In the analysis of price movements, forex traders usually use 2 types of analysis. Those who only concentrate on the flow chart prices in motion and ignore other factors are those who work on the basis of technical analysis, usually called the chartist or technician. On the other hand those who prefer news and significant events that could move the market are those who work on the basis of fundamental analysis and commonly referred to as fundamentalist. In this article reviewed the concept of both types of analysis and the differences and benefits of each.
Fundamental analysis and its advantages
Fundamental analysis is a scientific discipline that studies the relationship of market price movement with the changing conditions of a country's economic fundamentals. In a broader scope, fundamental analysis does not only focus on fundamental data releases or significant events in a moment, but also on the various aspects that affect a country's economy including political events, regulation of the financial system, social influence and various aspects of life in society. In fact, fundamental analysis actually have more indicators compared with indicators on technical analysis.
For fundamentalist traders the ability to identify inefficient provision of supply and demand in the forex market due to changes in economic data could produce sufficient profit, especially in the long run. Fundamental analysis very effectively applied some twenty years ago prior to the use of technical analysis became popular. However the trader will be difficult to distinguish between momentary price movement correction and reversal of the direction of the trend (trend reversal). Because of the less noticed chart trading, a price level limits (support or resistance) usually only determined based on estimates or numbers just psychological.
The advantage of trading with fundamental analysis is more in our knowledge about the causes of the price movement of the market. This is very important especially for a long term trader who tends to hold its position in quite a long time. By understanding the dynamics of the market is going a long term trader will feel confident to hold his position despite the volatility of the market is always changing.
Technical analysis and its advantages
Unlike fundamental analysis, technical analysis is a relatively new discipline. On the analysis of relying on reading the chart there are 3 trading staple principle:
1. trading Chart is a picture of the overall aspects that cause price movement. All the influence that causes a change of the motion price includes fundamental factors have been reflected in the chart.
2. The price movement of the market is not random (random) but regularly follow a pattern or a specific formula that can be calculated and predicted.
3. The direction of the trend of price movements tend to always repeats itself. In other words the price movement can now be used to predict the next movement.
Because of its simple, direct and clear, technical analysis is very popular and is used by nearly all the layers of forex traders, hedge fund manager from the top to the retail trader. Technical indicators are relatively easier and faster to grasp compared to the fundamental indicators. A chartist or a true technician will simply refers to the movement of the prices in the chart and ignoring fundamental factors. In the process many technical indicators developed recently which is a refinement of the previous one. Although sometimes a conflict between one of the indicators with other indicators, but in general technical analysis can be very effective when used by a reliable technician.
In reality the current trading, many traders who combine technical and fundamental analysis simultaneously. To find out the possible causes of price movements, they refer to fundamental factors (especially for medium and long term), while to determine entry and exit their momentum refers to the signal indicated by technical indicators.
