One of the most significant questions traders have is where to base their currency market analysis?
Either on Fundamentals or Technical?
All of the market trading participants no matter the size, big or small would sometime look at either technical or fundamental signal of the market.
Some say that the Fundamental analysis is used for long-term trend while Technical analysis is used for short-term entry and exit points. Though the Fundamental analysis supporters say that Technical analysis is based on feelings, it is not a science and looks like “magic” than reality.
In Japan, candlestick analysis was used to forecast rice prices in the 18th century. This is considered to be the first time the Technical analysis appeared. However, we can also find some traces of technical analysis in Dutch market in the 17th century.
The most substantial advantage of Technical analysis is that you can apply it in any market, Forex, Stocks, Bonds or even on the Property market.
Technical analysts use the chart information to analyze trends and find the possible future path of the prices. Hence, Technical analysts are also called chartists.
The price history and volume are the most critical factors for analyzing the charts used in technical analysis.
On the other side of the financial world stands the Fundamental analysis which is based on financial statement analysis. That is looking at the balance sheet, cash flow statement, profit and loss statement for earnings, dividends, etc.
In the case of the Forex, Fundamental advocates they look at the economic calendar and follow the economic data releases such as Inflation, Growth, Retail Sales, Employment, etc.
More importantly, fundamental investors would look at the interest rate differentials of the central banks. As well as central banks statements to formulate views of the currency market path.
These type of analysts or traders do not look at previous exchange rate prices. They generate opinions like buy, sell or hold without entry points.
Some Forex investors support that the chart development precedes news releases.
For example, before the release of the significant economic news, we might see the US dollar strengthening against its counterparties. However, building an uptrend structure and then that confirmed with the release of better than expected news.
The chart analysis could create expectations for upside development of currency. Further, if that is supported by the economic data of currency’s economy like stronger growth than forecasted then buying this currency could light up your profits.
In the case, both types of market analysis agree, then chances for a profitable trade are apparently better and those who incorporate both fundamental and technical analysis could have a significant advantage over the rest of the market participants.
To be a successful trader, however, you need to absorb all the related information generated by any market analysis.
The Forex market has been widely opened to all the people as the technology has evolved and the quantity of the Forex market analysis offered at the moment is vast and mostly free.
Therefore, a trader must be able to filter out the false information and keep the most profitable one. Nevertheless, other skills are required to become a productive Forex market trader.
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