| Determining The Better Form Of Foreign Exchange Analysis |
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| Written by Brad Morgan |
| Tuesday, 01 June 2010 12:48 |
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Two methods of foreign exchange market analysis prevail:
Two methods of FX market analysis are there: 1. The method of analysis that concerns itself with assaying the nature and the consequences of socio-economic and political undercurrents on the forex market is called FUNDAMENTAL ANALYSIS. 2. Technical analysis contrastingly , employs graphs and charts to surmise patterns that evince price movement. Choosing one over the other is not simple. A cursory erxamination of currency trading related forums and websites show traders being zealous advocates of either one of these methods. Those who admire technical analysis dispute that graphs are the only technique that can predict way ahead of time the trends which is crucial to making a profit in trading. On the other hand, the fundamental analysts will announce that currency prices are moved by socio-economic factors, a fact that cannot be renounced. Thus according to them, chart patterns are mere concurrences that have no real effect on reality. But sensibly this does not necessarily happen. Even though economic changes have a whopping effect on the currency markets, it may still be possible to classify patterns in the way that the markets react after a notification or in times when there are no major news. If on the other hand you rely exclusively on your charts, you are likely to be caught out when a preeminent financial event such as an interest rate change is abruptly announced. You were not giving consideration to the financial news and left a trade open at the wrong moment. That may result in calamity. So the crux is that there are economic circumstances behind the larger scale rises and falls in the market, but there are also casual patterns that can be poinpointed in the short term. Sighting these patterns and trends, while keeping one eye on the economic and political news, is the best method to predict future price movements. And predicting future price movements, obviously, is the way to make money with currency trading. If we relate the forex market to an elastic object, it can travel in either direction and periodically, return to the original spot. Fundamentals maneuver the market. The extent of the movement and its return point is estimated by technical analysis. The inference then is that a smart trader utilizes both methods. So to repeatedly make profits in the forex market you must know when to use which tool and how much credit you will give to their reciprocal, predicted outcomes. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Learn how to manage forex margin when trading forex. Find out about forex trading software to be fully informed with your forex trading. |