Forex fundamental analysis and technical analysis are essentially the two types of foreign exchange trading. Which one of this trading is better for me to make money? In fact, both are equally important if you want to make high profits from forex markets. Now let’s see what is meant by forex fundamental analysis and technical analysis.
In simple terms, the fundamental analysis looks at the world economy while technical analysis considers forex charts. The usage of forex robots like FAP Turbo and forex charting software programs are examples of technical analysis. But this guide we will discuss about the various economic or fundamental factors that can affect your forex trading profits.
A vigorous economy means a strong currency. Everyone who have the basic understanding of the forex markets know that a nation’s economic position will have an effect on the value of that country’s currency. Similar to stock market, the currency trading market also fluctuate depending upon the economy situation of the countries.
Any instance that a key financial or economic statement is due from one of the major players in the global economy; you can anticipate an effect on the currency exchange markets. These financial statements include reports of the nation’s GDP or Gross Domestic Product, inflation, unemployment levels, trade deficits etc. A lot of of these information are given out on a regular basis at prearranged date, and you will see significant volatility in the foreign exchange markets around those period.
It is extremely essential to keep track of these reports, not only in your own nation but in all of the countries whose currencies you are involved in trading. Example if you are American trading in US$-EURO then you should not only keep track of the major news in US economy but also watch out for the financial information from European Union. You cannot depend on public newspapers or television networks for this. As far as a forex trader is concerned, Medias such as general newspapers or TV networks do not carry international economic news at a sufficiently comprehensive level. You need dedicated publications which provide detailed financial information. A lot of people utilize the internet and Financial magazines for this purpose.
But, it is not only the economy that affects the forex market. Certain events of significant importance can also cause fluctuations in forex trading market. Social and political forces also have a strong influence on a nation’s currency values. Some of these events are very hard to predict, but you can still reach in assumptions on what is likely to happen after such events based on your experience. Events such as an election, civil unrest, or a natural disaster can cause fluctuations in foreign exchange rates. You can apply historical analysis to find out what happened in the forex markets the last time when there was a similar situation.
Should you decide to base your forex trading around fundamental analysis of the forex markets you must keep a close look at these events and major financial news. If you are not a person who enjoys following the financial, political and economic news, you can concentrate on technical analysis. However it is important to have good knowledge about the effect of economy on forex trading.
The substitute to fundamental analysis is to use information about forthcoming events to stay away from trading at those times. Forex traders who prefer to rely primarily on technical analysis will do this. But as a trader you still have to to know what is happening, in order to stay out of the market. Therefore even if you are some who prefers to use a trading system like LMT Forex Formula basing your trades on forex charts, the fundamental analysis is essential to avoid losses and make profits consistently.