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There are two types of forex market analysis: fundamental analysis, which considers economic, social and political factors and how they affect the forex markets, and technical analysis which applies charts to identify trends and patterns in the movement of prices.
So which one is better? If you check out forums and websites you are going to find many traders vehemently supporting one or the other. Those who like to depend on on charts will tell you that the only way to make money with foreign exchange trading is to identify trends and jump onto them as soon as possible.
On the other hand the advocates of fundamental analysis are convinced that it is the economic factors that drive the changes in currency prices and this is undoubtedly true, at least most of the time. From that position they will reason that any patterns you might spot on a chart are nothing more than coincidental.
But logically this does not inevitably follow. Even though economic changes have a tremendous impact on the currency markets, it may still be possible to spot patterns in the way that the markets react after an announcement or in times when there are no major announcements.
If on the other hand you depend merely on your graphs, you are likely to be caught out when a major financial event such as an interest rate change is suddenly announced. If you were not following the market news and left a trade open at the wrong side of the market, that could result in a disaster.
So the bottom line is that there are economic events behind the larger scale rises and falls in the market, but there are also common patterns that can be identified in the short term. Finding these formations and trends, while monitoring the economic and political news, is the optimal way to predict future price movements. And predicting future price movements, of course, is the way to make money with currency trading.
Forex market movements are a little like elastic that can expand in one way or another and then fall back, although not always to its starting position. The fundamentals are the forces that cause it to stretch. Technical analysis predicts how far it will go in each direction before reversing.
So when you want to profit from forex trading it is better not to allow your attention to become fixed on either one. You ought to learn to balance the use of both types of foreign exchange market analysis to make consistent profits.
The best tool to find out whether an analysis is correct or not is using forex trading signals. If you can find a good forex signal provider, whose accurate forex signals are in agreement with the analysis, then you can rely on what you read.
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