Currency Market Analysis: Which Type Is Better, And How To Use It In Your Strategy?
There are two types of forex market analysis: fundamental analysis, which takes into account economic, social and political factors and how they affect the foreign exchange markets, and technical analysis which applies charts to spot trends and patterns in the movement of prices.
So which one is better? If you go to forums and websites you are going to find many traders vehemently argumenting for one or the other. Those who like to lean on on charts will advise you that the only way to make profits with foreign exchange trading is to identify trends and jump onto them as soon as possible.
However the advocates of fundamental analysis believe that it is the economic factors that drive the changes in currency prices and this is doubtlessly true, at least most of the time. From that position they will reason that any formation you might recognize on a chart are nothing more than coincidental.
But logically this does not certainly follow. Even though economic shifts have a enormous impact on the forex markets, it may still be possible to spot patterns in the way that the markets move after an news release or in times when there are no major announcements.
If on the other hand you lean exclusively on your graphs, you are likely to be caught out when a major financial event such as an interest rate change is unexpectedly released. If you were not following the market news and left a position open at the wrong side of the market, that could result in a disaster.
So the bottom line is that there are economic events behind the larger scale rises and falls in the market, but there are also usual formations that can be identified in the short term. Finding these formations and trends, while following the economic and political news, is the right way to predict future price movements. And predicting future price movements, obviously, is the way to earn money with currency 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 forecasts how far it will go in each direction before reversing.
So when you want to profit from currency trading it is better not to allow your attention to become fixed on either one. You ought to learn to balance the use of both types of currency 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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