Length : 3.00 Minutes
Forex Market Analysis
Generally there are two main types of market analysis, fundamental and technical. Each of these analysis look at the market at a fairly different perspective.
Some traders use technical analysis. Others prefer to look at fundamental factors such as economics, geopolitics and sentiment to forecast the movements. Some combine both approaches.
So which one is better?
Technical analysis focuses on price movement, which involves reading charts and interpreting price movements by looking at the historical data.
One of the underlying tenets of technical analysis is that historical price action predicts future price action because market tends to repeat itself.
Thus, traders look into similar price patterns that have formed in the past, to predict future price movements and generate trade ideas based on that.
Technical analysts rely on charts because they are the easiest way to visualise historical data.
Technical indicators are often used in technical analysis to assist predicting the price movements.
Technical analyst observes the market and look for important price levels and chart patterns to trade.
On the other hand, fundamental analysis look at the forex market by analysing economic, social, and political forces that may affect the supply and demand in the market. They rely on economic data and major releases, listen to the policymakers, monitor political developments and maybe glance at flows data, sentiment gauges and positioning to analyse the market and come up with trade ideas and setups.
Timing is an important aspect of fundamental analysis. It is important to note that fundamental traders have to make sure that they are always updated with the latest information in order to be able to use that in their favour. But It cannot be ignored that due to informationally efficient nature of the market, all new information is immediately available and is priced into the market, thus it is extremely challenging to consistently out-perform the market especially in the forex market.
After all, there has always been a constant debate as to, which analysis works better. However, it cannot be ignored that knowing both can tremendously improve your trading result.
If you even decide to be a technical trader, you certainly cannot ignore important economic and political news and events. You have to constantly keep track of the important news to eliminate your risk exposure.