Forex Market Analysis: Which Type Is Better, And How To Apply It In Your System?

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There are two kinds of currency market analysis: fundamental analysis, which considers economic, social and political forces and how they influence the currency markets, and technical analysis which uses graphs to spot trends and formations in the movement of prices.

So which the right one? If you visit forums and websites you will find many traders strongly supporting one or the other. Those who like to rely on graphs will advise you that the only method to earn money with forex trading is to identify trends and jump onto them as early as possible.

At the same time the advocates of fundamental analysis will argue that it is the economic factors that drive the changes in forex trends and this is doubtlessly correct, at least most of the time. From that position they will argue that any patterns you might spot on a chart are nothing more than coincidental.

But logically this does not necessarily follow. Even though economic changes have a huge influence on the forex markets, it may still be possible to recognize formations in the way that the markets react after an announcement or in times when there are no major announcements.

If on the other hand you count solely on your charts, you can probably be caught out when a major market event such as an interest rate modification is suddenly announced. If you were not paying attention to the financial news and left a trade open at the wrong moment, that could cause a disaster.

So the final conclusion is that there are economic events behind the larger scale movements in the market, but there are also basic patterns that can be identified in the short term. Finding these patterns and trends, while keeping one eye on the economic and political news, is the best way to forecast future price movements. And foreseeing future trend changes correctly, certainly, is the way to make money with forex trading.

Foreign exchange market movements are a little like elastic that can stretch in one way or another and then fall back, although not always to its starting position. The fundamentals are the forces that cause it to expand. Technical analysis forecasts how far it will go in each direction before turning around.

So when you want to make money from forex trading it is better not to allow your attention to become fixed on either one. You have to learn to balance the use of both types of forex market analysis to make consistent profits.
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