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Currency Exchange Market Analysis: Which Type Is More Practical, And How To Apply It In Your Strategy?
There are two kinds of currency market analysis: fundamental analysis, which takes into account economic, social and political impacts and how they affect the foreign exchange markets, and technical analysis which applies charts to identify trends and formations in the movement of prices.
So which the right one? If you have a look at forums and websites you can find many traders vehemently argumenting for one or the other. Those who like to lean on on charts will explain you that the only method to earn profits with currency 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 definitely correct, at least most of the time. From that position they will argue that any formation you might recognize on a chart are nothing more than coincidental.
But logically this does not inevitably follow. Even though economic shifts have a enormous impact on the currency markets, it may still be possible to detect formations 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 depend purely on your graphs, you are likely to be caught out when a major market event such as an interest rate modification is unexpectedly released. If you were not paying attention to the market 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 movements in the market, but there are also general formations that can be identified in the short term. Finding these formations and trends, while watching the economic and political news, is the optimal way to predict future price movements. And foreseeing future trend changes correctly, 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 predicts how far it will go in each direction before turning around.
So when you want to make money from currency trading it is better not to allow your attention to become fixed on either one. You should learn to balance the use of both types of foreign exchange 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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