In the 21st century, trading is a popular way of making money. There are many different ways to trade, and some have been successful with their ideas while others fail to deliver a return on investment.
Traders need to analyse single stock movements as well as whole markets. It lets them make more informed decisions about buying and selling stocks, bonds, currencies, and commodities without risking too much capital on one transaction.
You can use many analysis techniques before entering into forex trading in Australia, and they can be divided into the following categories:
This type of analysis refers to macroeconomic factors, such as financial statements and news. Fundamental analysis includes market research through prospects, reports, and shareholders. This information provides a clearer picture of where a company stands financially and how it will do in the future. While this method is dominant among traders, it only offers limited support for predicting prices based on corporate actions or events that may affect a stock’s performance.
Technical analysis attempts to forecast an asset’s price movement by analysing statistical charts. The two most popular types of charts used are bar charts and line charts; however, traders use many other forms today. According to many traders, this analysis tool provides a better and more reliable explanation of what has happened in the past and how it will affect future prices. Technical analysis is less reliant on market factors, and you can use it regardless of what the news is reporting.
It’s also crucial for traders to keep track of news that could affect their investment outlook. To find out what reports are coming out today or if there is an announcement from a company that you’re interested in.
According to many Australian traders, fundamental analysis can be confusing and complex when predicting market movements. Therefore, technical analysis works better since it’s less time-consuming and easier for people who aren’t familiar with financial statements and accounting reports. If you decide to trade with technical analysis, then you need to know how the chart patterns will affect the price of an Australian trading instrument. The most popular and easily recognized shapes include:
This pattern represents a consolidation period where prices move between support and resistance. According to many Australian traders, if the price breaks through the top of this triangle while holding above the bottom, then it indicates that an upward trend is about to begin. If the price breaks out downward, it suggests that there will be increased selling pressure, leading to another decline in market prices.
This pattern is similar to an ascending triangle except for its shape; however, both indicate whether or not there will be an upward or downward change in market price trends. A descending triangle shows a slowing down of trending prices; therefore, when this pattern appears on a chart, expect activity around the breakout (either up or down) because volume tends to pick up as the price changes.
Head and shoulders
Trading the head and shoulders pattern takes a bit more time to develop, but it’s an important one because traders can anticipate a change in market trends once the breakout occurs. For instance, if the head of this pattern is upward, there will be increased buying pressure that leads to higher prices; however, if it pushes downward, you’ll see a decrease in demand, which forecasts lower market prices.
Double top / double bottom
These patterns indicate whether or not a reversal from an upward or downward trend will occur. The double top formation consists of two peaks at roughly the same levels, while both bottoms have lows that are very close to each other, with highs separated by a considerable amount.
Australian traders rely on technical analysis because it’s easy to use and doesn’t take much time. While fundamental analysis provides an essential insight into different market factors, many traders think it’s more effective to stick with technicals due to their compatibility with other forms of research.
Implementing these analysis methods into your trading plan is one step closer to becoming a true professional in the forex market.