Determining The Superior Type Of Foreign Exchange Analysis
Two methods of foreign exchange market analysis prevail:
1. Fundamental analysis concerns itself with recognizing socio-political and economic forces and evidencing their influence on the market.
2. Technical analysis on the contrary , employs graphs and charts to ascertain patterns that connote price movement.
So which is the superior avenue? If you check out forums and websites you will come across 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 fx trading is to find out trends and jump onto them as soon as possible.
Conversely the supporters of fundamental analysis will contend that it is the economic factors that drive the changes in currency prices and this is unquestionably true, at least most of the time. From that situation they will argue that any patterns you would find on a chart are nothing more than coincidental.
But reasonably this does not necessarily appear. Even though economic changes have a massive effect on the currency markets, it may still be possible to determine patterns in the way that the markets react after a news or in times when there are no major notificaitons.
One forwarning for the technical analysis loyalists is that there is a possibility that they will be caught unawares should interest rates suddenly change. If the trader does not read the news then there is a big likeliness that they will make a bad trading call. This can end up in a major trouble.
In the end, it is an undeniable fact that economic aspects are behind most, if not all of the chief price movements but it cannot be renounced 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 foreign exchange market.
If we relate the forex market to an elastic object, it can move in either direction and periodically, return to the original place. Fundamentals alter the market. The size of the movement and its return point is estimated by technical analysis.
So when you want to profit from currency trading it is better not to let your thought to become fixed on either one. You ought to learn to balance the use of both methods of foreign exchange market analysis to make regular profits.