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Monday, February 6, 2012

Let's Compare Technical Analysis With Fundamental Analysis.

Stock chart showing levels of support (4,5,6, ...Image via Wikipedia
By Dmitry Vasenyov


Forex traders should conduct thorough analysis on the currency pairs they're looking to work with before investing in them. Thus they get more informed about their trades and investments. It should be stressed that there're two types of market analysis that Forex traders can conduct. So I'm talking about fundamental analysis and technical analysis. It's clear that both of these kinds of market analysis have got their own advantages and disadvantages. So it makes sense to compare them. But before comparing them you should know that professional traders use both fundamental analysis and technical analysis. Thus they reach their goals.

Of course you need to know why currency prices undergo frequent changes. You should use fundamental analysis for this purpose. Thus you can explain any market movements. Certainly when conducting fundamental analysis you need to take into consideration some established correlations as well as casual relationships in the Forex market.

For example one country exports gold. If gold rises in price, this country's currency will rise in price too. In fact the price of this country's currency could have increased due to many other important factors that are also studied by fundamental analysis.

It should be taken for granted that fundamental analysis is rather a complicated thing. That's why light-minded guys aren't able to succeed in fundamental analysis. There's much conflicting information in fundamental analysis that can cause a great confusion when trying to interpret the world economy's facts. It's highly recommended to surround yourself with as much financial news as possible.

Technical analysis can tell Forex traders where the price of a certain currency has just gone. So as you can see technical analysis is used for the same purpose as fundamental analysis. But the main distinctive feature of it is that it presents a visual approach to the Forex market via price charts. Price charts are used for the purpose of spotting trends in currency prices. Technical analysis is much easier than fundamental analysis. But on the other hand it can't guarantee anything. But anyway you should use it.




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