Forex Analysis Do You Use Technical or Fundamental Analysis?
As a beginner in forex you
might wonder which market analysis is better, easier and most profitable –
technical or fundamental. Is it better to focus on one of them, or rather syndicate
the two for better results? What do other traders use to analyze price
movements?
Technical analysis uses forex market data, such as prices, volume, etc., together with technical indicators, such as relative strength index, moving averages, Fibonacci, etc., to choose the trading positions and estimate upcoming price movements.
Technical analysis is based
on:
1. Analysis of chart formations
2. Distinction of trends
3. Identification of buying and selling
prospects
4. Analysis of highest and lowest price
of a currency
5. Understanding of opening/closing prices
and volume of transactions
Based on the trading style,
forex trader can practice technical analysis on a daily basis (5 minute, 15
minute, hourly), weekly or monthly basis.
Technical analysis uses the
hypothesis that all market data and probable currency volatility can be attained
from the price chain. Forex trader who uses technical analysis trusts in three
fundamental rules of thumb:
The market moves according
to all factors
The price movement is
purposeful and linked to these events
The history tends to repeat
itself
In other words a trader
looks back at what has already happened and makes conclusions based on the
believe that volatility will most likely have the same form of the past.
Fundamental analysis uses
financial news and economic news such as:
Earnings and consumer
reports
Economic data releases
Interest rates updates
Political news
Weather broadcasts.
Fundamental analysis includes
the analysis of current political and economic conditions in the country of the
selected currency. Generally, the country’s economy relies on the following
factors:
1. Central Bank’s interest rates
2. National unemployment data
3. Tax policy
4. Inflation rate
5. Political unrest or transition
Forex trader who uses
fundamental analysis studies the external factors which may affect the supply
and demand of the market. Fundamental analysis in forex assumes that the market
is unpredictable and the information can’t be immediately obtained; the
currency prices are inconsistent and will change according to the future
economic conditions.
So which analysis is more
vital? Can a trader use only one in order to succeed or it is important to
combine the two together?
My opinion - don’t limit
yourself to one kind. Fundamental and technical analyses complete one another
and both are necessary for successful forex trading.
