Analysis Market

4.Fundamental analysis

It is important for the traders to spend the time to understand the underlying forces moving the market (fundamentals) as well as what is happening in price, volume and volatility (technicals.)
Fundamental analysis is the analysis of the economical and political condition of the countries, the currencies of which are traded in the forex market. The purpose of this analysis lies in the estimation of the possible influence by the economic forces on the currency rates fluctuation. And higher yields available in one economy should fundamentally strengthen its currency.

All information could be divided into two major categories: predictable and unpredictable factors.
Unpredictable factors include sudden political occurrences, military acts, natural and other force-major cataclysms. It is impossible to forecast nor to estimate the influence of such occurrences on the market. Unlikely a beginning trader should risk entering the market during strong rate fluctuations being influenced by the unpredictable factors.

Predictable factors contain the macro-economical news. The trader knows all about these factors: publication date and time, forecasted value of the indicators estimated by the market experts. But you can never be sure of the market reaction to the indicator factual value, if it eventually differs from the forecasted.
Here are some most important fundamental factors that play a role in the movement of a currency.

Economic Indicators

Economic indicators are reports released by the government or a private organization that indicate a country’s economic performance. These reports are published at scheduled times, providing the market with an indication of whether the economy has improved or declined. And any change from the normal range can result in the large price and volume movements.

The Gross Domestic Product (GDP)
The GDP shows the total market value of all goods and services produced in a country during a given year and it measures the country’s internal growth. Before the final GDP report is released the advance report and the preliminary report are published.

Retail Sales
The Retail Sales report measures the total receipts of all retail stores in a country. This is a timely indicator of broad consumer spending patterns and is adjusted for seasonal variables.
Industrial Production

This report shows the change in the production of factories, mines and utilities within a nation. It also indicates the degree to which the capacity of each of these factories is being used.

Consumer Price Index (CPI)
The CPI is a measure of the change in the prices of consumer goods across over 200 different categories.

5. Technical Analysis.

Technical analysis is a method of predicting the price of a financial instrument based on mathematic (not economic) calculations. Another words, unlike in fundamental analysis, economic factors are not taken into the account in technical analysis. At first glance it may look absurd to try and predict the prices without taking into account interest rates, unemployment data, GDP levels, trade balances and so on. But those traders who rely on technical analysis only when buying or selling think that the price itself reflects the economy. They analyse the price movements in the past using various methods and predict what would be the price in the future.

Once you have a deep understanding of an indicator you should be able to anticipate what it will look like when you apply it to the chart. You would be surprised if you new that some major traders use a very simply and straight forward techniques for their analysis.

These are the most commonly used indicators:

Moving averages
Parabolic SAR
Directional movement index (DMI)
Relative strength index (RSI)
Slow stochastics
MACD


Moving Averages are technical tools designed to measure the momentum and direction of a trend. Different types of Moving Averages can be used to help traders make future decisions about their trades. Moving Averages are clear and simple to use and they can be easily incorporated into any overall strategy.

Simple Moving Average

The simple moving average is formed by computing the average price of a security over a specified number of periods. For example, a 3-day simple moving average is calculated by adding the closing prices for the last 3 days and dividing the total by 3. The averages are then joined into moving average line. Once a price has crossed a moving average line, it might indicate an upwards or downwards shift.

Exponential Moving Average (EMA)

The exponential moving average gives greater value to the most recent prices and the weighting is done exponentially. For example, the past values of the security receive the much less weighting and the most recent prices are more significant in determining the value of the indicator.

Smoothed Moving Average

The smoothed moving average is similar to EMA, but it considers all available data. The earliest price values receive a lower weighting. In addition, the smoothed moving average is mostly used to smoothen the price action, removing short-term volatility, allowing a better understanding of the long term momentum of the market.

Here are a few typical methods that lie at the basis of most of the strategies and methods, based on Moving Averages.

1. Crossovers - arise when the price rises or falls below the moving average, signaling the end or the beginning of a new trend. They are usually used in combination with other techniques of evaluation of the price action.
2. Divergence/Convergence - A divergence occurs when the trend has an upwards direction, but the moving average is decreasing. A convergence happens when the market trend is bearish, but the moving average is increasing. These conditions could lead to a future market reversal and it is advisable to open a counter-trend position..

Head And Shoulder Patterns

A head and shoulders pattern consists of a peak followed by a higher peak and then a lower peak with a break below the neckline. The neckline is drawn through the lowest points of the two intervening troughs and may show the upward or downward direction.

Oscillators

Oscillators are a group of indicators that were developed due to the difficulty of identifying a high or low value in the course of trading. Oscillators are aimed to identify the indicator level that hint at tops or bottoms of the price action. Oscillators can be used in ranging and trending markets. Some oscillators are very sensitive to the price action (Williams Oscillator) and they reflect market movements accurately. Some oscillators, like RSI are less volatile and are more precise in their signals, but less sensitive to the price action. Some oscillators are aimed to determine various oversold/overbought levels of the asset.

Another extremely important tool is Bollinger Bands. It is used to detect periods of low volatility in the market, reflected by drawing together bands. Low periods are usually followed by sharp breakouts and sudden increase in volatility, which is an excellent opportunity of the trader to enter the market that offers potential significant profits with well defined risks. It is also recommended to have at least a basic understanding of Elliot Wave. The applications of the technical analysis in the forex market would be to determine the overall currency trend as well as for short term timing of trades.

It is a good idea to set up your screen layouts in such a way that you see intraday charts of 4-6 major pairs at the same time. This is possible to do in your MT4 trading terminal. For intraday trading you may want to use 30 minute charts although other periods are also available. You will notice that sometimes currency pairs move in unison and may be tempted to trade a few pairs at the same time. If you are a beginning trader you should avoid doing that and try to trade one pair at a time. Stick to tried and trusted simple techniques available on the market. Do not try to invent the bicycle. It will save you time and money and will help you to trade successfully.

Understanding Candle Stick Charts:

Candlestick chart displays open, close, daily high and daily low prices. Different colors are used to show if the price went up or down during the day. Green bars indicate the price rise, and red bars indicate a decline.

Understanding Support and Resistance

Support and resistance are showing how supply and demand met. Supply is the indication for the bearish pattern and selling. Demand is the indication for the bullish pattern and buying. As demand increases, prices go up and as supply increases, prices go down. When supply and demand are equal, prices move sideways. Support level indicates the price at which buyers take control and prevent the price from falling lower. Resistance level indicates the price at which sellers take control and prevent the price from rising higher. Support levels show the price where most of investors believe that prices will move higher. Resistance levels indicate the price at which most investors expect that prices will move lower. A breakout above the resistance level shows an excessive demand as more buyers become willing to buy at higher price. The breakout below the support level shows that the supply line has shifted downward.