Candlestick Trading Blog

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There are two types of forex analysis that investors can use when investing in the forex markets. These include forex technical analysis and forex fundamental analysis. The term forex, also known as FX, deals with the international exchange where currencies are bought and sold. This exchange is referred to as the foreign exchange and foreign currency market.

Forex analysis when dealing with technical analysis deals with the study of price and volume movements. Forex charts are the primary tools used to track the data representing these price and volume movements. FX technical analysts are not interested in the fundamentals of a particular stock. They instead believe that a stock's fundamentals are already represented in the price movements. Factors such as market sentiment, supply and demand, and political and economic factors do not concern those who trade forex using technical analysis. They are only interested in the price movements and not the reasons for these movements.

Forex technical analysts also believe that prices move in trends (trend analysis) and therefore can be predicted through identifying patterns. While these patterns are not 100% reliable, they do provide a high probability that they will produce the expected results. Forex analysis using technical analysis also relies on the assumption that history repeats itself. These analysts rely on identified chart patterns that have been in use and categorized for over 100 years because they have repeatedly led to the same conclusions. Due to this we can assume that human psychology changes very little over time. The psychology of investing as it relates to trading forex is another concept that technical analysts study as well.

Types of technical analysis tools used in forex analysis in addition to charts and trends include technical indicators, the Elliott Wave Theory, Fibonacci indictors, and gaps.

The other type of analysis is forex fundamental analysis. Fundamental analysts study and research the intrinsic value of financial instruments. They base their investment decisions on economic and political information and supply and demand. Many investors however do not trade forex using fundamental analysis because the markets often take time to recognize that exchange rate our out of line with value and the forex market tends to anticipate events and then discount them in the currency value in advance.

Hopefully this provides a good description of the two types of forex analysis at a very high level. Continue to research the foreign currency market and decide which method of analysis is the best option for you.

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