumes that certain chart patterns are repeated over a certain period of time, a trend can be identified here due to past chart patterns. If the trend is intact, it can be assumed that it will continue. If the trend is broken, if the course leaves the so-called trend channel, this can be the signal to close its position or to take an opposite position. In addition, so-called forex indicators are often used for technical analysis.
The most well-known indicators are:
- Parabolic SAR
- Pivot points
Often, analysts combine these indicators and incorporate them into their technical analysis.
Just like the fundamental analysis, the technical analysis, in theory, works wonderfully. However, they are also usually used in conjunction with fundamental analysis.
Money Management in Forex Trading
Even if you are proficient in all variants of market analysis and are able to make precise predictions for the future price development of the Forex market, you will not be able to earn money with Forex trading in the long run without good money management. Money management, as in other financial markets, is also an essential part of the long-term success of forex pair trading. This is a more or less extensive collection of rules which are adapted to the own style and the available capital and which serve the protection of one’s own capital. Money management plays a key role in realizing profits in forex trading and limiting losses and should never be underestimated.
An important rule of money management, for example, is that a trader should never risk more than 1% of his or her capital per trade.
An example of money management:
Forex Money Management Our example trader has 10,000 euros in the capital on his trading account. Due to the technical and fundamental analysis, he decides to go to the price of 1.3000 in EUR/USD with 0.5 lot short. We assume that 1 lot has a pip of 10 euros. So our dealers realize a profit/loss of 5 euros per pip. Thus, the trader should set the stop for his short position, opened at 1.3000, at a maximum of 1.3020 to remain within his money management. Ideally, the trader will withdraw his stop if the course is to develop in the expected direction.
Psychology in Forex Trading
Now that we’ve learned a lot about market analysis and money management, we’re now dealing with the emotions of forex trading. In order to be a successful forex trader in the long term, you have to have your emotions in forex trading under control. Emotions often lead to trade decisions that have been made on the basis of technical or fundamental Analyse, or previously defined setups are not consistently acted on the basis of emotions such as fear, greed or hope. Therefore, be sure to trade your previously defined trading approaches and not let emotions influence your trading decisions. Almost every practice that is used in psychology to get a grip on its emotions also works with Forex trading and helps traders to trade their trading strategies and setups and not to be influenced by emotions.
Emotions that can quickly become a problem in trading are feelings like:
- Over trading such as too large positions or repurchases if the position is not in the desired direction
- Magenta discipline
- Lack of confidence in the decision taken
- The blind act of buying or selling recommendations
Forex Broker Comparison
Currency trading with the right forex broker is key to success, it’s very important for traders. Thousand of brokers are in the currency market, choose a good broker is difficult.
So vital to look at the different kinds of forex brokers and arrange them into gatherings as indicated by their record highlights. A forex intermediary examination is fundamental for the two novices and experienced dealers alike, as comparing the administrations of two unique organizations won’t just make picking a representative a lot easier, however, it additionally offers the chance to get the best an incentive for your speculations.
Comparing time look at the those some most important points:
- Broker type and regulation
- Broker history and licensed
- Forex analysis and market updates
- Spread, commission, and trading cost
- Demo trading
- Trading platform
- Order type and execution