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Currency Market Analysis: Which Type Is More Helpful, And The Right Way To Apply It In Your Strategy?
There are two types of foreign exchange market analysis: fundamental analysis, which considers economic, social and political impacts and how they affect the currency markets, and technical analysis which applies graphs to identify trends and patterns in the movement of prices.
So which the right one? If you check out forums and websites you can find many traders vehemently supporting one or the other. Those who like to lean on on graphs will tell you that the only way to earn money with currency trading is to identify trends and jump onto them as soon as possible.
At the same time the advocates of fundamental analysis believe that it is the economic factors that drive the changes in forex trends and this is undoubtedly true, at least most of the time. From that position they will argue that any patterns you might observe on a chart are nothing more than coincidental.
But logically this does not certainly follow. Even though economic changes have a enormous influence on the currency markets, it may still be possible to identify formations in the way that the markets react after an news release or in times when there are no major announcements.
If on the other hand you bet totally on your graphs, you can probably be caught out when a major financial event such as an interest rate modification is suddenly released. If you were not paying attention to the market news and left a trade open at the wrong side of the market, that could cause a disaster.
So the bottom line is that there are economic events behind the larger scale movements in the market, but there are also typical formations that can be identified in the short term. Finding these formations and trends, while monitoring the economic and political news, is the optimal way to forecast future price movements. And predicting future trend changes correctly, of course, is the way to earn money with currency trading.
Foreign exchange 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 expand. Technical analysis predicts how far it will go in each direction before reversing.
So when you want to make money from forex trading it is better not to allow your attention to become fixed on either one. You must 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 correct 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 bet on what you read.
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