WHICH IS BETTER: TECHNICAL ANALYSIS OR FUNDAMENTAL ANALYSIS
Are you a technical trader or a fundamental trader? Or have you ever had a thought about which one you should be? Which one is better? Read through to get a clarity on how these two kinds of analysis fit with each other in the world of Forex.
Technical analysis and Fundamental analysis play a very vital role in Forex trading. All of the trading decisions which traders take are based out of either one or both of these analysis methods. Technical analysis is done based on the price movements and price actions commonly through charts. Fundamental analysis on the other hand is basically a research on the fundamental factors like economic conditions or news events.
Many traders try to combine both the methods to make their trading decisions while some others tend to make use of one of the method. In either case it solely depends on the traders and their circumstances. If you have to choose an analysis methodology that suits your trading strategy, it is very essential that you understand the differences between both.
Fundamental analysis involves the analysis of the fundamental and economic factors that affect the price movements. For example in the Forex Market, a fundamental trader would look at the country’s economic conditions, Gross Domestic Product (GDP) or major news events. This way the trader can assess the value of Country’s currency and decide upon his trade.
In Technical Analysis, trends or charts are analyzed to understand the price movements. In this method, you are basically analyzing the past price movements to predict the future price movements. Various chart patterns are thoroughly studied to understand the price fluctuations in the Forex Market.
To summarize, the main difference between these two methodologies is:
Fundamental analysis tries to analyze the factors that affect the price movements whereas, Technical analysis is the study of the price movements to predict the future price.
Fundamental and Technical analysis are completely different from each other even though the end result might be the same direction in the price movement. In the Forex Market, Fundamental Analysis is considered to be best suited for long-term price trends, whereas Technical Analysis is best suited for shorter time frames. There are also debates on the subject that Fundamental Analysis cannot be used alone without going into the technical details in the market whereas technical analysis is self-sufficient.
Now which one do you think is better for you? These two kinds of analysis are two tiers of the analysis process in the Forex Market. Studies and Forex Market history indicates that many successful traders agree that they have gained huge success by combining both the methodologies. Choose the method you wish to use depending on your trading style but make sure you understand the analysis method you decide upon, in detail by studying in and out.