Forex Analysis: Which Type Is effective?
12:48 AM
Two kinds of forex market analysis prevail:
1. Fundamental analysis concerns itself with scrutinizing socio-political and economic forces and defining their influence on the market.
2. When the analysis is concentrated especially on the use of charts and graphs to study price movements and to analyze trends, this is called TECHNICAL ANALYSIS.
Choosing one over the other is not obvious. A cursory inspection of FX trading related forums and websites show traders being zealous advocates of either one of these methods. Those who choose technical analysis assert that graphs are the only technique that can predict way ahead of time the trends which is important to making a profit in trading.
On the other hand, the fundamental analysts will affirm that currency prices are instigated by socio-economic factors, a fact that cannot be renounced. Thus according to them, chart patterns are mere events that have no real effect on reality.
This though, is not a foregone conviction. While the vast impression on the forex market, of variations in the economic and politcal spheres, cannot be denied, patterns or trends could possibly be gathered from price movements especially in the wake of announcements or during periods with no big announcements.
If on the other hand you rely entirely on your charts, you are likely to be caught out when a signifcant financial event such as an interest rate change is unanticipatedly announced. You were not giving consideration to the financial news and left a trade open at the wrong moment. That may result in debacle.
In the end, it is an irrefutable fact that economic aspects are behind most, if not all of the large price movements but it cannot be declined that there are trends that can be predicted by technical analysis for the shorter periods. So ascertaining these trends while being aware and up to date on current events is the most safe way to envisage direction of future currency prices. Precise prediction is of course how one makes a profit on the currency market.
Markets are sometimes chronicled in terms of elasticity as they can move in either direction and fall back to their previous or another position. The aspects that stretch the market are the fundamentals of socio-political and economic forces. How much it will stretch and where and when it will stay is the domain of technical analysis.
Hence you would be well advised not to be a idealist in either kind of analysis. Excellent returns are realized better when fundamental and technical analysis are made use of together.
1. Fundamental analysis concerns itself with scrutinizing socio-political and economic forces and defining their influence on the market.
2. When the analysis is concentrated especially on the use of charts and graphs to study price movements and to analyze trends, this is called TECHNICAL ANALYSIS.
Choosing one over the other is not obvious. A cursory inspection of FX trading related forums and websites show traders being zealous advocates of either one of these methods. Those who choose technical analysis assert that graphs are the only technique that can predict way ahead of time the trends which is important to making a profit in trading.
On the other hand, the fundamental analysts will affirm that currency prices are instigated by socio-economic factors, a fact that cannot be renounced. Thus according to them, chart patterns are mere events that have no real effect on reality.
This though, is not a foregone conviction. While the vast impression on the forex market, of variations in the economic and politcal spheres, cannot be denied, patterns or trends could possibly be gathered from price movements especially in the wake of announcements or during periods with no big announcements.
If on the other hand you rely entirely on your charts, you are likely to be caught out when a signifcant financial event such as an interest rate change is unanticipatedly announced. You were not giving consideration to the financial news and left a trade open at the wrong moment. That may result in debacle.
In the end, it is an irrefutable fact that economic aspects are behind most, if not all of the large price movements but it cannot be declined that there are trends that can be predicted by technical analysis for the shorter periods. So ascertaining these trends while being aware and up to date on current events is the most safe way to envisage direction of future currency prices. Precise prediction is of course how one makes a profit on the currency market.
Markets are sometimes chronicled in terms of elasticity as they can move in either direction and fall back to their previous or another position. The aspects that stretch the market are the fundamentals of socio-political and economic forces. How much it will stretch and where and when it will stay is the domain of technical analysis.
Hence you would be well advised not to be a idealist in either kind of analysis. Excellent returns are realized better when fundamental and technical analysis are made use of together.
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