If you enjoy browsing forums and sites, you may have heard several times of this terms basic analysis and technical analysis, two methodologies of assessing the marketplace to determine when to enter or depart a commerce. However, what are they about?
Basic Analysis: Trading the News
The practice of using basic analysis is also frequently known as trading the news. In reality, this methodology consists in using the industry news in the various scheduled press releases across the globe and profiting from these. From the realm of Forex, economic releases have an impact even before they happen, so traders usually speculate if the predicted impact of a specific trade will reflect its real consequences when it has been released.
For this reason, people who exchange in line with the principles of basic analysis frequently follow the philosophy of “purchasing the rumor and selling the simple fact,” a phrase which you may have already heard several times.
Technical Analysis: Oscillators and Indicators
Such as the words “technical” suggests, this type of analysis relies on mathematically and statistically derived indexes that will assist you to determine when to open and close your trades.
Some of the most common indexes include moving averages, RSI, Bollinger bands, parabolic SAR, and many, many others. They are usually grouped into two different categories, “oscillators” and “indicators”: while the former attempt to predict a trend change before it happens, the latter are used as a confirmation of the strength of a trend which is already in progress.
Since there is a really large selection of indexes to choose from, most of the trader’s job lays into understanding the significance of the chief ones and determining how to combine a few of those collectively to be able to have a greater confirmation of their future behavior of the marketplace.
For instance, one common method to combine two indexes is that the so-called moving average crossover, where we plot both a simple and an exponential moving average, and we all choose to purchase and sell if the two lines cross.
Putting It All Together
Despite what you might have heard previously, no trader can devote his efforts to either fundamental or technical analysis exclusively, entirely disregarding another person — equally play a fantastic role and assist traders to choose the best time when to open and close a transaction, so you’ll have to understand how to combine the two effectively if you’re serious about trading currencies profitably!