Determining the Better Type of Forex Analysis

Two methods of foreign exchange market analysis prevail:

1. Fundamental analysis takes into account economic, social and political agentsand how they sway the currency markets.

2. When the analysis is conducted especially on the use of charts and graphs to study price movements and to point out trends, this is called TECHNICAL ANALYSIS.

So which is the superior avenue? If you check out forums and websites you will see many traders decidedly supporting one or the other. Those who like to bank on charts will tell you that the only way to make money with foreign exchange trading is to find out trends and jump onto them as fast as possible.

Adversely the proponents of fundamental analysis will defend that it is the economic factors that drive the changes in currency prices and this is assuredly true, at least most of the time. From that stance they will argue that any patterns you may find on a chart are nothing more than coincidental.

That assertion should be taken with a grain of salt. While the direct and gigantic effects of economic changes is certain, in post major announcements situations and relatively event and change free times, technical analysis may be of assistance in predicting movements.

If on the other hand you rely exclusively on your charts, you are likely to be caught out when a preeminent financial event such as an interest rate change is unanticipatedly announced. You were not giving heed to the financial news and left a trade open at the wrong moment. That can result in debacle.

In the end, it is an undeniable fact that economic attributes are behind most, if not all of the large price movements but it cannot be disbelieved that there are trends that can be predicted by technical analysis for the shorter periods. So identifying these trends while being aware and up to date on current events is the most safe way to envisage direction of future currency market values. Close prediction is of course how one makes a profit on the foreign exchange market.

If we relate the forex market to an elastic object, it can move in either direction and at times, return to the original spot. Fundamentals stir the market. The magnitute of the movement and its return point is estimated by technical analysis.

The inference then is that a careful trader utilizes both methods. So to perpetually make profits in the forex market you must ascertain when to use which tool and how much credit you will give to their reciprocal, predicted outcomes.

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