An Approach to Forex Analysis

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by: bsullivan
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Date: Thu, 5 Aug 2010 Time: 4:15 AM
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Forex analysis is the systematic and sometimes scientific method of speculating price direction. Speculating, an informed guess, data is gathered, markets are watched and trades are made. For the highly-advanced trader, algorithms are available - computer programs that analyze and decide before the blink of an eye.
Sounds pretty intense, but what is forex analysis really? It's a personalized system practiced and improved upon daily. Most traders use a combination of trend detection tools, news and market volatility.

Forex Analysis Tools

A wide array of tools is available. Among the most popular are MACD and Stochastic. The former uses a converging and diverging set of moving averages, the second is based on an ancient Greek philosophy of randomness.

I find that since so many others use these tools they can be really tricky, giving lots of false signals. It helps to have access to other analysis tools. For this I have chosen a set of tools I found at ForexEgg.com. The set includes two tools and is free to use. There is also a Virtual Trader set up so you can observe how they intend the tools to be used. They also provide news links, quotes and charts.

Trend Detection

Trend detection is perhaps the most important aspect of trading. Trading with the trend is the first cardinal rule of trading, isn't it? Trend lines, support and resistance and moving averages are among some of the more simple ways of detecting trend.

There are some more advanced methods, based on complex mathematical theories. Fibonacci's and linear regression are two. The P.A.T. (Price Analysis Tool) is based on linear regression. It plots a slope, measures buy and hold times and then projects that into the future with stop-loss guidance.

So, if market conditions are right, and the trend continues, the PAT can be used to target entry and exit points in the markets.

Market Volatility

The word volatility has so many uses in the financial world, it's almost useless. Here, I will use volatility to express market agitation - how worked up the market is.

We all know, from experiences learned and seen, that when a crowd is full of energy and worked up, irrational and sometimes unbelievable, this can happen. The same is true in financial markets, only worse because sometimes the financial health of the world swings in the balance.

Volatility can mean the amount of expected movement at a given time. So if I say that volatility is average, and the average movement per time slot is known, we can infer that the market should move within a certain range, around the midpoint, for the projected period. Sounds easier than it is? I know.

Muhammad Hafeez, founder of ForexEgg.com, has an innovative approach to measuring market volatility. He and his team have a designed a way to measure market volatility and express it in terms of temperature. The system is based on Brownian Motion and seeks to filter out the day-to-day random movements. Larger, trending movements are then highlighted and expressed in terms of Fahrenheit, Celsius and Kelvin. So, if the markets are hot they are volatile and vice/versa.

An investor may want to wait for a "cool" market before entering, while a trader will look for "hot" markets and the wild swings that come with it.

Forex Opportunities

In every market, bull or bear, there are always trading opportunities. Having a close eye on your tools, keeping abreast of current events and patience will pay off. Currently, with the European Union on the verge of collapse, many opportunities are out there.

For more information visit: http://forexegg.com

About the Author

Tommy Hughes is a successful and largely self taught economy watcher and market speculator. He has extensive knowledge of risk management and asset allocation, stock and options trading as well as market analysis. Tommy has worked in the fast paced restaurant industry for over 15 years. Tommy also writes for food publications such as Becket Media's "Grilled" Magazine. Tommy enjoys mountain biking and brewing beer. Tommy lives in the Asheville, North Carolina.

For more information visit: http://forexegg.com