This is the first of a series of lessons. The series will include a range from beginning to intermediate topics, from setting up your trading platform to trading a wave. This first lesson will cover the three basic types of market analysis. Which include: fundamental, risk sentiment and technical.
Fundamental analysis is the analysis of a countries economic standing. For instance, if America’s economy is healthy, then investors are more likely to buy USD and invest in US asset. This is healthy for the American economy and in turn is healthy for the USD. If instead the economy is sick and the FED intervenes and cuts interest rates, then there might be a sell off of the USD, because America’s economy might be viewed as week. The above example is a simplified explanation , in real life it is not quite that simple. Later on in the series we will go into greater detail about fundamental analysis and how to integrate it into your trading strategy.
Technical analysis is the study of price action, it is where like everything math comes into play. There are literally hundreds of ways to study price action. Techniques that range from charts including: point and figure, swing, candlestick, line and bar, to taking tick data and creating complex cellular automata networks that use quantum mechanics. Who knows you might come up with your own method to solve the enigma of price action. The important thing is to use technical tools that make sense to you, and are easy to use, KISS (keep is simple stupid). In a future lesson we will cover the most popular technical tools and how to use them.
Risk sentiment, when it comes down to it the market moves because people make it so. People are the ones who execute the trades, and price action is simply a reflection of that and fundamentals are simply the motives. It is important to understand that an economic event might be viewed as a positive event for an economy by some people and at the same time be viewed as negative event by others. The market is subjective, even technical factors like chart patterns are subjective. For example, not everyone is going to see the same head and shoulders pattern that you do, and even if they do they might not draw the same way you do. The important thing is to try and figure out where the dominant psychology of the market lies, is it with the bulls (buyers) or with the bears (sellers). Again, this subject will be covered in more detail later on. Hope you enjoyed!