Which type of analysis is best for forex trading?

The three types of analysis are unique and each performs differently.

It’s not all about which one is the best because all are dependent on each other to work better. Obviously you already know my answer. You need them all.

If we can take a small recap;

Fundamental analysis depends on the health of the country’s economic news.

Technical analysis depends on the assumption that price pattern movements repeat themselves.

On the other hand, Sentimental analysis depends on the market feelings and emotions.

None is perfect alone. To trade news,(fundamental) you need to know how the market traders/investors have reacted to it,(Sentimental).

More to that you need some of the indicators to show you what happened to the market when the same news was released in the past, (technical ).

This helps you to come up with a good idea on how to trade. It’s strong in a three some.

Which analysis is best for forex Trading

Let’s give you an example on why it’s best to trade using the three types of analysis.

Technical analysis

For example if you want to buy EUR/USD on an H1 time frame and then you decide to first do your analysis considering the three types.

First, take a look at the market chart, open EUR/USD chart. In this case, you considered the three time frames. H4, H1 and 30 min.

  • You would use the higher time frame(H4) to determine the direction of the main trend
  • The Middle time frame(H1) is our trading time frame.
  • And the smaller time frame(30 Min) to point entry points and exits.
  • Out trading set up is a breakout on the support or resistance.

You then add horizontal lines to identify the support or resistance levels and add a 21 SMA for trend.

Looking At the H4 chart, the trend is pointing upwards. This confirms uptrend. Because you still had doubt, you added the daily chart to.

 On to the H1 time frame, Price has been testing the resistance level for some time. At least three touches for confirm. The smaller time frame (30 Min) also showed the same set up.

Mean while, formation of a strong bullish reversal candlestick pattern is an added advantage for confirmation. 

Fundamental analysis

As you wait for the confirmation signal to give you entry, it’s time to check with the economic calendar.

Ooops! it’s NFP in the next hours time. Come to think of it, it’s the first Friday of the month.  You just woow to yourself because you know what NFP does.

You have always wanted to trade NFP news but at the same time you scared of it. The last months, it blew your friends account. Any ways, it’s a set up you don’t want to miss.

On the economic calendar, the Economy expects an addition in the number of jobs. That is good for the economy. Never the less, does that help! Of course not. You decide to wait for the News.

Getting back to the chart, every thing looks perfect. The moving Average indicator also shows the bullish bias. It’s time to look at the market sentiment.

Market sentiment Analysis

Actually for the last 4 hours, it’s the bulls in the market. From the appearance of the congestion, you can see a shift in momentum. A new higher low has formed and price is just camping below the resistance.

Buyers are taking more position in the market than the sellers which is a good sign.

Results

 From the technical view, the formation of a bullish engulfing pattern and break out of bullish candlestick closing above the resistance gave an entry signal.

This gives confidence that there is a likely hood for a strong movement after the break on resistance to the upside. Mean while, you take trade with a stop loss, since you expect strong news(NFP).

At the same time, news release turns out positive. 

The value of the jobs created are higher than expected hence a strong bullish market. 

The market sentiment became more bullish and the bulls are taking full control of the market.

Since all the indicators point to your direction, you decided to add another trade and extend our target level. Isn’t that beautiful? What a happy ending!

This means if you still had doubt on the technical indicators, without using the fundamental news you would miss out on the trade.

So the three analysis can help make strong decisions to trade and clear all your doubts.

However, this doesn’t guarantee you 100% safety in the market.  In the forex market“anything can happen.”  So you must always prepare well and trade with risk management controls measures.

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