There is an easy answer for this question. Whatever form of analysis you feel the most comfortable with is very likely going to be your best choice. However, you do have three types to choose from and there is nothing that says you can’t bounce back and forth between them, use more than one or not use any of them for a period of time. The idea behind analysis is to give you some better information that can possibly tip you off on a trade that you may not have considered before or the analysis may tip you off on the timing of a trade. Regardless of how you use it, the more information you can gather to build your trading career, the better.
1 – Sentiment Analysis
In simple terms, sentiment analysis is data that helps to determine if the market is either bullish or bearish based on the fundamental outlook currently or in the future.
2 – Technical Analysis
When you study price movement of currency pairs with the use of various charts you are conducting a form of analysis. That form is technical analysis.
3 – Fundamental Analysis
The study of how a specific country is economically and the factors that drive that in the realm of supply and demand is the final form of analysis. It is considered fundamental.
What may not be as obvious at this point is how all three of these types of analysis work together and can be used together to formulate smart currency trades. Well, at least that’s how it is supposed to work. The important thing to keep in mind is to not fret so much on what parts of the puzzle you may miss if you spend too much time with one form of analysis over another. Remember, as we stated before, whatever method you are the most comfortable with is the one to focus on until you gain confidence to add more.
Could You Do Better By Flipping A Coin?
Well, that’s a good question. Let us answer it by saying this: when you were in school and you had a major exam coming up, did you do better with at least some studying (or cramming) or do you think you would have aced the test by not studying at all? The answer will depend on various factors in your own knowledge base and what methods you commonly used for study purposes. The same basic premise works with Forex analysis.
There are times when knowing too much information can work in your favor. However, there are also times when knowing too much can hurt your chances. We still don’t advise flipping a coin or drawing straws or phoning a friend for advice. Forex trading is equal part exciting and frightening. You want to be prepared for handling either and the more homework you do to reach that point, the better. Analysis just happens to be some of that homework.
You could say that sentiment, technical and fundamental analysis all combine to help you when you find yourself battling between following your heart, using your gut or using your head for your next trade. Each of the analysis formats are like that. The best part about Forex trading is that you have access to so much information that can assist you regardless of your experience.