May 10
7
The analysis of the Currency market can be categorized into two types:
1. The method of analysis that concerns itself with assaying the nature and the results of socio-economic and political undercurrents on the foreign exchange market is called FUNDAMENTAL ANALYSIS.
2. Technical analysis contrastingly , employs graphs and charts to surmise patterns that evince price movement.
So which is the more fitting analysis? If you check out forums and websites you will come across many traders decidedly supporting one or the other. Those who like to depends on charts will tell you that the only way to make money with currency trading is to classify trends and jump onto them as quick as possible.
However, those who approve fundamental analysis will maintain that the exclusive drivers of the market prices are socio-political and economic attributes, a fact that has been proven time and again in maximum of the movements. They break down that any association between the charts and real time movements are completely by chance.
That declaration 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 aid in predicting movements.
But if you place all your confidence in technical analysis, unforeseen announcements in important financial news will mostly catch you off guard. Since you would be dependant on charts and not news, you can end up picking the least favorable time to trade. Such a contingency could be cataclysmic.
So the essence is that there are economic occurences behind the larger scale rises and falls in the market, but there are also ordinary patterns that can be recognized in the short term. Identifying these patterns and trends, while keeping one eye on the economic and political news, is the best approach to predict future price movements. And predicting future price movements, undoubtedly, is the way to make money with foreign exchange trading.
FX market movements are a bit like elastic that can stretch in one way or another and then fall back, although not always to its opening position. The fundamentals are the factors that cause it to stretch. Technical analysis envisions how far it will swing in each direction before reversing.
Therefore you would be well advised not to be a believer in either form of analysis. Formidable returns are realized better when fundamental and technical analysis are combined together.
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