When it comes to Trading we must have in mind that there are many factors to consider before decide to open a trade. Obviously each Trader can decide and follow whatever he/she prefers.
When we are talking about Analysis in Trading there are 3 main types. Technical, Fundamental and Sentiment.
Technical Analysis is an analysis methodology used by Traders to forecast the direction of prices through the study of:
Technical Traders are taking decisions by analyzing the charts, on the idea that if a Trader can identify previous market patterns.
There is a very big variety of Technical indicators that traders can use while analyzing the market.
When analyzing past market data, traders can identify:
When analyzing primarily price, traders are using the previous opening, closing, high or low prices in order to determinate the main direction of the market or to target price levels.
When analyzing the volume or volatility traders can use specific indicators named oscillators to determinate whether the market is overbought or oversold.This information can help traders to detect short term reversals in the price of the asset.
Fundamental Analysis is a way of looking at the market by analyzing economic or industrial situation, social, and political factors, or the business’s assets, liabilities and earnings, that may affect the supply and demand of an asset.
Fundamental Analysis includes:
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Fundamental analysis can be used in trading, for any asset.
When trading Equities or Shares, Investors are aware of the most common financial data used in the Fundamental analysis including Earnings per share (E.P.S.), revenue and cash flow.Fundamental trading is a method were a Trader focuses on company-specific events to determinate which stock to buy and when to buy it. Trading Shares on Fundamental basis is more closely associated witha Buy-and-Hold strategy rather than short-term trading.
When trading Currencies, Investors are aware of the economic indicators and reports released periodically by the government, about country’s economic performance as: Gross Domestic Product (G.D.P.), Unemployment Rate, retail Sales, Consumer price index (C.P.I.) or Interest rates for example.The idea behind this type of analysis is that if, a country’s current or future economic outlook is good, their currency should be strong.The better shape a country’s economy is, the more foreign business and Investors will attract in that country to invest.This results in the need to purchase that country’s currency to obtain those assets.When trading FOREX on economic news, the impact over the price is immediate but less lasting, as the number of released data is relatively big.
Market Sentiment refers to the overall attitude of Investors toward a particular asset or financial market.
It is crowd psychology created during one or multiple trading session, feeling or tone of the Traders and it is revealed through price movement of the asset traded in that market:
Market sentiment, also called “Investor Sentiment” is not always based on fundamentals, but most of the times. Day traders and technical analyst rely on market sentiment as it influences the technical indicators they utilize to measure and profit from short-term price movements often caused by investor attitudes toward an asset.
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Dimitris Stylianou
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