There are two main schools of thought when it comes to forex analysis. Fundamental analysis studies the overall picture of a nation’s economy. This so called big picture view has practitioners who insist that the overall state of the economy as indicated by the different economic indicators is the key to forecasting price movements.

On the other hand, there is forex technical analysis which states that its all about patterns and using historical data. The idea here is that charting patterns can be inferred which will then be used as indicators of price direction.

So is one better than the other?

The short answer is no. Both methods are employed by accomplished traders. A sure way to trading disaster is to use just one of these methods and exclude the other.

What is the reason for this? Well, one method will only show one aspect of the whole. Here’s an illustrative case:

Say you have your nose firmly in your forex technical analysis charting theories, and are not paying attention to the news and economic reports. You see no reason to get bogged down in all of these news reports. After all, you have total confidence in your charts and patterns.

You find an opportunity developing in your charts. A really large movement as shown by 3 or 4 indicators. You expect a gigantic leap from the dollar so you proceed to buy a lot immediately. You begin to anticipate the profit you will make real soon.

Then something totally irrational occurs. Instead of leaping, the dollar plunges 50 pips.

How could this happen when all the indicators in your forex analysis said a jump was imminent?

Frustrated with your technical analysis, you flip off your pc, and turn on the TV just in time for the business and finance news. First, a huge increase in unemployment rate was recorded, an increase on a much greater scale than what the government economists forecasted.

Not only that, but the president of a global corporate behemoth comes out on TV to announce an unexpected huge decrease in corporate revenue with a strong indication that the succeeding quarters will be more of the same.

Two unexpected news stories turns the currency market on its ear, effectively dousing the fiery rise of the dollar. If you had only been more open to to being well informed about the fundamentals, you would not now be trying to figure out how to recover from your loss.

The reverse is equally un-tenable, relying solely on forex fundamental analysis. You see, fundamental analysis excels at showing the overall picture, the general direction prices will take, but the nitty gritty details that show where to enter and exit the market is beyond its realm. For example, based on fundamentals, the Euro will increase, but by how much? What should your entry and exit price point be, when to buy and when to sell?

As you can see, a unified approach to forex analysis that combines both fundamental and technical analysis is your best bet to ensure success when trading forex.

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 patterns and trends, while keeping one eye on the economic and political news, is the best way to predict future price movements. And predicting future price movements, of course, is the way to make money with forex trading.

If you feel you will lean more towards the technical analysis side of things, then you may find a forex trading robot like FAP Turbo Robot Software very helpful.  In any case you will need a good forex trading brokerage account such as:

1. Easy Forex Trading

2. ForexYard

The above are links to our reviews of these online trading platforms.  They are free to signup, and offer demo accounts where you can try them out before making real trades with real money.  Since they are essentially free to try it is advisable to try out a couple and see which one works best for you.