As every aspect of life, there is always more than one way to do the same thing. Forex is no exception. When it comes to talking about this industry and the way you traders do research, there are two significant currents, the fundamental analysis, and the technical analysis.
There is a massive debate about what type of approach is better and which one makes more money. Do you know the answer? Let’s see a comparison between both types of analysis.
While fundamental analysis serves the notion of evaluating a currency by attempting to identify its intrinsic value, technical analysis believes that all fundamental factors are priced in into the quotation of the asset, so there is no need to pay attention to them, but chart patterns that can show you how a currency is behaving.
While a fundamental trader usually watches big timeframes and make long and middle term decisions, technical investors add short term horizon to their trades. The fundamental is more focused on statistics and economics, but the technical is more chart analysis oriented.
Principles of Fundamental Analysis
Fundamental analysis tries to identify how well is the economy of a country is doing. Fundamental traders believe that the value of a currency is the intrinsic value of the economy of a country by itself, including economic data, employment, interest rate, social welfare, demographics, etc.
Traders who use fundamental approaches attempt to determine the intrinsic value of a currency as an asset, but with the country as a back. Usually, they don’t take price movements in the short term, but they identify trends and how the currency will evolve regarding countries performance.
The most followed events for a Fundamental trader are the US employment report with its so-called nonfarm payrolls, central banks decisions on monetary policy and interest rates, inflation, and Gross Domestic Product report.
Other economic releases that are important are ISM and PMI manufacturing data, trade balance, and consumer confidence.
Fundamental traders usually trade the news in their different options. As reaction after a release, with a short term approach, as a trending market after a game changer data or a set of economic reports that signals country’s performance or as a price that is affected by a related topic like oil, geopolitical factors or even wars that can make currencies move with violence.
Keep reading in ForexTraders.Guide and know more about the most successful fundamental strategies.
Principles of Technical Analysis
Technical traders are the masters of charts and price action as their analysis is based on price patterns, fluctuations, and volume.
They believe that currencies and pairs make patterns and act on their own so that traders can follow them and identify buying and selling opportunities.
Among the figures, technical traders attempt to watch levels with a density of movements, rebounds, double tops and bottoms, and flags.
There are many tools that technical traders use for their study of the price. In the charts, they use different chart lines like candlesticks, point and figure, and range lines.
Technical traders also consume technical studies such as the RSI to identify momentum, MACD to check strength or Bollinger Banks for direction. Time frame is also necessary for technical analysis as some studies work better in short time frames and others in wider charts.
Technical analysis is an art, and it needs a lot of time to know all its secrets.
Read more about technical analysis here with the ForexTraders.Guide tutorials and learn how to trade Forex right.