There is a continuous debate among Forex traders about the use fundamental and technical analysis. Some prefer to use exclusively technical analysis and ignore the economic indicators. Other traders say that you can trade profitably only on fundamentals. In my opinion both types of analysis are equally important.
Simply speaking the difference between fundamental and technical analysis is that fundamental analysis studies the impact of economy and politic on currency value while technical analysis studies the chart patterns in effort to predict the price movement.
I think at the very basic level of understanding it is clear for everyone that a nation's economic status will have an effect on the value of that nation's currency. A good economy results in strong currency, just as a company's stocks will rise in value when that company is doing well.
If you've been in Forex for any length of time you probably already know that when you look at the price charts at the times of important economic news releases, you will see increased volatility. These kind of news include Gross Domestic Product, trade balance, interest rates, payroll employment, etc. Most of these news have predetermined days of release so you can schedule your trading accordingly if you want to take advantage of volatility of those times.
An important thing for a trader is to keep track of when these reports are due, not only in your own country but in all of the countries whose currencies you regularly trade. It is not enough to rely on national newspapers and television for this. They do not give international economic news at a sufficiently detailed level. Therefore you need special economic publications. Many traders use the internet for this purpose this days.
I should be noted that not only fundamental economic news affect the currency price movement. Social and political state also have a great influence on currency values of the country. For example elections, social unrest, or even natural disaster can contribute a great deal into volatility of national currency.
Often it is hard to predict what would be the market behavior at the time of such events. But you can still base your trades on movements that happens after those releases that are still have momentum but more predictable. The only thing you need to keep in mind is to test your system on history of such events.
If you want to base your trading on analysis of fundamental indicators and their influence on value of currency then you need to be the type of person who enjoys following the financial, political and economic news.
The opposite approach would be to use information about upcoming events to avoid trading at those times. Usually people who base their trading purely on technical analysis would recommend avoiding trading at the times of those events. But you still need to know what is happening, in order to keep out of the market. Therefore even if you trade only using charts and technical analysis, Forex fundamental analysis is important.
Simply speaking the difference between fundamental and technical analysis is that fundamental analysis studies the impact of economy and politic on currency value while technical analysis studies the chart patterns in effort to predict the price movement.
I think at the very basic level of understanding it is clear for everyone that a nation's economic status will have an effect on the value of that nation's currency. A good economy results in strong currency, just as a company's stocks will rise in value when that company is doing well.
If you've been in Forex for any length of time you probably already know that when you look at the price charts at the times of important economic news releases, you will see increased volatility. These kind of news include Gross Domestic Product, trade balance, interest rates, payroll employment, etc. Most of these news have predetermined days of release so you can schedule your trading accordingly if you want to take advantage of volatility of those times.
An important thing for a trader is to keep track of when these reports are due, not only in your own country but in all of the countries whose currencies you regularly trade. It is not enough to rely on national newspapers and television for this. They do not give international economic news at a sufficiently detailed level. Therefore you need special economic publications. Many traders use the internet for this purpose this days.
I should be noted that not only fundamental economic news affect the currency price movement. Social and political state also have a great influence on currency values of the country. For example elections, social unrest, or even natural disaster can contribute a great deal into volatility of national currency.
Often it is hard to predict what would be the market behavior at the time of such events. But you can still base your trades on movements that happens after those releases that are still have momentum but more predictable. The only thing you need to keep in mind is to test your system on history of such events.
If you want to base your trading on analysis of fundamental indicators and their influence on value of currency then you need to be the type of person who enjoys following the financial, political and economic news.
The opposite approach would be to use information about upcoming events to avoid trading at those times. Usually people who base their trading purely on technical analysis would recommend avoiding trading at the times of those events. But you still need to know what is happening, in order to keep out of the market. Therefore even if you trade only using charts and technical analysis, Forex fundamental analysis is important.
About the Author
Albert Schmidt profitably trades currencies in Forex market for a few years.
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