Forex Trading - Fundamental vs. Technical Analysis

Forex Trading- Fundamental vs. Technical Analysis

Which Forex trading strategy represents your style? While the Forex market differs from traditional stock markets, the fundamental trading strategies of fundamental and technical analysis can be applied. Understanding both styles and how to apply to the Forex market will enable you to create a strategy and a style of trading that is best suited to your risk tolerance and your financial goals.

Fundamental Analysis

When a trader utilizes fundamental analysis when executing their Forex traders, they are basing their valuation of currencies on crucial economic reports, otherwise called economic indicators. Examples of economic indicators for the Forex market can include interest rates, gross domestic product, economic news releases and unemployment rates for specific countries. For example, comparing unemployment rates of two countries can be considered as a fundamental analysis on the Forex market. News in relation to this economic indicator can be applied when making trading decisions.

Other possible economic indicators when applied to Forex trading can include Trade Balance numbers and the Consumer Price Index. When utilizing this trading strategy, traders must not only determine which economic indicators that they will be utilizing, but they must be alert to search and apply news and changes with regards to those indicators as they apply to currencies.

Technical Analysis

Technical analysis refers to utilizing a system, whether manual or automated, that looks at price movements among currencies. The systems will use technical indicators, working to provide the trader with advice on when to buy and sell pairs of currencies on the Forex market. Some traders prefer to select and monitor their own technical indicators while others prefer to rely on automated currency trading software systems.

There are a variety of benefits to utilizing technical analysis to trade Forex, including:

• Trends are easily found. When reviewing for price changes, technical analysis methods reveal the important trends necessary to make well informed trades.

• Charting is easy and inexpensive to create and utilize. Whether you are manually tracking price movements through your own spreadsheets or are using a software program, technical analysis is simple to understand.

• Patterns in price are easily noticed, easy to follow and strong predictors of future currency behaviour.

Both technical and fundamental analysis provides a wealth of information in which to trade currencies on Forex. While many traders will utilize both strategies, most experts will recommend learning and mastering one versus trying to learn and implement both simultaneously.

 

 

Copyright © 2008 Paul Mac Donald