Analyzing Forex Market – Technical Analysis V/s Fundamental Analysis

Currency trading has often been compared to gambling. This is a misconception and is held by those who are not aware of the tools that are available to analyze the market and predict the trends.  With all these tools at the disposal of the trader, Forex trading is no longer a game of chance. The investment becomes well-planned and logical strategy.

The different types of analysis used in Forex changes currency trading from speculation to a tool of risk management. Given below are two schools of thought used by traders to analyze the market:

1. Technical analysis – This kind of analysis follows the concept that market trends do not change and that it is safe to bet according to the trend, as it will surely continue. They believe that history repeats itself. Day Traders and short-term investors generally make use this kind of analysis.

Fundamental analysis – Those who believe in fundamental analysis advise that it is safer to follow the news rather than the charts. This faction of traders believes that the trend changes according to current affairs. This kind of analysis requires a lot of study and has been used since the ancient times, when speculators made a profit from the changes in supply and demand. Though times have changes, the basic principle remains unchanged. If you can devote enough time to understand and practice it, you will be able to benefit from it.

The question that now arises is that which is the right analysis to follow. As a beginner, you should use both kinds of analysis in moderation and try to find a middle path. It would not be possible to follow the trend and the news simultaneously. While it is true that the charts predict future trends, it is equally true that they change according to the news. So, keep your options and eyes open.

It is essential to keep a few windows like your trading platform, charts and news open when you are trading.  Keep checking both the charts and the news periodically and try to use the information accordingly. Ultimately, the experience that you will gain will help you make a profit and you will be able to make your own analysis. Use all the tools at your disposal to learn trading. As you trade, you will understand the nuances of the market and be able to convert your experience into profit.