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Forex Trading Analysis – Fundamental vs Technical

When the time comes to learn Forex trading, it is necessary to figure out which Forex trading method that most closely matches your investment style. The key to success in Forex trading requires different strategies and trading techniques than those found in traditional stock markets.

Forex traders today can have so much information from which to evaluate and select potential trades that they can have countless decisions to make when entering the Forex market. Research is an important part in the decision making process which includes the decision of many Forex traders to use fundamental or technical analysis.

The Forex markets are moved by these two primary forces used to forecast the currency values: Fundamental and Technical. Fundamental forces are made up of balance of trade data, money supply, interest rates, economic and financial reports, etc. At the same time technical forces rely on specific systems to execute trades, based on past performance of a currency, equity, position or future and use mathematical calculations in predicting future results. Naturally different traders will likely be interested in different Forex trading methods.

So in other words the basic difference between the two is that Forex fundamental analysis uses many factors that can influence supply and demand to predict a currency change. Forex technical analysis uses charts of previous currency changes in order to predict the currency change.

Forex trading using a fundamental analysis downplays the underlying data as not important, since what is important is the market’s reaction to that data. It is important to understand that most fundamental data is ‘projected’, meaning the actual release of fundamental news only acts to confirm or change the projections made. So timing is a greater importance of fundamental analysis and leads to shorter term profits or loss due to the swing in market reaction.

Trading Forex using technical analysis, provides more maneuverability in the markets. Technical analysis is designed to reflect fundamental analysis in the current market price. What this means is that the market is doing the fundamental work while a Forex trader is able to ride a trend based on the trend meeting certain conditions.

Technical analysis makes it possible to generate profit potential by identifing, confirming and entering a trend with enough time in the trend to be able to generate profits. Technical analysis can assist in identifying, confirming and provide an exit from a trend that has run its course. In other words the action of the price in the Forex markets will dictate what moves you will make.

Successful Forex trading requires using a good trading method that is based on technical analysis, since it is a less demanding way to trade Forex with far greater chances for success.

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