Methods to Analyse
Whilst you are likely to just want to get on and begin your trading unfortunately it is not that straight forward. Before you take that path you will need to analyse markets in order to decide what (and how) you wish to trade a particular market. Broadly speaking we can divide analysis into two core components: Fundamental and Technical.
Access our FREE Market Analysis and Education!
A Fundamental Analyst tries to determine whose economy is thriving compared to whose is struggling. This is achieved through analysing data and reports whilst having an understanding of the reasons to how and why such data impacts supply and demand of a stock or currency. The simplest way of looking to this is through the belief that if a country is healthy then the demand for a currency should go up, taking the local currency up with it. This is simply because foreign investors will bring their money into the country in hope of capitalising gains from the healthy economy, which increase the demand and value of the currency.
Technical Analysis is the study of historical price and volume data (usually in the form of charts) in order to try and anticipate future direction of a market. Technical Analysis believe that all relevant information is included in the price, therefore all that is required to assess the relationship between supply and demand is a price itself.
The links below will provide you access to a series of comprehensive Technical Analysis education which also includes over 4 hours of video.
Access our FREE Technical Analysis guides!
TECHNICAL ANALYSIS versus FUNDAMENTAL ANALYSIS
We could look at the comparison as price versus value:
- Technical Analysts look at price
- Fundamental Analysts look at value
If Fundamental Analysts looks at the reason behind past or potential market moves, then Technical Analysts look at the effect of market moves.
They both agree on the principle of supply and demand. However a Technical Analyst does not need the reason behind the change in supply and demand to see that a change has in fact taken place – as they can visually see this change in the form of trends on a price chart.
COMBINING TECHNICALS WITH FUNDAMENTALS
Some analysts choose to use both forms of analysis in tandem, whereas others (like myself) decide to specialize in one or the other. There is no right or wrong answer as to which you should choose, as long as you are comfortable using a particular method and can make an objective trading plan using your chosen methods.