How To Analyze Currency Movement - a simple but powerful method

How To Analyze Currency Movement - a simple but powerful method

When many traders talk about analyzing currency movement, they tend to focus on two specific methods - fundamental and technical - but these do not give the market psychology.

Here we present two powerful tools that can be used for the analysis of currency movement, and work or fundamental, or technical method - and help you spot a really offering trend is changing.

The analysis of currency movements on the following equation applies:

Supply and Demand Fundamentals + Investor Psychology = Price Action

Fundamental analysis does not make any effort to study the psychology of investors - while technical analysis is not so - in terms of repetitive price patterns. However, technical analysis is not yet predict when pricing scheme is extreme - it simply follows the market share.

Spotting market tops and bottoms in advance

What if you knew in advance:

1st What investors thought

2nd What investors were doing

In addition, you can place, if they led a trend too far with the emotions of greed and fear.

How useful that information will be? - You could spot a potential market tops, bottoms or in advance, and make huge profits!

It is exactly two tools can do for you - and they are free!

The importance of market psychology

In any investment market, we know that investor psychology is vital in the analysis of currency movements - as investors push prices too far in either direction, as emotions of greed and fear come into play.

Investors push prices away from fair value - and then recoil prices in another direction.

Ever wondered why a large price moves take place when the market is at its most bullish or bearish? - This is investor psychology at work.

So, as you can measure investor psychology?

There are two powerful tools you can use - and they can help you spot any large top and bottom - yet few traders use them!

Here are two tools:

1st Commitment of Traders Report

It is published bi weekly by the U.S. Government and breaks down the open interest of U.S. futures markets (including currency) in three separate groups:

Commercial hedgers - These are savvy traders who are hedging, not speculating - and they are influenced by emotions of greed and fear.

Large speculators - It mostly funds that are trend following - and always get caught in the turning points.

Small speculators - This is a small sole proprietors - and they are the worst of all traders, because they are primarily motivated by emotions of greed and fear

Profiting from the following good

So, what use these functions? - Ads are hedging, and if prices spike too far from fair value, ads will move aggressively in other ways - starting a buying frenzy - and purchase price will collapse when you went too far.

The commercials are hedging - so there is no greed or fear comes into play - they're just looking at the facts. When you have an aggressive price moves, ads and trade in the opposite direction of the trend and the positions of large speculators and small - then the trend change is imminent.

A word of caution

The analysis of currency movements increased net traders positions, it is important to only trade extremes. If you watch for these extremes, and trade ads can catch the big turning points.

2nd Bullish Percent

This is a good tool to backup the commitment of traders report, is a survey of investors, brokers, fund managers, etc. - Bullish Percentage expressed as a percentage of their bullishness.

Traders in the currency should look for a figure below 20%, to indicate that the market is too bullish - and over 80% of the market that is up to bullish. When these figures are a hit - look carefully at the commercial sale and purchase - if they line up, ready to turn.