FX Trading: Quantitative and Sentiment Analysis

The two main methods of forex trading analysis are fundamental, which uses human intuition to predict how world events will affect the market, and technical, which uses data to study the effects rather than the causes to make predictions. But these are not the only means of operating within the FX trading market. Other means often produce similar, even superior, results when handled properly. Here are a few of these techniques.

Quantitative Analysis

As the name suggests, this style uses the study of data in order to make forex trading investment decisions. But unlike technical analysis, this actually requires hiring a third party to do the analyzing for you. Quantitative analysts, commonly referred to as quants, use mathematical equations of market data in order to calculate future trends. Typically, they do this by plugging in numerical values for variables in equations that simulate reality. While this is not 100% accurate, it can be very valuable.

In addition, quantitative analysis is used to measure other forex trading strategies. Quantitative analysis is used in simple equations that calculate earnings per share, as well as complex tasks like option pricing and discounted cash flow.

Hiring a quant will cut into your total investing money, but could pay off by increasing profits if the data you receive is of a high quality. Find a highly reputable qualitative analyst with a degree from a top university and successful history on a forex trading platform.

Sentiment Analysis

A sentiment analyst is the guy who roots for the underdog. When everyone is buying into a specific currency, the sentiment analyst moves his money somewhere else. Instead of following popular trends, sentiment analysis predicts that these common tendencies will make the FX trading market lean too far in one direction and overload, causing an inevitable shift. Instead of joining the masses, the sentiment analyst tries to stay one step ahead and discover the next big trend while it is still cheap or tries to sell off rising currencies before they reverse trend and start to dip.

Forex Demo Accounts

If you are looking to practice some of these techniques to discover what method of you prefer, but are afraid about losing money, open a free forex demo account to begin FX trading, risk free. Stay current by reading the most recent to forex news so that you can get a grasp of the intricacies within the market. Then, when you’re ready, begin investing for real with a forex broker.