Technical and fundamental analyses are two extremely powerful tools used extensively by the forex investors and traders for forecasting the behavior of the market. The goal or motive is to predict a price or movement. Technical analysis studies the effect as opposed to fundamentalist analysis, which studies the cause of market movement. A combination of both can produce even superior results.
Technical Analysis focuses on analyzing market prices rather than the factors that can influence the market directly. By analyzing actual daily, weekly, and monthly price fluctuations, a trader can chalk out the future course of price movements. Technical analyses generally utilize different mathematical calculations developed to monitor market activity. Trading decisions are taken on the basis of signals generated by charts, graphs, calculations, or their combinations.
Fundamental analysis includes the analysis and interpretation of global events, economic, political, financial events, and other factors that can cause a currency to fluctuate. In fundamental analysis, a trader studies the cause of market movement instead of studying the effect. It is essentially analyzing factors external to the trading markets, which can influence the supply and demand of a particular market. According to the theories, by monitoring relevant supply and demand factors for a particular market, potential factors affecting market conditions may be identified before they start influencing the price level of that market.
Many forex traders classify themselves as either technicians or fundamentalists. However, the best approach would be to have a working knowledge of the basic tenets of both to take full advantage of these methods.
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