Between Fundamental And Technical Analysis

In the analysis of price movements, forex traders usually use 2 types of analysis. Those who only concentrate on the plot the chart price movements and ignore other factors are those that work based on technical analysis, usually called the chartist or technician. On the other hand those who prefer news and significant events that could move the market are those who work based on fundamental analysis and commonly referred to as fundamentalist. In this article reviewed the concept of both types of analysis and the differences and benefits of each.

Fundamental analysis and its advantages

Fundamental analysis is a scientific discipline that studies the relationship of market price movement with the changing conditions of a country's economic fundamentals. In a broader scope, fundamental analysis does not only focus on fundamental data releases or significant events in a moment, but also on the various aspects that affect a country's economy and political events, including the regulation of the financial system, social influence and various aspects of life in society. In fact, fundamental analysis which truly have more indicators compared with indicators on technical analysis.

For fundamentalist traders the ability to identify inefficient provision of demand and supply in the foreign exchange market due to changes in economic data could produce sufficient profit, especially in the long run. Fundamental analysis very effectively applied some twenty years ago prior to the use of technical analysis became popular. However the trader will be difficult to distinguish between momentary price movement correction and reversal of the direction of the trend (trend reversal). Due to lack of attention to chart trading, a price level limits (support or resistance) is usually only determined based on estimates or numbers just psychological.

Advantages of trading with fundamental analysis is more in our knowledge about the causes of market price movements. This is very important especially for a long term trader who tends to hold its position in quite a long time. By understanding the dynamics of the market is going on a long term trader will feel confident to hold his position despite the volatility of the market is always changing.

Technical analysis and its advantages

Unlike fundamental analysis, technical analysis is a relatively new discipline. The analysis relied on trading chart readings there are 3 basic principles:

1. trading Chart is a picture of the overall aspects that cause price movement. All the influence that causes a change to the fundamental factors including price movements have been reflected in chart trading.

2. the price movement of the market is not random (random) but regularly follow a certain pattern or formula to be calculated and predicted.

3. the direction of the trend of price movements tend to always repeats itself. In other words the price movement can now be used to predict the next movement.

Because of its simple, direct and clear, technical analysis is very popular and is used by nearly all the layers of forex traders, hedge fund manager from the top to the retail trader. Technical indicators are relatively easier and faster to understand than with a fundamental indicator. A chartist or a true technician will simply refers to the movement of the prices in the chart and ignoring fundamental factors. In the process many technical indicators developed recently which is a refinement of the earlier. Although sometimes conflict between one indicator with other indicators, but in general technical analysis can be very effective when used by a qualified technician.

In reality the current trading, many traders who combine technical and fundamental analysis simultaneously. To find out the possible causes of price movements, they refer to fundamental factors (especially for medium and long term), while to determine entry and exit their momentum refers to the signal indicated by technical indicators.

Posted by Unknown on Monday, February 2, 2015 - Rating: 4.5

Title : Between Fundamental And Technical Analysis
Description : In the analysis of price movements, forex traders usually use 2 types of analysis. Those who only concentrate on the plot the chart price mo...

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