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The Difference
Between Fundamental Analysis And Technical Analysis
Contrary
to what many people would think, success in forex trading isn’t
completely reliant on your luck in picking the best investments.
Countless traders in the industry actually look at several
factors to help them make their decisions. They look at
the circumstances and then apply a certain style of analyzing
the facts available. You can get the same results, and all it
would take is a good understanding of the two paradigms of analysis:
fundamental analysis and technical analysis.
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Fundamentals
of Fundamental Analysis
People who
go with this school of thought believe that the overall economies
of their nation or of the nations to which the traded currencies
belong are macrocosms of the forex market. The latter merely
mirrors the former. When the country’s overall economy
is in bad shape, it spells bad news for its currency. A robust
national economy would, on the other hand, equal a stronger
currency.
Should you
decide to go with fundamental analysis, you’ll be looking
primarily at the big picture. You’re going to have to keep
yourself updated on current events and politics in order to
determine the general direction of a certain currency. You also
have to be fairly well-versed in economics in order to understand
the elements at play.
Taking
Things Technically
On the other
end of the analysis spectrum, you have the system of technical
analysis which is a little more nitty-gritty than fundamental
analysis. Instead of looking at a country’s or a city’s
economic health, technical analysis looks strictly at the trends
of the currency being traded. Forex traders using technical
analysis don’t bother with current events or the news;
they just get reports on the recent behavior of the currency
and then make their projections from there.
If you intend
to do technical analysis, prepare yourself for a lot of reading
and memorizing. Technical analysis involves loads of reports
about how certain currencies did in the past. Besides previous
trends, you also have to know all about certain trading concepts
like the Elliott Wave Theory to help you make good predictions.
The issue
of which paradigm is better remains a big debate in the present
day. There are countless people on either side claiming
that their school of thought is better, more efficient or more
effective. What they don’t understand, however, is that
trading isn’t that simple and straightforward.
While using
either analysis will work, you’ll most probably get
best results when you use the two together. Each one looks
at factors that most definitely affect the performance of a
currency in a global market. It’s not about which trader
uses the ‘better’ paradigm; it’s more about the
forex trader who can look at the most relevant factors and then
act properly on them.
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