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These two are the main forms of analysis in the forex business. The two are different yet most expert traders confirm that for successful and profitable trading, a trader need to employ both technical and fundamental analysis in trading currencies. Expert traders claim that one cannot be preferred over the other if one is after making big profits.
The Difference Between Fundamental and Technical Analysis in Foreign Exchange
Technical analysis looks at the movement of price and uses this information to predict future price movement of securities. This analysis hinges on the belief that history will repeat itself, meaning that what has happened before is likely going to happen again, especially where prices are concerned. The fundamental analysis on the other hand looks at economic factors which are referred to as fundamentals. A technical analyst would approach a security by looking at the charts, in our case, the forex charts.
Foreign exchange technical traders believe that fundamentals are already provided and accounted for in the price and therefore believe that all the information they will ever need can be found on the charts. A fundamental analyst would approach the market through looking at financial statements, cash flow statements and income statements first, to determine value. Through use of these documents, a fundamental analyst they make a decision. however, a fundamental analysis goes beyond financial statements as other factors, including forex news, geo-political news and the psychology of the market can also be used to come to a decision on whether a currency’s value will increase or not.
Fundamental a long time to analyse the markets compared to technical analysts who may only take a few weeks, days or even a few minutes. Financial reports used in fundamental analysis are usually produced on a quarterly basis sometimes on an annual basis. In the foreign exchange trading market, a few hours may be what is needed to make huge profits due to the high volatility of the markets. Technical analysis is also short term in nature whereas fundamental analysis is long term. For trading processes, technical analysis may come highly recommended and for long term investment purposes, fundamental analysis is most preferred.
Both Analyses Can Be Used For Profitable Foreign Exchange Trading
Great success or profitable foreign exchange trading can be achieved through employing both fundamental and technical analysis. A holistic approach to analysing the forex market can only be possible through combining the two.