Technical Analysis VS Fundamental Analysis
As in the case of equity markets, there are two basic areas of strategy in the Forex market,
namely technical analysis, and fundamental analysis. Technical analysis is the most common
strategy used by individual Forex traders. Let's see how these two strategies directly apply to
Forex trading.
Fundamental analysis, which is usually used only as a means to predict long-term trends, is
an extremely difficult strategy in the Forex market. But it is notable that some traders trade
short term strictly on news releases. There are many different fundamental indicators of the
currency values released at different times. The following are a few of them.
− Consumer Price Index (CPI)
− Non-farm Payrolls
− Durable Goods
− Retail Sales
− Purchasing Managers Index (PMI)
It is important to note that these are not the only fundamental factors that you have to study.
There are many types of meetings where you get some quotes and commentary that can
influence markets just as much as any report. Such meetings are usually conducted in order
to discuss any inflation, interest rates and other effects that may affect currency values.
Sometimes, even the way things are worded while addressing some matters like the Federal
Reserve chairman‘s comments on interest rates; can result in a volatile market. Two crucial
meetings that you have to look out for are the Federal Open Market Committee and
Humphrey Hawkins Hearings.
Reading reports and commentaries will help Forex analysts to get a better understanding of
any and all long-term market trends and also help short-term traders to get benefited from
extraordinary happenings. Make sure that you always keep an economic calendar with you to know when these reports get released. Your broker may also be able to provide you with
similar information.
Price trends in the Forex market are analyzed by technical analysts just like their
counterparts in the equity markets. The time frame that is involved constitutes the only real
difference between technical analysis in Forex and technical analysis in equities, i. e. Forex
markets are open 24 hours a day. Because off this difference in the time frame, some forms of
technical analysis that factor in time have to be changed so that they can work with the 24
hour Forex market. The following are some of the most common forms of technical analysis
applied in Forex trading.
− Fibonacci studies
− The Elliott Waves
− Parabolic SAR
− Pivot points
There is a tendency among technical analysts to combine technical studies for the sake of
accuracy in predictions. The most common method is combining the Fibonacci studies with
Elliott Waves. Some others try to create trading systems in an attempt to repeatedly locate
similar buying and selling circumstances.
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