Picking a FX Market Investigation Tool
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Fundamental and technical analysis are the two vital evaluation tools used in the foreign exchange market.
1. Fundamental analysis concerns itself with analyzing socio-political and economic forces and evidencing their influence on the market.
2. Technical analysis uses charts to pinpoint trends and patterns in the change of prices.
How do you pick the superior analysis? A cursory inspection of currency trading related forums and websites show traders being uncompromising advocates of either one of these approaches. The technical analysts assert that their method is the best for getting an early evidence of price movements.
The promoters of fundamental analysis will contend that it is the economic factors that drive the changes in currency prices and this is unmistakably true, at least most of the time. Thus according to them, chart patterns are mere events that have no real consequence on reality.
This nonetheless, is not a foregone conclusion. While the vast significance on the Forex market, of variations in the economic and political scenes, cannot be denied, patterns or trends could possibly be identified from price movements expressly in the wake of announcements or during periods with no consequential announcements.
But if you place all your confidence in technical analysis, unforeseen announcements in crucial financial news will perhaps catch you off guard. Since you would be relying on charts and not news, you could end up picking the inferior time to trade. This can end up in a major trouble.
The result therefore is that short term trading can benefit from characterizing trends via technical analysis while the large price movements are usually created by socio-economic or political forces. Identifying these patterns and trends, while keeping one eye on the economic and political news, is the best technique to predict future price movements. After all money in the foreign exchange market is made when one operates based on predicted movement and that prediction comes to pass.
Currency market movements are somewhat like elastic that can stretch in one way or another and then fall back, although not always to its original position. The factors that stretch the market are the fundamentals of socio-political and economic forces. How much it will stretch and where and when it will stay is the domain of technical analysis.
The resolution then is that a careful trader utilizes both methods. So to repeatedly make profits in the Forex market you must ascertain when to use which tool and how much importance you will give to each one.
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