Fundamental Analysis V/s Technical Analysis - Predicting Price Movements

Price movements are a major determining factor for buying and selling currencies. By checking the movement of price, a trader also decides what currencies he should buy and when he should buy or sell them.

Predicting the price trend does not involve only supply and demand, even though the basic rule is that demand increases the price and excessive supply decreases the price. But the question is not what the basic rule is but when the rates will increase or decrease. When the trader is able to predict this he can make a profit?

Analysts use two techniques for predicting the rate fluctuations and determining which way they will go.  There are people who are loyalists of one technique and there are those who follow both the methods. But it is essential to understand how both the methods are used so that they can be used to your advantage. Given below are the two approaches to predict fluctuating rates:

1. Fundamental Analysis – In this method of analysis, the price movement focuses on factors such as interest rates, money supply and the growth of economy. The process requires a vast amount of data and also knowledge about which of the factors is more important. But basically, it is agreed that interest rates and money supply i.e. demand and supply of currency, are the prime factors that determine the price movement. All the factors have their own importance and data from each factor is collected and combined to make an analysis.
2. Technical Analysis – This method of analyzing the price movement focuses on only the past tradition. The loyalists of this method of analysis believe that all factors are based on the price and therefore, it is the most important factor. Secondly, it is believed that the prices follow a fixed pattern and it can be determined by charting the movements. When the movements are charted, analysts can predict the future trend of prices.

There is much debate about the correctness of both the methods but if you can understand the basics of both the methods, you can use the one that you are most comfortable with or combine both the techniques for predicting the price movement, so as to make a profit. It is not a very easy task to determine the trend of prices but by understanding the basics, you can learn the pressures which influence the market and bring about the rapid changes.