Using Technical or Fundamental Analysis: Currency Trading

 Currency Trading

Using Technical or Fundamental Analysis When Currency Trading

There are two ways that you can analyse the forex market.  The first way is through technical analysis and the second is through fundamental analysis.  It is important that you know how to use both analysis methods even if you end up only using one when currency trading.  You should also consider why there are people doing currency trading that only use one or the other.

Using Technical Analysis

When you use this method for currency trading you are going to disregard forex news and other information like this.  The information that you use to determine the market movements is gathered through the use of technical indicators.  The most common place these traders get their information is from forex charts, which are updated with real time data from the market.

The traders who use technical analysis believe that all the information about the market will already be taken into account in the price.  This means that fundamental analysis is redundant and not really needed.  Traders who use technical analysis are generally individual traders.  The reason for this is that it is easy for an individual to get the information needed to complete this analysis, and small scale traders will always have the volume in the market to take advantage of opportunities signalled by technical analysis.

There are a number of charts and other information that can be used.  You will need to determine which indicators are best for your trading style, as some are short term while others are long term.

Using Fundamental Analysis

Traders who use fundamental analysis are known as fundamental traders.  These traders will use certain trading strategies which are enhanced by the analysis they do.  To complete market analysis with this method you will look at national and global economies in relation to the political, economic and social standings of the country.

The traders using this method to predict what the market is going to do based on this fundamental information.  The basis of the analysis is that the forex market will swing depending on news and information about global and national economics.

To properly use this kind of analysis a trader needs to have access to certain resources.  The information being used has to be up to date and the trader needs to get it as quickly as possible.  With this being the case many fundamental traders are institutes or traders with large support groups.  Individuals can be fundamental traders but this will be much harder because of the delays in processing information. It takes having quick access to info summaries to succeed as an individual fundamental trader. Thankfully all of the information you need is readily available; you just need to know what to look for and where to find it.

Should You Use Only One?

You may be wondering why you have to choose one of these analysis methods.  The truth is that certain strategies will only use one of these methods.  While both of these analysis methods help you to determine what the market is going to do they are generally used for different timeframes.  Technical analysis is generally used for short-term trades and fundamental analysis is used for long-term trades.

Of course, it is possible and advisable to use both analysis methods.  The richer the information you have for entry and exit points the better. However, you will may have to fit the two together into your trading strategy in your own distinctive way, because most strategies you see advertised do not use both to any significant degree. There is difference of opinion among expert traders about whether or not you should use both. It does seem to make perfect sense to do so though.

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