Which Type of Forex Analysis Should You Choose?
Success in forex trading depends on types of forex analysis. If you can correctly see and understand the situation of the market, success will come earlier.
Types of Forex Market Analysis
For quite some time, traders and analysts argued about which forex analysis is more important. Regardless of how far the disputes go, all beliefs are inclined to the fact that both analyses must be used in Forex trading. So let’s first look at each of them separately and later, combine them, and find out how they work together.
Forex technical analysis
Using technical analysis, price movement is studied. If you write in one word – these are Forex charts. With the help of Forex technical analysis, you can watch how prices moved earlier and, by understanding their behavior, you are most likely to predict what will happen next.
By looking at the charts, you can identify trends and patterns that will help you trade successfully.
The most important point in the technical form of Forex analysis is the trend. It is popular for one simple reason: it is much easier to earn during a trend. Determining the trend is the first question that a trader should know about when starting to trade.
Forex fundamental analysis
Fundamental analysis of the Forex market has a different role. It includes various external, non-market factors: political, economic, social, and statistical. In other words, the fundamental analysis provides analysis of all events that can affect the market.
The better the country’s economic situation, the more active investors invest in the national currency of that country.
If the economic condition is good, every trader trusts it, and they feel comfortable buying it. Swiss Franc is one of those currencies. The economic and political situation is stable, and that’s it is considered one of the safe-haven currencies.
The trader should monitor the government’s actions about the economy and monitor the release of macroeconomic indicators. With experience comes an understanding of the interconnections of economic processes, and therefore confidence in trade grows.
Fundamental analysis works best with trading on the news strategy. For this strategy, you have to constantly monitor what is going on.
Technical Analysis vs. Forex Fundamental Analysis
It is important to understand that Forex market analysis cannot be complete if you use only one type of analysis. Such trading will not yield significant results.
Let’s say you want to buy a currency pair USD/CHF. You did a technical analysis and find out that the pair has good profit potential. But don’t just jump to the conclusion yet.
Through fundamental analysis, you find out that the political situation in the U.S. is unstable. Would you buy a pair?
As you can see, both types of analysis are necessary for forex trading.
Bottom Line
Many forex experts combine both these analyses to trade successfully. So, take advantage of technical and fundamental analysis, find a middle ground between them, and begin to understand the essence of the forex world.
New to Forex trading? Don’t miss these beginner guides from FXCC.
– Learn Forex Trading step by step
– How to read Forex charts
– What is spread in Forex Trading?
– What is a Pip in Forex?
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