The forex market is a market full of opportunities for those who wish to make huge amounts of money in a very small time. Making money in the currency market is something that is based primarily on your ability to analyze and predict the future market scenario or position. And in order to analyze you need tools that can help you gauge the market in a better manner. Two most important of these tools are technical and fundamental analysis.
Though both technical and fundamental analysis and can help you get a better picture of the market, there is a heated debate regarding which analysis method is better and more intrinsic in nature. Well, the war between the fundamentalists and technical analysts is ongoing. The fundamentalists believe that price history has no effect on the future price of a currency pair whereas the technical analysts believe that economical reports have no effect on the price of currency pairs. Well, the good news is that both the sides are quite correct. But in order to understand which technique is better for you, you need to understand the difference between them.
Fundamental analysis primarily involves taking up the study of the economic conditions in an economy to predict the value of the currency of that country. Fundamentalists look at things such as interest rates, unemployment rates, GDP figures and many other factors to comment on the health of a nation. They then use this information to place trades in the currency market and earn profits from those trades.
On the other hand, technical analysts make use of charts depicting the price movement of the currency pairs in order to determine the future course of the price of the currency pair in the market. They make use of historical price data to determine what the future price is going to be. For them the state of the economy of a country does not matter at all and they purely look at the price history to determine future market course.
So which form of analysis is better? While there are arguments supporting and contradicting both the forms, in my opinion your decision should be based on the kind of trading strategy you are following. Apart from this it is advised that you make use of a combination of both the techniques. From the long term perspective you should make use of fundamental analysis and from the short term perspective you should rely on technical analysis. Only this way you would be able to understand and predict the market in a better and more reliable manner.
Leave a Reply