FX Analysis: Which Type Is Better?
The analysis of the FX market can be classified into two types:
1. Fundamental analysis takes into account economic, social and political factorsand how they sway the money markets.
2. When the analysis is concentrated essentially on the use of charts and graphs to study price movements and to point out trends, this is called TECHNICAL ANALYSIS.
So which is the more suitable avenue? If you check out forums and websites you will chance upon many traders resolutely supporting one or the other. Those who like to lean on charts will tell you that the only way to make money with fx trading is to find out trends and jump onto them as soon as possible.
On the other hand, the fundamental analysts will allege that currency prices are actuated by economic factors, a fact that cannot be opposed. Thus according to them, chart patterns are mere concurrences that have no real effect on reality.
This yet, is not a foregone resolution. While the vast significance on the forex market, of variations in the economic and political fields, cannot be denied, patterns or trends could possibly be identified from price movements expressly in the wake of announcements or during periods with no big announcements.
But if you place all your confidence in technical analysis, quick announcements in crucial financial news will presumptively catch you off guard. Since you would be relying on charts and not news, you could end up picking the least favorable time to trade. Such an occasion could be cataclysmal.
The result therefore is that short term trading can benefit from singling out trends via technical analysis while the large price movements are typically created by economic or political aspects. Keeping both eyes open is the more sensible proposal as it facilitates one to use mathematics to predict short term movements while monitoring current news and occurrences that would effect movements on a longer term and greater degree. After all money in the currency market is made when one trades based on predicted movement and that prediction comes to pass.
Markets are sometimes characterized in terms of elasticity as they can move in either direction and fall back to their starting or another position. The factors that stretch the market are the fundamentals of political and economic forces. How much it will stretch and where and when it will stay is the branch of technical analysis.
So when you want to profit from currency trading it is better not to admit your focus to become fixed on one or the other. You must learn to balance the use of both forms of FX market analysis to make constant gains.
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