Article » Forex Trading: Fundamental versus Technical Analysis
Forex Trading: Fundamental versus Technical Analysis
Ask yourself on what basis will you make a forex trading decision – mathematical data analyzed through charts or larger economic patterns reflected in local monetary policies?
With advancements in technology, there are numerous methods to trade in currency pairs. Broadly, these methods are divided into two categories – fundamental analysis and technical analysis. The former group deals with trading behavior as a result of macroeconomic trends; however, the latter considers historical data to forecast market patterns.
Forex Trading: Fundamental Analysis
In forex trading, fundamental analysis refers to the economic trends of a nation. It is reflected through economic reports, government policies, economic statistics, investment inflows and interest rate levels. Certainly, economic news is the most significant tool for fundamental analysis. To this end, a forex trade should necessarily subscribe to economic news and views from reliable sources.
Forex Trading: Technical Analysis
Technical analysis, in forex trading, involves charting, price value analysis, scientific studies or price range momentum. Complex mathematical calculations that lead to technical analysis are unknown to a large segment of traders. However, you can find several tutorials on how to capitalize on charts and market forecasts. Some of the most popular technical tools for forex trading are:
Trade volume index
An experienced trader knows that the market is often a mix of both these analysis patterns. Thus, you should always keep an eye on both fundamental and technical analysis patterns. In a normal market situation, fundamental trends largely affect the long-term value of a currency; however, technical tools influence short-term buying/selling. At a smaller level, the policies of your forex broker will also affect your profit taking ability. Invest time in reading forex broker reviews for high-potential trading.
Note: Technical analysis is a scientific approach to forex trading. Thus, it is easy to understand and utilize in currency trading. However, it is the macroeconomic elements that are responsible for hiccups in the market. You should invest more time in analyzing common trading behavior in relation to macroeconomic trends to make the most of forex trading.