The different analysis’s of a forex trader

Mainly forex traders use three different kinds of analysis’s, namely fundamental analysis’s, technical analysis’s and sentimental analysis’s, the latest also called market sentiment. Until today fierce discussions are still being held about which kind of analysis should be the best. In this article I’ll explain the foundation of these analysis’s as well as the advantages and the disadvantages per analysis.

Before I’ll go further into the advantages and the disadvantages per analysis, things will be a lot easier to understand if you first get a rough view of the different kinds of analysis’s.

Fundamental Analysis, Technical Analysis and Market Sentiment

Fundamental Analysis

Fundamentele analyse wil zeggen dat een forex trader speculeert wat de koersen gaan doen op basis van nieuwsberichten op onder andere economisch, sociaal en politiek vlak.

Technical Analysis

Technical analysis occurs when a forex trader is speculating on the development of the prices based on the prices in the past. By means of charts recognizable patterns from the past are studied in order to be able to speculate on the development of the prices in the future.

Sentimental Analysis / Market sentiment

Sentimental analysis occurs when the investor sentiment is being analyzed to examine whether forex traders are willing to take risks or on the contrary they are not willing to do so. This is often expressed in the form of increases or decreases of specific currencies.

Which analysis is the best?

This question is frequently asked and my answer to this question is a short one. The best thing you could do is to know how to combine these three analysis’s.

Thanks to fundamental analysis you’ll consequently be informed about the foundation /the background behind a price movement, by way of sentimental analysis you’ll know how investors are going to react on this and by means of technical analysis you’ll recognize the patterns on the chart, as a result of which you’ll be able to determine the right entry moment as well as the right exit moment.

The above-mentioned scenario initially seems to be the ideal one, but in actual practice things often appear to be quite different. It so happens that actually there are but few forex traders who are optimally combining these factors and this is mainly caused by two reasons, namely the degree of difficulty as well as a lack of interest.

So for instance the application of technical analysis can be comparatively learned quite easily and that’s why it’s understandable that beginners prefer to choose this kind of analysis. Don’t get me wrong, technical analysis will also keep you updated, but the degree of difficulty is considerably lower than for instance regarding fundamental analysis, for which you’ll have to take a long way to learn to master this properly without disposing of enough basic knowledge of economics.

The degree of interest is also playing an important role. There often clearly appear to be two different kinds of categories, that is to say on the one hand there are the forex traders who are mainly interested in fundamental analysis and on the other hand there are the forex traders who are mainly interested in technical analysis. Often there will be a clear preference for one of the two analysis’s and consequently this preference is obviously recognizable in the handling of the traders involved.

Could you be trading forex by only employing the technical analysis?

Even concerning this matter the opinions are rather sharply divided, but personally I think this could really be possible, PROVIDED THAT you will take into account the effect of important news publications which will cause the market to start moving substantially!

As I already indicated, technical analysis is relatively quite easy to master for beginners. This way the OFS Trading System is also based on technical analysis. By employing the element of probability and by only trading into the direction of the trend (pay attention to the fact that there definitely are conditions bound to this procedure), in fact it doesn’t matter what’s going on in the fundamental field. As it happens on the long run you’ll be making profits by trading the same patterns all the time, resulting in the odds being at your advantage.

However the OFS Trading System is bound by a very important rule, meaning that you’re not allowed to open a position during half an hour before an important news bulletin will be published as well as during two hours after an important news bulletin has been published either. This has to do with the volatility concerning important news bulletins. Especially when you’re trading on the shorter time frames and you consequently handle smaller stop losses, the danger of your stop loss will get hit by the volatility will be too imminent. Anyway there is always the possibility that the trade will still be going into the right direction, but that’s not interesting for you anymore. In the case of some news bulletins this could end up playing with fire.

In case of the OFS Trading System in fact you only apply technical analysis when it’s about trade setups. but you will take the fundamental news into account, as a result of which there will be no drawback if you don’t know how to interpret the fundamental news and what kind of effect this could have on the price movement.

Also think of the story of the turtles. Many of these traders knew nothing about the economy etc., but by handling a trading system, as a result of which they had the odds to their advantage, handled the right mindset and employed a good risk management, they actually were able to achieve a nice return!

A good foundation is never wrong

So my personal opinion is that it isn’t by definition necessarily to be able to master fundamental analysis in order to be profitable on the forex market. If you have no time or are not interested in diving deeper into this matter, that doesn’t need to stand in the way of becoming a successful forex trader. Reaching this goal is also possible with a forex trading system based on technical analysis.

The OFS Trading System is based on technical analysis, nevertheless I advise everyone who is trading using the OFS Trading System, to be aware of the foundation of fundamental analysis as well as sentimental analysis. Not only the foundation will turn out to be easier to understand as expected, but you’ll also notice that your confidence will be growing more and more. Nothing is more pleasant than to be aware of the fact that also from a fundamental point of view you have some understanding of what’s happening on the forex market. However some people among you undoubtedly will still be going one step further and that’s called deepening. Actually you people are working on the ideal scenario, like I described it earlier in this article.

Conclusion

In the articles to come I’ll discuss the foundation of all analysis’s, so that you’ll get a better picture of the different factors which affect the price of a currency pair. In the field of technical analysis in these articles I’ll mainly discuss the basic elements which you need to get started with the OFS Trading System.

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