Forex Fundamental and Technical Analysis

forex fundamental and technical analysisWhen trading in the Forex market, you have to continually analyze price charts and market in general to get a feel for what is about to take place. When it comes to analyzing the market, there are a few different strategies that you could use to make predictions. Some traders use fundamental analysis while others prefer technical analysis. Understanding how both of these methods of analyzing the market work can help you choose the best one for your trading strategies.

Fundamental Analysis

Fundamental analysis is a strategy that looks at the underlying causes of movement in the Forex market. Instead of just looking at what will happen next, investors look at why prices are moving a certain direction. Many different factors combine to cause prices in the Forex market to fluctuate. For instance, retail sales, interest rates, consumer confidence, and statements by political figures can all have an impact on the exchange rate between two currencies. The exchange rate is essentially a reflection of the strength of the economy of both countries. Those who use fundamental analysis try to look at all of these underlying factors to determine which country will have the stronger economy in the future.

Technical Analysis

Technical analysis is another method that is commonly used to analyze the Forex markets. With technical analysis, traders look at price charts to figure out patterns in the market. Those who use technical analysis believe that everything you need to know is present in the current price of the currency pair. As a result, technical traders use only the information that is in front of them on the screen.

In the Forex market, many traders use technical indicators that are included in trading platforms. These indicators can be placed on charts so that traders can more easily figure out what will happen in the market.

Those who trade Forex market sometimes rely on expert advisors to help them trade their accounts. These are software programs that can plug into your trading platform and analyze the market for you. When the time is right, they have the capability of placing trades on your account. These expert advisors use technical analysis to figure out when to place trades.

Combining Both Strategies

While every trader has a preference on what type of analysis to use, combining both of these together is typically the best approach to take. Many traders use technical systems to help them determine when to get into the market. However, without a little bit of fundamental analysis, you cannot be sure that your indicators are going to give you the full picture. For example, your trading indicators may tell you that a good trading opportunity is about to take place. Then when you place your trade, the market moves hundreds of tips in the opposite direction because you traded right before a big news announcement. Your technical analysis will not tell you this information. By combining both of these types of analysis together, you can get a more complete picture of the Forex market.

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