Analysis methods in foreign exchange transactions

2023-07-03
Summary:

The analysis methods for foreign exchange transactions mainly include Fundamental analysis and technical analysis. The comprehensive application of these two methods can improve the accuracy of trading decisions.

The analysis methods of foreign exchange transactions are mainly divided into two categories: Fundamental analysis and technical analysis. The commonly used analysis methods mainly include Fundamental analysis, technical analysis, and emotional analysis.

1. Fundamental analysis

Fundamental analysis is one of the main methods used in foreign exchange transactions. It studies and judges the market situation through the analysis of economic, political, social, and other factors that may affect the supply and demand of assets. Due to the improvement of the US economy, the US dollar is continuously strengthening. With the improvement of the US economy, if the economy grows too fast or even expands, the Federal Reserve may need to control it by raising interest rates.


This includes the following methods:

1. Economic data analysis: Pay attention to the economic indicators of relevant countries, such as GDP, inflation rate, interest rate, employment data, etc., to infer the economic situation.

2. Political and Geopolitical Analysis: Pay attention to the political dynamics, elections, trade policies, geopolitical risks, etc. of relevant countries to predict their impact on the foreign exchange market.

3. Central Bank Policy Analysis: Pay attention to the central bank's monetary policy decisions, interest rate decisions, and the impact of policy statements on the foreign exchange market.


2. Technical analysis

The research object of technical analysis is determining market behavior, determining market development trends, and then formulating financial derivative trading strategies based on the cyclical changes in foreign exchange. Technical analysis is mainly based on similar patterns that have been formed in history, believing that the price of currency will repeat past trends, thus forming one's own trading perspective. But even if A and B are focusing on the same technical form in foreign exchange trading, the next trend will also be different based on the trader's own experience.


This includes the following methods:

1. Chart analysis: Identify and analyze price trends, price patterns, support and resistance levels, and other chart forms to predict future price trends.

2. Technical index analysis: use various technical indicators, such as moving averages, relative strength indicators (RSI), and stochastic oscillators, to help judge Market trends and price reversals.

3. Volatility analysis: pay attention to the volatility of the foreign exchange market and help predict market volatility through volatility indicators (such as volatility channels, Bollinger Bands, etc.).


3. Emotional analysis

Foreign exchange sentiment analysis is a way to determine the direction of the market by analyzing the emotions of traders, as the market to some extent reflects the traders' feelings towards the market. Even if you firmly believe that the US dollar will rise but other people in the market are bearish towards the US dollar, you will be powerless to handle the decline of the US dollar.


The main focus is on the following factors:

The emotions and market psychology of foreign exchange market participants

Market investors' trading confidence and market expectations


Overall, the purpose of the three analysis methods in foreign exchange trading is to solve the same problem and predict the direction of currency price changes, but from different perspectives. Technical analysis is to study the consequences; Fundamental analysis investigates the antecedents of market movement; and emotional analysis is to find the traces of price fluctuations by analyzing people's emotions.

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