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By now you’ve learned some history about the forex, how it works, what affects the prices, blah blah blah.
ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.😴
This is all obviously super important, but know that you’re now thinking…
BORING!
SHOW
ME
HOW
TO
MAKE
MONEY
ALREADY!!!!
Well, say no more friends because here is where your journey as a forex trader begins…
This is your last chance to turn back…
Take the red pill, forget everything, and we’ll take you back to where you were before.
You can go back to living your life…
OR…
You can take the green pill, which is fully loaded with the dollar extract, and learn how you can make money for yourself in the most active market in the world, simply by using a little brainpower.
Just remember, your education will never stop.
Even after you graduate from the School of Pipsology, you must constantly pursue as much knowledge as you can, so that you can become a true FOREX MASTER!
The learning never ends!
Are you ready to make that commitment?
Now pop that green pill in, wash it down with some delicious chocolate milk, and grab your lunchbox… the School of Pipsology is now in session!
Three Types of Market Analysis
To begin, let’s look at three ways how you would analyze and develop ideas to trade the market.
There are three types of market analysis:
- Technical Analysis
- Fundamental Analysis
- Sentiment Analysis
Technical Analysis: Charting the Course
Technical analysis, at its core, is the study of price charts and patterns.
It operates under the premise that historical price action can offer clues to future movements.
Traders utilize various tools applied to price charts such as trend lines, moving averages, and other technical indicators to identify potential entry and exit points.
Fundamental Analysis: The Economic Undercurrents
Fundamental analysis examines the economic and political factors that sway currency values.
It involves scrutinizing economic indicators, central bank policies, and geopolitical events.
This method is favored by those with a big-picture perspective, who believe in understanding the underlying forces that drive the market.
Sentiment Analysis: Reading the Crowd
Sentiment analysis gauges the prevailing mood of the market.
It looks for ways to understand current trader emotions and how various market participants are positioned.
This contrarian approach seeks to capitalize on extreme sentiment levels, anticipating market reversals.
There’s also another type of analysis known as Quantitative Analysis (QA), which uses mathematical and statistical techniques, along with large amounts of data, to identify trading opportunities. It relies on data analysis, algorithms, and models to create trading strategies, employing techniques like mean reversion, momentum trading, statistical arbitrage, and machine learning. While beyond the scope of beginner traders, Quantitative Analysis is widely used in algorithmic trading and high-frequency trading (HFT). It’s mentioned here for completeness, but newcomers should safely explore other types of market analysis before diving into QA’s deeper waters.
There has always been a constant debate as to which analysis is better, but to tell you the truth, you need to know all three.
It’s kind of like standing on a three-legged stool.
If one of the legs is weak, the stool will break under your weight and you’ll fall flat on your face.
The same holds true in trading.
Oh, wait. Since the stool is supposed to represent how a trader goes about thinking and analyzing the market, it’s missing a brain.
But wait! The stool needs more brains!
There technically should be three brains….to represent the three different types of thought processes…
Ahhh. There we go.
You need to have three “brains” when thinking about the market.
If your analysis on any of the three types of analysis is weak and you ignore it, there’s a good chance that it will cause you to lose out on your trade!
