| Defining the Superior Form of Forex Analysis |
 |
 |
 |
| Written by Brad Morgan |
| Monday, 17 August 2009 11:57 |
|
Two kinds of foreign exchange market analysis are there:
Two methods of foreign exchange market analysis prevail: 1. Fundamental analysis concerns itself with analyzing socio-political and economic forces and defining their outcome on the market. 2. Technical analysis utilizes charts to pinpoint trends and patterns in the change of prices. How do you determine the superior anaylsis? Research shows that traders have deep inclination for either one. The technical analysts persist that their style is the best for getting an early evidence of price movements. On the other hand the supporters of fundamental analysis will contend that it is the economic factors that drive the changes in currency prices and this is unquestionably true, at least most of the time. From that spot they will argue that any patterns you might find on a chart are nothing more than coincidental. That assertion should be taken with a grain of salt. While the direct and gigantic effects of economic changes is unmistakable, in post major announcements situations and relatively event and change free times, technical analysis may be of aid in predicting movements. One warning for the technical analysis believers is that there is a chance that they will be caught unawares should interest rates suddenly change. If the person does not read the news then there is a big probability that they will make a bad trading call. This can end up in a major trouble. The opinion therefore is that short term trading can benefit from characterizing trends via technical analysis while the large price movements are typically created by socio-economic or political elements. Keeping both eyes open is the more frugal proposition as it equips one to use mathematics to predict short term movements while monitoring current news and happenings that would effect movements on a longer term and greater degree. After all money in the FX market is made when one executes trades based on predicted movement and that prediction comes to pass. If we compare the forex market to an elastic object, it can go in either direction and occasionally, return to the original position. Fundamentals stir the market. The magnitute of the movement and its return point is anticipated by technical analysis. The deduction then is that a smart trader utilizes both methods. So to perpetually make profits in the forex market you must know when to use which tool and how much credit you will give to their corresponding, predicted outcomes. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Forex trading requires understanding forex loss. To trade forex effectively you must understand forex trading strategy to keep up with it all. |