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Currency Market Analysis: Which Type Is Better, And How To Apply It In Your Strategy?
There are two kinds of forex market analysis: fundamental analysis, which takes into account economic, social and political forces and which way they influence the foreign exchange markets, and technical analysis which applies charts to identify trends and formations in the movement of prices.
So which one is better? If you go to forums and websites you will find a lot of traders strongly argumenting for one or the other. Those who like to depend on on charts will explain you that the only method to make profits with forex trading is to spot trends and jump onto them as early as possible.
However the advocates of fundamental analysis are convinced that it is the economic factors that drive the changes in currency prices and this is definitely correct, at least most of the time. From that position they will reason that any formation you might find on a graph are nothing more than coincidental.
But logically this does not necessarily follow. Even though economic shifts have a tremendous impact on the currency markets, it may still be possible to detect patterns in the way that the markets move after an announcement or in times when there are no important announcements.
If on the other hand you count exclusively on your graphs, you are likely to be caught out when a major market event such as an interest rate change is unexpectedly announced. If you were not monitoring the financial news and left a position open at the wrong side of the market, that could result in a disaster.
So the final conclusion is that there are economic events behind the larger scale rises and falls in the market, but there are also basic patterns that can be spotted in the short term. Finding these patterns and trends, while following the economic and political news, is the optimal way to predict future price movements. And foreseeing future price movements, certainly, is the way to make profits with forex trading.
Currency market movements are a little like elastic that can expand in one way or another and then fall back, although not always to its starting position. The fundamentals are the forces that cause it to stretch. Technical analysis predicts how far it will go in each direction before turning around.
So when you want to profit from currency trading it is better not to allow your attention to become fixed on either one. You have to learn to balance the use of both kinds of forex market analysis to make consistent profits.
The best tool to find out whether an analysis is right or not is using forex trading signals. If you can find a good forex signal provider, whose accurate forex signals are in agreement with the analysis, then you can rely on what you read.
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