Determining The Better Form Of Foreign Exchange Analysis

The analysis of the Currency market can be categorized into two types:

1. Fundamental analysis takes into account economic, social and political factorsand how they sway the foreign exchange markets.

2. When the analysis is centralized specifically on the use of charts and graphs to study price movements and to analyze trends, this is called TECHNICAL ANALYSIS.

So which is the more fitting avenue? If you check out forums and websites you will see many traders resolutely 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 find out trends and jump onto them as quick as possible.

Adversely the proponents of fundamental analysis will convince 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 spot they will justify that any patterns you might find on a chart are nothing more than coincidental.

This though, is not a foregone judgement. While the vast impression on the forex market, of variations in the economic and politcal fields, cannot be denied, patterns or trends could possibly be gathered from price movements specially in the wake of announcements or during periods with no big announcements.

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 abruptly announced. You were not giving heed to the financial news and left a trade open at the wrong moment. That might result in debacle.

In the end, it is an irrefutable fact that economic aspects 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 ascertaining these trends while being aware and up to date on current events is the most definitive way to envisage direction of future currency rates. Precise prediction is of course how one makes a profit on the FX market.

Markets are sometimes delineated in terms of elasticity as they can move in either direction and fall back to their previous or another position. The factors that stretch the market are the fundamentals of socio-political and economic forces. How much it will stretch and where and when it will reach is the area of technical analysis.

So when you want to profit from foreign exchange trading it is better not to let your focus to become fixed on either one. You ought to learn to balance the use of both kinds of FX market analysis to make steady profits.

by: Brad Morgan.

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