Best method of analysis for Forex trading in Australia
It is not uncommon for a novice forex trader to experience low profits and high losses during the first few months of trading. The worst thing you can do is give up hope and quit after just a few losing trades.
Knowing how to make money in difficult situations always help pull you through this funk.
Before taking this step, one must comprehend many things, as quitting means accepting defeat before even trying hard enough. Therefore, it is recommended that you practice your analysis methods with demo money until you find yourself consistently making profits from your trades.
One of the most successful ways of analysing Forex pairs is using price action analysis. This method enables an individual to trade successfully without requiring other tools or indicators (although using these too will be helpful). However, it also gives the least amount of information compared to the other two methods, fundamental and technical analysis.
Using this method, you will not know many things, such as the current market sentiment or where the stock will go in the long term. Instead, you will have to focus on analysing patterns in candlestick charts to determine when a good time for buying or selling the pair maybe.
Price action gives information about short-term trends rather than long-term ones. Other than that, price action also enables one to trade even when no obvious things are pointing in either direction of whether it would be advantageous to buy or sell at that moment.
Another popular way of analysing Forex pairs is by using fundamental analysis. It’s the analysis of economic, political and social information to try and determine what will happen to an economy in the future.
One of the most common types of fundamental analysis used by many traders is macro-economic analysis. This type of fundamental discussion takes place on a national or global scale. It includes GDP, inflation rates, interest rates, unemployment rates, and other information relevant to one country’s currency.
Another less common but still very effective way of analysing Forex pairs is technical analysis. This form of analysis doesn’t look into any news releases; instead, it uses past trading data (also known as price action) to determine which direction the market could be heading next. One of the most common types of technical analysis is charting, where traders look at the history of a currency’s trading pattern to try and predict its next move.
Simple moving averages (SMA)
It is probably the most straightforward technical indicator available, consisting of a single line drawn across a price chart. Whilst there are many different moving averages, the Simple Moving Average is illustrated below.
Using this indicator is simply a case of drawing a line through selected closing prices on a given time frame (over periods such as days, weeks or months) and then plotting two lines on either side. The idea is that if the price continues to rise, then the line will follow suit, whereas if it falls below this line, it may indicate an end of the bullish trend and a coming bearish one.
Moving average convergence divergence (MACD)
This indicator was developed by Gerald Appel in 1979 and is a form of trend indicator. It shows you where the market has moved to about its average and is commonly referred to as ‘moving average convergence divergence (MACD). The MACD line is typically calculated by subtracting the 26-day exponential moving average from the 12 days EMA.
Although professional analysts use all three types of analysis for Forex online trading, it is recommended that you stick with using price action until you have a better understanding of how each method works. It will help you save time and effort and lessen your chances of making costly mistakes in the long run.
Once you begin having an idea about what will happen next based on patterns present in price action, you could start looking into other forms of analysis as well. However, by that point, you would not need this article anymore as most beginner traders have already learnt how to trade successfully using price action analysis.