Top forex traders share their favorite methods of analysis

Every trader has an individual method of analysis that complements their capital, expertise and strategy. To efficiently study all incoming data, each forex trader must find a sense of confidence in their systems. With many styles of trading to choose from, finding the right process is key to planning out your next trade. Whether you apply a more technical or fundamental method of analysis, you must choose the best method that will suit your capacity as well as your personality and strengths.

Forex trading requires optimal interpretation of information. By refining your method of analysis, you can gain the right insight to achieve your target profits. This allows traders to prepare the most efficient strategy for an upcoming trade. From the analysis of past movements to studying daily charts , these expert traders have found their favourite and most effective ways to analyse the forex market.

After years of trading forex,
what has been your favorite and most effective method of analysis?

Aayush Jindal for Titan FX

After following the Forex market for years, I think there is no one particular method of analysis. Traders need to watch both fundamentals and technical charts to understand the market movements. When I trade, I keep a track important and long term fundamentals underlying a currency pair, coupled with technical analysis. When it comes to technical analysis, I use a simple three step process:

  1. Long term price action – I analyze and understand the price action based on high level timeframes such as daily and weekly to know whether the market sentiment is bullish or bearish.
  2. Moving averages and trend lines – Once I recognize the high level trend, I analyze moving averages and trend lines on medium term timeframes like 4-hour. It helps in me understanding whether the selected currency pair is above their moving averages and important Fibonacci levels or not.
  3. Finally, I look at the candlestick patterns to enter the market based on the lower timeframes like hourly.

Over the years, I found out that the above mentioned three step method of analyzing the market is very effective and deliver good results if traders are disciplined and follow fundamentals properly.

Fred Vold for Learn to Trade Australia

Personally, I have had great success with an approach to trading where I combine technical analysis with fundamental insights about countries and currencies. In the forex market, I like to trade on the slightly higher timeframes such as the daily timeframe to capture a bigger chunk of the move.

I have found over the years that while technical analysis does a good job at predicting short term price movements, fundamental analysis is needed in order to profit from the longer-term moves.

Unexpected events like Brexit for example made a huge impact on the GBP right away, but keep in mind that the pound continued to slide for months after the first hit. Major fundamental news events like this are therefore useful for traders of all types, not just the day traders who are trading the news as they happen.

Oftentimes, these events signal a long-term reversal in trend in a currency. I like to take advantage of that and try to get an early entry into these new trends, and then ride them for as long as I can. The entry point I will be looking for can for example be the crossing of a moving average line such as the 100 day moving average. By waiting for a break of a long-term moving average after a news event, I am in effect letting the market confirm my initial bias, and the win rate of the trade is improved significantly.

JB Marwood, Independent trader, analyst & writer

For me, the most effective method is always to look directly at price action itself. In particular, I like to analyse how price action reacts to different events and how price action compares to other markets (intermarket analysis). If a market does not react as expected to an event this can divulge important information about future direction. This method of analysis is particularly useful in the forex space due to the large number of interconnected cross pairs.

As an example, let’s say a news event comes out that should be bullish for the British pound. The FTSE moves, the bond market moves but the pound pretty much stays where it is.

The fact that the pound hasn’t moved on a bullish event (while other markets have) suggests that there is underlying weakness and pent up supply for that market. I would take that as a strong bearish signal going forward and if a bearish event was to take place my money would be betting on a downside move.

I also believe that you can build fairly robust algorithms in the forex space to take advantage of such intermarket patterns and price action anomalies.

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Paul Koger for Foxy Trades

My weapon of choice, when it comes to forex trading, has always been technical analysis combined with post trade analysis. What this means is that I have a range of profitable set-ups that I am trying to look for in the markets. I only take the trade when I see one of my top patterns forming.

Every time I take a trade, I record the chart and mark down the trade to my trading diary. I then analyze my trades every week to weed out the patterns that make me money to only focus on those. The one thing that has contributed the most to my success has been trading less and being more like a sniper than a shot-gun trader. When I started, I wanted to trade every pattern under the sun to maximize my chances of hitting it big. With time and lots of trial and error, I realized that the road to success is consistent small wins from only a few trades per day.

Rolf Schlotmann for Tradeciety

Early on I have been drawn to reversal and early trend trading. As so many other new traders, I was pushed into conventional trend-following trading because it was supposedly the easiest trading style and, as we all know, the trend is your friend. Well, that never worked for me and I always felt that I was too late.

I am now what I call a reversal or early trend trader and I specialize in those turning points where a price chart goes from uptrend to downtrend and vice versa. I am using momentum analysis along with price action principles to identify Forex pairs that are about to turn and start a new trend. This way, I can often be very early in a new trend without trying to call the absolute top or bottom, which is never a good idea.

My personal favorite price action tip for new or struggling traders would be, even though it might sound too simplistic, to look for broken trend structures where price fails to make a higher high and a higher low after a long uptrend. Many profitable chart patterns are built upon this theory and even the Head and Shoulders pattern is just made up of broken trend structures. Once you start paying attention to those turning points, your chart analysis skills will improve significantly.

Timon Weller for Forex Reviews

Pure technical analysis evaluating the higher time frame trend based off structure, this is evaluated by looking at significant highs and lows in the market on the daily chart and how price action is moving.

After determining trend direction in the market a trader can then look for pullback structure areas in that trend to look for potential opportunities and continuation in that trend.

It is also important to note that technical analysis such as structure trend analysis helps determine trading areas on that market in the trend, however when a market tests a trading structure area in that trend, it is also how a trader reads price action in that area and how they evaluate risk to reward before considering a opportunity that determines profit potential long term.

Find your most favorable method

To become a successful trader, you must find the perfect method of analysis that will fit into all aspects of your system. Before taking on a specific type of analysis, it is important to first Learn the Different Methods of Forex Market Analysis. This will guide your next steps towards the a suitable strategy and consistently profitable trades. Eventually, you can build a trading career that is both fulfilling and profitable

No matter what method you choose to apply, make sure to experience each one through trial and error with a demo account. With enough time and practice, you can adopt the right method of analysis based on your personal abilities and expertise.

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Paula Rodriguez

Paula is Titan FX Content Manager. She loves all thing creative and draws inspiration from different fields of art and expression. Her need to communicate and express her work made her pursue her love of storytelling and writing. Paula writes about the forex trading lifestyle for Titan FX and has a special interest in the physical and psychological fitness, discipline, and determination required to be a successful trader.

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