Fundamental Vs Technical Analysis

Until a few years ago, forex trading was reserved exclusively for institutional investors. Recently, more and more forex brokers have entered the market in order to pave the way for private investors to enter the market with the highest liquidity worldwide (daily turnover more than 4 trillion US dollars). However, in order to be successful in this highly complex environment in the long term, an extensive search for the right strategy is required.

Fundamental Analysis

Basic analysis or fundamental analysis determines the fair value of stocks, commodities and also currency pairs, with fundamental economic developments providing the data material. Thus, it differs not only in terms of the data basis, but also in its approach from chart analysis or the more comprehensive technical analysis, because the latter fundamentally assumes that all information is contained in the prices (price charts) and the volumes, while the basic analysis certainly considers business or economic data to be decisive.

In forex, for a basic analysis, whole economies or currency areas must be considered, for example, when it comes to the development of the EUR/USD currency pair. Technical analysis believes that developing trends find their continuation simply through the actions of market participants, while fundamental analysis believes that the strength of the dollar area (primarily the U.S. economy and oil traded in dollars) or the euro area is decisive for the strength of the respective currency. Professional traders always include a base analysis, but assume the incompleteness of all available data.

Technical Analysis

Technical analysis is the basis of many trading strategies. Most traders develop strategies on the basis that individual currency markets follow certain recurring patterns within their development. Thus, careful analysis and interpretation of the statistical price movements of a market can allow conclusions to be drawn about future developments in the foreign exchange market.

The approach of this interpretation of the chart technique is called technical analysis. It forms the strategic basis of many successful Forex traders. This strategy usually reflects the personal orientation, in the specific selection of the values taken into account, and also their interpretation.

However, the analysis represents only the rough orientation of an investor. Complex trading strategies, on the other hand, are usually based on a combination of different instruments and techniques. As a beginner or novice on the Forex market, one usually uses only standardized analysis methods. Advanced users, on the other hand, usually develop their own strategies, which are completed and perfected over time. This is of great advantage for the trader. In addition to the background knowledge, this also allows independent action on the market. Thus also events in the media are analyzed independently and converted into strategies.

For technical analysis, it is recommended to use Meta Trader or other equivalent applications. For a technical analysis, especially longer-term price movements should be observed and analyzed. Tips for this can often be obtained from the contact person of the platforms. These are of course also interested in the profit of the user and therefore support him also with strategic questions, as long as these serve the increase of the account balance.

What is evident in any strategy is that trading with only one currency pair usually achieves little profit. Therefore, it is important to include in the analysis the top currencies. Significant political events are also important, as well as the announcement of the key interest rate of the central bank.

Thus, in the technical analysis, all the factors of Forex trading come together. They include the use of the right leverage, good balance management and also longer-term strategies.