What do You Prefer, Technical or Fundamental Analysis in Forex?

June 26th, 2009 by Albert Schmidt

by Albert Schmidt

Forex traders base their trading decisions on either technical indicators on their charts or on the trends in economy. Therefore there are two major way to analyze the currency movement: technical analysis and fundamental analysis.

You may wonder which approach of market analysis to take. It is really up to your personality. There are many traders who trade only using technical indicators and think that making decisions based on fundamental factors is not profitable. However there are other traders who may think the opposite way.

Fundamental traders will show you how economic news cause the high volatility of the price. On the other hand technical traders would show you the indicator patterns that give the buy or sell trading signals. And both of them will be right.

Some people looking at the volatility caused by the economic news releases may think that it’s the most reliable approach to trade in Forex. However the technical analysis patterns are also very reliable if you know how to recognize them. Technical analysis is very valuable when there is no economic news around to make a huge impact on the market.

At the same time if you use only technical analysis in your trading then a big news event can upset your technical indicators. Since some economic news releases can significantly move the price of a pair against what the indicators tell you. That can cause your trades to get stopped out.

Fundamental news releases not only move the currency pair for very short period of time, very often that strong movement will set the price movement direction for much longer time. Therefore following the local and worldwide economic and political news is the way to predict the currency price movement. However the technical analysis give you the exact points to take a profitable trades.

It is correct that fundamental factors have a great impact on price movement. Certain news can move prices in a dramatic way. However it is the technical analysis that can give you an estimate how long and how far the price will go. It is the technical analysis will help you to make an exact decision on entry point.

Therefore anyone who wants to become a profitable trader must pay attention to both technical and fundamental analysis. If you are a pure technical trader at least you need to know when the major economic news are scheduled to make adjustments to your trades.

About the Author:
Albert Schmidt is a successful trader in Forex market for a few years by now. Find out more how you too can learn to trade currencies at his website about useful tips in trading Forex.

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