There are many analysis methods available on the market. Some traders use fundamental analysis. Some use technical analysis; others will only use an oscillator to tell them when to trade.
Many traders try out one method at a time, but this can confuse them because there is no sure way of knowing which is best. One way of knowing which trading system works best is by testing each analysis method against each other to see which one performs the best.
This experiment can be simulated or real money accounts depending on how much risk the trader wants to take.
As mentioned above, using one type of analysis is not enough, as it limits your potential profit and gives you less information to base your trading decisions on. The best method of analysis will give you the least amount of risk with the highest potential profit.
Realistically, this means that each different type of analysis has its own strengths and weaknesses against each other.
If you are familiar with many forms of analysis, then it is easy to find out which one fits your style, but if not, then pick one or two methods to work on until you become experienced enough to try everything else.
Traders using technical analysis will receive a greater return when taking enormous risks. They can see where the price is moving rather than relying on news reports issued by financial institutions about how their stocks are performing. This still leaves gaps in your information and leaves room for manipulation and false reporting of earnings and losses.
Traders using fundamental analysis will face smaller risks as the news based on performing shares, stocks, or indices is being reported by reliable sources.
However, traders have less chance to predict market trends, which are harder to find because there is little information released publicly about pending changes in government regulations, for example. It is considered a grey area where trading could be illegal if proper measures are not taken timeously.
Money management is crucial when using any type of analysis, including technical or fundamental analysis, or even both.
Use risk assessment strategies whenever you trade with your money, either actual or simulated.
If you risk over 1% of your account balance per trade, it would probably be safer to take out half of your money and use it for another trade later on if you lose this 1%.
This way of saving your capital means more room for growth when you are back to making profits.
Getting Started in Forex:
Once traders have their new trading account set up using forex trading software, they can start making all the preparation required before entering trades.
Many experienced traders will look at the charts every day. Still, they will not actually place any trades until they have researched news feeds, economic calendars, watch lists or other types of analysis.
A suitable method of starting is placing limit orders that are less risky while giving the trader a chance to make better predictions on market changes or trends based on their unique idea about future price movements.
What is fundamental analysis?
Fundamental analysis is used to find undervalued assets, which will then be bought and sold for an increased profit.
There are many fundamental analyses, including soft economic indicators, trade balance reports, fixed asset investments, political news and even social media influence on market value.
We can categorize fundamental analysis into macro-economic research or microeconomic research. It is based on whether the analysis covers a broad spectrum of public data or more detailed information about specific companies.
Where do I start with technical analysis?
Technical analysis involves studying charts to predict future price movement without considering what causes the change in prices.
Technical traders only seem to care about price action to create trading decisions based on previous and current market information.
If you want to become an excellent technical trader, you must maintain a trading journal where you record your every move after taking a trade to look back in time and see how far off from your initial prediction price may have been.