WHICH TYPE OF ANALYSIS IS BETTER IN FOREX TRADING?

Now, the million dollar question: Throughout your journey as an aspiring Forex trader you will find strong advocates for both fundamental and technical trading. You will have those who argue that it is the fundamentals alone that drive the market and that any patterns found on a chart are simply coincidence. On the other hand, there will be those who argue that it is the technical that traders pay attention to and because traders pay attention to it, common market patterns can be found to help predict future price movements.

Do not be fooled by these one sided extremists! One is not better than the other…

In order to become a true Forex master you will need to know how to effectively use both types of analysis. Don’t believe me? Let me give you an example of how focusing on only one type of analysis

can turn into a disaster.

·         Let’s say that you’re looking at your charts and you find a good trading opportunity.  You get all excited thinking about the money that’s going to be raining down from the sky.  You say to yourself, “Man, I’ve never seen a more perfect trading opportunity.  I love my charts.”

·         You then proceed to enter your trade with a big fat smile on your face (the kind where all your teeth are showing).

·         But wait! All of a sudden the trade makes a 30 pip move in the OTHER DIRECTION!   Little did you know that there was an interest rate decrease for your currency and now everyone is trading in the opposite direction.

·         Your big fat smile turns into mush and you start getting angry at your charts. You throw your computer on the ground and begin to pulverize it.  You just lost a bunch of money, and now your computer is broken.  And it’s all because you completely ignored fundamental analysis.   

(Note: This was not based on a real story. This did not happen to me. I was never this naive. I was always a smart trader…. From the overused sarcasm, I think you get the picture)

Ok, ok, so the story was a little over-dramatized, but you get the point.

The Forex is like a big flowing ball of energy, and within that ball is a balance between fundamental and technical factors that play a part in determining where the market will go.