There are various tools that are available to help you get a feel for the forex markets, and which way they are likely to move and how quickly. This is important, of course, as it enables you to reduce your risk and increase your chances of executing a successful profitable trade.
You need to have a solid base understanding on the fundamentals of the market- the big macro events that are affecting prices, or that may affect prices in the near to medium term. This is the reason our resident forex expert spends so much of his time digesting the news and trying to second guess the markets on our blog. We are talking big macro forces such as the overall strength os one country’s economy over another, government intervention, quantitative easing, that sort of thing. Announcements by financial leaders can also have a big impact of course.
The other kind of analysis that you can do, is technical analysis, of course. These two areas aren’t mutually exclusive. They should be studied together, to give you 2 pieces of the forex pie that (hopefully) will enable you to predict price movements more accurately. This is when you’ll start getting excited by such things as Bollinger Bands or even, dare we say it Parabolic SARs.
You need to decide how much time you spend on:
- Analysis of the Fundamentals
- Techical Analysis
Too little analysis, and you are trading blind. Too much navel gazing and you may not be able to “see the wood from the trees”. It’s a balance.
Technical analysis involves a lot of poring over charts. Luckily, there have been many shortcuts developed that will help you to analyse price movements- and this is what we’ll be concentrating on in this section: forex indicators. By forex indicators, we mean tools such as Bollinger Bands, Parabolic SAR, MACD, EMA, SMA etc. We’ll try and break these indicators down and explain them in plain English, dicusss their pros and cons etc. You can also run through a list of topics in our forex school online.
Just remember, that all indicators use historical information to try and predict future events. So there’s a big caveat here- it doesn’t necessarily follow that future events will be similar to past events. Something may just come out of the blue