Forex Trading: The Technical vs. Fundamental Analysis Debate
The world of forex is a land of opportunity for those who wish to work hard and earn huge amounts of profits in a very short time. But, this opportunity is provided only to those who have the ability to understand how the market moves and how it fares when there are changes in the global environment. This ability to understand the market comes from market analysis; and let me make this clear for you market analysis is not easy. When it comes to market analysis there are basically two schools of thought, one which support the concept of technical analysis and the other which supports the concept of fundamental analysis.
Though both technical as well as fundamental analysis can be used to gauge how the market is performing, there has been a heated debate among forex traders about the method which is superior and better. The fundamentalists believe that the price history has no effect on how the price is going to change in the future and the factors which affect the prices are fundamental in nature. On the other hand those who support technical analysis say that even though economic events affect currency prices, past information about the price can be used to extrapolate future movement in prices.
Fundamental analysis primarily concerns itself with using macro as well as micro economic factors and news to understand how the currency market is moving at the moment and how it is going to move in the future. Those performing fundamental analysis take a look at factors such as GDP, unemployment rate, sovereign debt, and interest rates to comment on the health of the currency of a country. They make use of this collected information to execute trades in the market and make profits from their trades.
One the other hand those involved with technical analysis make use of historical price information to predict how the market is going to move in the near future. They make use of price charts and various statistical tools to determine whether there is going to be an appreciation or depreciation in the prices of a currency pair in the near future. For these people the state and health of a nation is of not that much importance, what is important is how the currency has performed in the market in the past. The important thing to understand is that while technical analysis may seem to be just a quantitative analysis of past data, it is in fact not. Though quantitative methods are applied, the interpretation of the results of these methods is a highly subjective matter and is something that is of utmost importance if one wants to make any money in the forex market.
So when it comes to answering the question of which analysis methodology is better, the answer comes out be that both are good but what you are going to use is dependent on the kind of trading methodology that you are going to apply in the long run. What can be advised is that one needs to understand that a combination of both these techniques is highly helpful in making the right decisions in the currency market; decisions which can help you earn huge profits in the long run.