Unbiased Forex Broker Experts

Part V. What type of analysis is better?

What type of analysis is better? - Forex School

Commander in Pips:
 That, right, son, but first I’ll give you very simple answer, but then explain more. And the answer is as follows – do we really need some other types of analysis, if we have some best of the best? For example, if technical analysis is the best type, why do we still talk about the others?

Pipruit: You do know me pretty well now, Commander. Yeah, that’s right. Besides, this is an obvious question – I have to ask it.​

Combination of different types of analysis - Forex School
Commander in Pips: No way! I need to get some pleasure to see when you will suffer over it.

Pipruit: Well, Sir, I understand your logic, but only deduction that I can make is that not all things are so obvious, right?​

Commander in Pips: Hey, that’s my phrase, do you have a copyright? Ok, you’ve got it right. Now, let’s explain why it works in this way.

First, on your trader’s way, you will meet absolutely different, occasionally fantastic traders, who will try to prove to you, that some way of analysis (likely that they use themselves) is a best. You will meet fans as technical analysis as fundamental, may be even other types of analysis that we do not even know (moon cycles). Don’t be confused by these one-sided enthusiasts. As I already have alluded, no one type of analysis is better than the other. They are just a possibility to look at the market from three different points, and you will get 3D-picture, instead of 2-D, or even 1-D (If it’s possible at all!). Although we’ve already discussed, that as a rule, most traders pick some type of analysis as their primary one, because it gives best results or is most suitable for their particular way of trading and secondary types, that trader uses to interpret current situation on the market. See, we need all types together, and here is how it works:

Fundamental analysis

It’s unwise to negate the fact that eventually currency rates move due to country economic health per se relative to other economies. So, if one economy is healthy and has even stronger perspective and potential, then its currency gains, if not – its currency loses. That is what fundamental analysis stands for. It helps us to make a conclusion about if an economy is healthy at all or not, what perspective does it have, does it grow, flat or recess, is it stronger than another economy, say, EU or not, etc. As a result of the application of fundamental analysis, each trader forms his/her own fundamental outlook as on the current situation as on the future. Let’s go further…

Sentimental analysis

We come to the conclusion that each trader has own fundamental outlook on some country’s economy, say, the US of A. But what does it mean? It means is that each trader has a view how bearish or bullish he/she is on particular economy. The total of these opinions creates a market sentiment. So, fundamental analysis creates shape of assessment by market participants of a US economy, i.e. – total market view (i.e. sentiment) on economy and bullish or bearish sentiment itself.

Technical analysis

As technical analysis is dealing with charts – it allows us to see this current market sentiment both in real-time and as historical and to analyze it with technical tools.

Pipruit: Cool…​

Commander in Pips: Yes, in fact, you have all that you need – historical prices, all the necessary figures and data. All you need now is to just study how to apply in-depth analysis as best as you can do and make good trades.

Pipruit: …but could you give me just a common example, how this 3-D way could be applied in real life?​

Commander in Pips: Sure. One example you’ve already got – in the first part of current chapter “Different types of market analysis” you’ve seen what a financial catastrophe will be upon you, if you will rely on just technical analysis and totally ignore fundamental and sentiment.

The role of sentiment analysis

Here is another example. Assume that your fundamental analysis shows that economy is growing and on the way to recovery. This assumes that unemployment rate should gradually decrease. Let’s further assume that today is unemployment data release for recent month and you expect unemployment decreasing. You switch on the CNBC channel and a lot of big-headed guys talk about unemployment rate and how important to see it’s decreasing to support the pace of recovery, blah-blah-blah – anyway you’ve got the point - other market participants expect the same, and you just switch the TV off. When the data has been released and unemployment really shows a decrease, you expect to see appreciation of the USD rate and open a trade based on this. Instead of what you expected, you see a strong move against your position. Why, what has happened? Unemployment decreased, the economy grows, what’s wrong, why is everybody selling USD currently? The point is that you totally ignored the sentiment of the market, how bullish or bearish their view on economy. If you have watched CNBC a bit longer that you see that market expectations was for an unemployment reduction of 0.25%, but data that has been released shows a reduction just for 0.1%. It means that the current pace of growth is slower that was expected initially and the USD is overvalued. That’s why it leads to a sell-off of USD on the market. On that simple example you can see, how important Sentiment analysis is.

Combination of different types of analysis

Here I want to show you how you can combine all types. For instance you are the trader who trades long-term trends, and fundamental analysis is a particular important one for you. You do a good job and estimate possible long-term trends changing due to changing situation in fundamentals factors of the US economy, you take into account a public sentiment as well, to fairly judge effect of new released macro data.

Combination of different types of analysis - continued

Say, currently, you see that the economy turns to recovery and shows signs of strength, you see better and better macro data, crowd appetite for positive data (i.e. sentiment) is growing also and you decide to enter on the market based on this – Sell EUR/USD, for instance. But now the question – where to enter, where to place stop/loss order? How can this be done with fundamental analysis? Of cause, you have a possibility just to enter at market without any stops, but in this case you indeed must have ruby wallet to hold any move against you, and this move could be really solid – remember, you trade long-term.

Here is where we come to technical analysis. You can analyze charts and find the area to enter – for example strong resistance level on monthly chart and to place a stop order.

Pipruit: Now it becomes much clearer for me. Thanks. I suppose that I should not rely just on one of them. But here I see another major task – I have to learn to balance them optimally to get best results.​

Commander in Pips: You are absolutely right.

Pipruit: And what are we gonna do now?​

Commander in Pips: Well, in the nearest time we will dedicate lessons to deeper investigation of technical analysis. First, we will take a look at different chart types, and learn how to read them.

Then, we will turn to the classical approach to technical analysis – classical patterns, trend lines, support, resistance and a lot of different indicators.

After that we will turn to advanced and more sophisticated part of technical analysis – Fibonacci tools, Elliot wave theory, Gartley’s patterns, pivot points and other stuff.

And only after that will shift to fundamental and sentimental analysis.

Pipruit: All right! I can’t wait no longer – let’s get started!​

Comments

Gert v Bruggen
7 years ago,
Registered user
Hi Mr Sive Morten.

i am now in the forex market for a few years
and i mostly use Technical analyze.
but there is stil one thing i dont understand?
and probably a stupid question.
but what does make the price going up or down.
what i dont understand is for example lets say u and me are 2 very big banks and we trade betwean the EUR/USD
i buy the EUR/USD really big amount and on the other side there sould be someone who is selling it u for example.
but who or what is then making the price go up or down
as i did read for every seller there is a buyer so that would make it a balance betwean them.
i also did read that even banks cant move or hold a position for long and that the health of a country is efecting the health of a Currency but stil then i dont know who is making the price move up or down.
if for example the EURO is performing bad but the US is also in a crysis then stil u see market movement
i sometimes have the feeling there is something els moving the market.
i study a bit about Elliot wave and i follow your daily analyze's on the EUR/USD and that is mostly technical Elliot / fibonacci based analyze's.

But for the last few years i follow a System called STAR it is a pure technical based system where we looking for a specific always returning pattern
it is based on Dubble move's (dubble move example EUR/GBP weekly highest point down u see from the highest to 6/21/2009 a down move then a big pullback up to 10/11/2009 and from there down the second move to 6/27/2010 but if u zoom in or go to a faster timeframe in those moves u see faster dubble moves and in there again faster dubble moves enz enz).
actualy our system is based in price and Speed and not on timeframes.
we use different timeframes in MT4/5 to show us the correct market speed

also we cannot predict where the marked is going only we know when the marked did finish a pattern and what it probably wil do
as for now it looks like for a lot of major pairs we are at a reversal point
but then even while i see cleary some pattern i stil dont know why the market is moving in those pattern .

Greets

Gert
Sive Morten
7 years ago,
Registered user
> Hi Mr Sive Morten.

i am now in the forex market for a few years
and i mostly use Technical analyze.
but there is stil one thing i dont understand?
and probably a stupid question.
but what does make..

Hi Gert,
Based on core economy theory price determines by supply and demand. It seems that major part of your confusion comes from messing money supply with price. You've said correct that there is a buyer on the other side to each seller and from that standpoint money supply does not change, it stands the same, but why have you decided that their price is the same? Market will stand at the same quote only if buyer and seller want to make trade at the same price. When more supply comes and more sellers appear - there is a competition appears between them and price starts to go down. When more demand comes - they start to competite with each other for sellers and price starts to move up.
Now there is a lot of noise here, since there are a lot of different participants with qiute different views and interests on market, that' why price movement becomes sophisticated now.
Gert v Bruggen
7 years ago,
Registered user
Hi Sive

thx for the explenation i did know about Supply and Demand.
but diddnt really understand how it works because me as simple trader i cant see who is there on the other side .
probably my broker does know alot more and see's a lot me then what i see.
and me as a small player my order is maybe not even getting on the reall marked but stay's in the broker system who just.
shows me on my platform that the order is placed but they keep it inhouse till they get some better price or some other client placing the opposide trade.

thx :)
Sive Morten
7 years ago,
Registered user
> Hi Sive

thx for the explenation i did know about Supply and Demand.
but diddnt really understand how it works because me as simple trader i cant see who is there on the other side .
probably my brok..

Heh,
yes, this is really can happen, I mean that your order will not be transferred to real market. later in this school will appear chapters, dedicated to different brokers and how they make money. So, there will be an answer.
Still, if you want to see your orders on real market - trade currency futures instead of spot forex, on CME, for example. Then you will be able to see particularly all your trades and orders on real market.
dotman
7 years ago,
Registered user
Mr Sive, Pls how do i determine market sentiment in forex?, i'm kind of new in this market. Thank you for your analysis so far
Sive Morten
7 years ago,
Registered user
> Mr Sive, Pls how do i determine market sentiment in forex?, i'm kind of new in this market. Thank you for your analysis so far

Hi Dotman,
Probably you should reach Part dedicated to Pivot points and Part to Sentiment analysis
Hamza Samiullah
2 years ago,
Registered user
informative ....

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