There is always a debate about which type of analysis is better for a trader or what’s better to be, a technical trader or a fundamental trader; both analyses are trying to predict the price movements and future market trends based on different types of information. Basically there are two approaches, the first approach is fundamental and it considers factors, events, opinions and policies that may impact the future value of a currency.
The second approach is technical and it considers the study of historic and current currency values and trading volumes. Whatever approach, technical or fundamental, they attempt to project currency price direction and identify trading opportunities. In practice many market traders use technical analysis in conjunction with fundamental analysis to determine their forex trading strategy.
Forex technical analysis is a method of predicting price movements and future market trends by studying forex charts of past market action which take into account price of instruments, volume of trading and open interest in the instruments. Traders usually look in price patterns on the chart like triangles, double tops or double bottoms and flags; they will determine the entry and exit points based on the pattern.
Fundamental analysis involves accessing the economic wellbeing of an entity. They usually look at the company’s earnings, expenses, assets and liabilities. Fundamental traders will use those data points to determine the health of a company. Factors that should be considered in the fundamental analysis are the economy, political stability, government policy, economic theories, models, events and reports.
When it comes to forex trading technical analysis can be much more useful because this type of analysis can give us many different signals and indicators which will provide lots of trading opportunities for a short amount of time. This is not the case with fundamental analysis which is providing lot less trading opportunities in a much longer period of time. In the end it all depends on you and your personality which will determine the type of analysis is suitable for you; if you are long term trader then you should chose fundamental analysis while a short term trader will find technical analysis more suitable.