The objective of the analysis of the market is to make predictions on the future performance of the market on the basis of the elements currently available and / or on the past history of the quotations of the various pairs of coins. It is evident how the analysis is at the base of every winning strategy. In this page we will examine in detail the two main schools of the analysis and we will see how, if necessary, it is possible to reconcile them to obtain profitable strategies.
Fundamental or technical analysis
The analysis of the market (but it is a matter that applies to every other type of trading) can be carried out using two different approaches: fundamental approach or technical approach. When fundamental analysis is carried out, macroeconomic and public finance data are examined, in order to predict the trend of the currency market. When technical analysis is carried out, mathematical extrapolations are performed, obtained with statistical data processing or by analyzing the graphs of past quotations. The underlying concept of fundamental analysis is that a country’s currency is not just a virtual asset but is closely related to the performance of the real economy and public finance.
There are various types of correlation, many of which are easy to understand. The first observation we can make regarding the official discount rates applied by the issuing institutes. As the discount rate increases, the currency strengthens because it will attract more investors, eager to take advantage of higher interest rates. However, we always talk about a set of factors that must be analyzed, for example if the country that applies a high discount rate has a disastrous public finance, maybe it is on the verge of default, hardly an investor will be able to bet his money on that country and, therefore, will not buy the currency.
Factors of fundamental analysis
The factors that must be taken into account when making fundamental analysis to predict the trend of a currency pair are: Difference in official discount rates: the higher the rate, the greater the value of the currency GDP trend: a positive GDP reinforces the value of a currency in the currency markets. Trends in the trade balance: if the balance is active, the currency increases its intrinsic value.State of public finance: in the event of public finance problems or excessive spending, a currency tends to weaken a lot because it takes investors away.
Use of currency as reserve currency: dollar or Swiss franc strengthens in times of crisis because they are seen by investors as safe haven assets. From a practical point of view, in order to do fundamental analysis it is strictly necessary to follow, in real time. The advice is, get our method to make safe & profitable returns. Invest in money-making stocks with our rating system, stock screening, and deep fundamental analysis tools. To give an example, a change in the official discount rate by a Central Bank always triggers the market almost in a paroxysmal way, so you have to be ready and make the most out of the changes made public. And above all we must do it with the right timing, before the value of the news is burned.
Using technical analysis means trying to predict the performance of currency markets using mathematical or statistical analysis. The underlying assumption of this type of theories is that, as investor behavior is always the same over time, the same type of stimulus will correspond to a certain type of market response. You must be able predict the trend in the listing of an asset simply by carefully observing the price chart Read more