No two days are the same in forex trading. The forex market is in a constant state of flux and traders must react to any significant change in currency exchange.
The ability to identify and translate these changes into trends is a practice that the good trader must develop.
The large number of variables that influence this market makes the concept of ‘trend identification’ quite controversial. Those who decide to research trends often decide on fundamental analysis or technical analysis.
Some believe that these two types of analysis should alternate, while others believe that the combination of both is the perfect key to becoming a successful forex trader.
Fundamental analysis considers macroeconomic, social, and political variables that may have some impact on the market. Therefore, fundamental analysis will take into account any factors that have an effect on the intrinsic market value of a financial asset.
For example, currencies, in forex trading, are highly influenced by external factors such as international interest rates or the publication of certain economic results.
The nature of these factors is so broad that fundamental analysis will have to consider the impact of these variables on the market over the long term.
By contrast, technical analysis is an observation of trends over a shorter time frame, reacting to the slightest movements in asset prices.
This form of analysis uses statistics and charts to describe the behavior that assets have previously shown such as trading volume and price.
Technical analysis, also known as charting, uses a wide variety of charts for data extraction.
From a psychological perspective, the terms that traders use on a daily basis in this market such as bull, bear, or top are in fact trend assumptions.
A bear market is indicative of a bear market, a bull market indicates a rising market, and a top occurs when the market has reached its highest peak. Whichever method we choose to identify trends, we must always bear in mind that they should not be underestimated, but in the same way, they should not be overestimated.
Currently, the market offers a huge number of alternatives to choose from, and by identifying trends, the trader is offered the unique opportunity to contextualize and rationalize the execution of their operations.
Even so, every decision in the market carries a risk and you cannot fully trust the repetition of certain trends as if they were molds or templates, showing the same behavior over and over again. We must also assess fluctuations and sudden movements, which occur on some days in an unpredictable way.
IG Markets, one of the providers of CFDs (Contracts for Differences) in Spain, offers you a wide range of resources that will be useful to you in your trading, such as daily comments from its expert market analysts.
In addition, with the IG Markets graphic figure recognition tool, you can always be on the alert for potential opportunities that arise in your operations.
Note: The above comments do not constitute investment advice and therefore IG Markets accepts no responsibility for any use that may be made of them. CFDs are a leveraged product that carries a high level of risk and can result in losses that exceed your initial deposit. Make sure you fully understand the risk involved and constantly monitor your investment.