Foreign Exchange Investing

Analysis of the Currency Market

Want to learn how to earn money in forex in practice? Great! Analysis of the foreign exchange market is the essence of this.

Analysis of the Currency Market

There are three ways to analyze the currency market:

  1. Technical Analysis

  2. Fundamental Analysis

  3. Sentiment Analysis

Each form of analysis has its advantages and disadvantages. Let's take a closer look at these three forms of analysis.

Technical analysis, fundamental analysis and sentiment analysis

Imagine that weather is an analogy / metaphor for the currency market. Two completely diff things of course, but the following example may be a useful comparison:

Imagine a market where you bet on the weather, instead of betting on exchange rates.

If one were to predict the weather using technical analysis, would be seen on the weather of the past. One looks backward in time: In Hallingdal month of July was the hottest month in the past fifteen years. It would therefore be natural to assume that July will be the hottest month in Hallingdal in July next year.

In fundamental analysis, there are other factors that count-in. Here is one more concerned with the state of things in order to predict the future. If we continue the analogy of the currency market and the weather would be in fundamental analysis looked at things that we know affect the weather, as in what direction the big winds moving temperatures, high pressure and low pressure and so on.

Sentiment Analysis has a completely different approach than the other two methods of analysis. The analogy fits probably not as good in terms of sentiment analysis, but we still continue with the comparison between the weather and currency markets, we have studied what people think about the weather prospects. The difference here of course is that what we think about the weather can not affect the weather, while in the foreign exchange market is one of the opinions that drive the market.

The significant here is that technical analysis, fundamental analysis and sentiment analysis are three distinct forms of analysis, but the goal is the same for all: to predict future prices in the currency market.

These three forms of analysing the currency market are also widely used in the stock market, the commodity market and any other financial markets. Thus, learning a little about these tools will give you a great investment tool even outside the currency market.

Read more on how to analyse the financial markets:

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