Forex Market Analysis: Choosing Your Approach

Fundamental and technical analysis are the two major approaches to forex market analysis.

1. Fundamental analysis concerns itself with identifying socio-political and economic forces, and analyzing their impact on the market.

2. Technical forex market analysis, on the other hand, employs graphs and charts to infer patterns in an attempt to predict price movement.

Choosing one over the other is not easy. A cursory review of forex trading related forums and websites reveals that traders tend to be strong advocates of one or the other of these tools. Those who favor technical analysis contend that graphs are the best tool to predict trends, which is critical to making a profit in trading.

On the other hand, traders who favor fundamental forex market analysis will insist that the sole drivers of market prices are socio-political and economic factors, a fact that has been proven time and again in major price movements throughout recorded history. They explain that any correlation between the charts and real time movements are purely coincidental.

That statement should be taken with a grain of salt. While the effects of the economy are indisputable over time, during times of relative stability on the world scene, technical analysis may be of great help in predicting price movements. Likewise, very short-term trading strategies, in the order of minutes, are far more likely to be successful based on technical rather than fundamental analysis.

However, if you place all your trust in technical analysis, sudden announcements or major financial news is likely to catch you off guard. Since you would be looking at charts and not news, you might end up picking the worst possible time to trade, which could be disasterous to your bottom line.

Markets are sometimes described in terms of elasticity, since they can move in either direction and fall back to their original position. The powerful forces that stretch the market over longer periods of time are the fundamentals of the socio-political and economic climate. How much it will stretch in the shorter term, and where and when it will return is generally better predicted with technical analysis.

The conclusion then, is that a wise trader uses both methods. To consistently make profits in forex you must learn when to use each of these main forms of forex market analysis, and how much weight you will give each one when it comes to making your day to day trading decisions.

When it comes to forex market analysis, it pays to learn from the best:

1. Forex Trading Made EZ (Easy)

2. Forex Mentor by Peter Bain

3. Forex Profit Accelerator by Bill Poulos