It's Price That Pays You

There are many approaches to trading profitably but there are just two broad categories of analysis; fundamental and technical analysis

. But which is right for you? Or maybe both are?

The shocking truth about profitable analysis revealed:

Basically the aim of this article is to shed some light on these approaches so that you can use what's better for you. Let's take a glimpse at fundamental analysis first.

Essentially fundamental analysis is based on factors including economic data of countries for FOREX trading, the financial statements of stocks, competition from rival securities, the strength of the sector a stock trades in, supply and demand and news stories. Next we'll look at the basic assumption of fundamental analysis.

Fundamental analysts believe that over the short term market prices become out of balance to where they should be. In other words prices are not at an equilibrium price often, but eventually markets' prices will gravitate to the correct price. Obviously they buy what their analysis says is cheap and sell what is expensive. Next we will glance at technical analysis.

Essentially technical analysis is based on chart patterns of market price and volume. So what's the key principle of technical analysis?

Technical analysts believe that market prices already take into account all related information and that historical price and volume patterns repeat themselves. So technicians look for trends to trade in the same direction as, trading ranges and other proven patterns that will swell their trading accounts.

News stories can result in sudden large moves in markets but generally fundamental reasons for trading can cause you to be on the wrong side of the market for some time, with markets often overreacting and moving in seemingly the wrong direction according to the fundamental reasons. Therefore, personally I prefer to let price charts tell me what to do, afterall, that's what pays us.

At the end of the day as it's price that pays you, in my opinion if you're bullish (up) or bearish (down) on a market for fundamental reasons, it's important to at least time your entry and exit points to trades using technical analysis. This is an approach many of the best traders use unless you're a very short term news trader.

by: Philip Birchley

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