Those who participate in the Forex market use two different schools of thought in analyzing the said asset class, and these are fundamental and technical analysis.The main objective of these two analysis principles in relation to Forex trading and investing is to determine whether to buy or sell a currency pair at any one time.
Fundamental analysis looks at economic and political news to make investment decisions.These reports are released at different times of the year, some more frequently than others. Examples of the reports examined by adherents of the fundamental discipline are the GDP scores, CPI and employment reports.
Fundamentalists review those reports so they can produce a value which they will compare to the currency’s current value. The result of this analysis will enable him to identify whether to execute a buy or sell order. That is, if it is underpriced, he will take a long position and a short position if it is overpriced.
One of the basic assumptions of technical analysis on the other hand is that future market movements can be predicted by reviewing historic Forex market movements, especially in terms of price action and volume. The best way to see this market activity is through charting tools. Unlike fundamental analysis, technical analysis does not attempt to determine the intrinsic value of a particular currency. It also tries to understand overall market perception by examining the market itself, not its components. Others criticize the technical discipline as being too myopic. In their defense, technicians assert that fundamental factors are all integrated into the currency’s price, eliminating the need to consider them separately.
Although some people would say one principle is more effective than the other, experts agree that in order to be successful in Forex trading, you should be able to understand both principles because fundamentals are good at determining broad themes in the currency market, and technicals are extremely helpful in determining specific trading entry and exit points. Learning the features of both discipline and recognizing when to actually utilize them will ensure substantial gains, and reduced losses.
To have a successful Forex trading and investing career, you should be able to understand the intricacies of fundamental and technical analysis. Follow this link to know the differences of these Forex analysis methods.