The million-dollar question, eh?
As an ambitious trader, you will encounter strong supporters for each form of analysis.
Fundamental analysis (FA) entails pouring over economic data reports and news headlines, whereas technical analysis (TA) requires poring over charts to discover patterns or trends.
“Fundamental analysis doesn’t matter!” cry the hardliners in the technical analysis camp. FA to FU! It’s already built into the pricing, as evidenced by the charts!”
“Technical analysis is merely a collection of fictitious lines and sketches!” screams the basic analysis side. Fake voodoo magic is useless! “TA is nonsense!”
Fortunately, the various types of market study complement one another.
Even the most ardent technical traders may unearth important fundamental nuggets to aid in their technical research. And the other way around.
Prices in real-world marketplaces are continually changing and tend to establish patterns. Price adjustments can and do have an impact on fundamentals.
This means that price trends influence fundamentals in the same way that fundamentals influence pricing. Don’t be taken in by these one-sided radicals! One is not superior than the other. They are simply differing perspectives on the market.
Finally, you should trade based on the type of analysis that you are most comfortable and profitable with.
To summarize, technical analysis is the study of currency price movement on charts, whereas fundamental analysis examines the state of the country’s economy.
The analysis of market sentiment indicates if the market is bullish or bearish on the current or future fundamental outlook.
Fundamental elements shape sentiment, while technical analysis helps us visualize that emotion and construct trade ideas using a framework.
These three things work together to assist you come up with good forex trade ideas.
All of the historical price activity and economic information are available for you to analyze; all you have to do is put on your thinking cap and get to work!
Let me bring out the three-legged stool once more to demonstrate the significance of all three sorts of analysis.
To become a true forex trader, you must understand how to apply these three types of market analysis efficiently.
Remember when you were a youngster and your mother used to remind you that too much of something is never good?
You could have thought that was nonsense back then, but in forex, the same holds true when determining which form of analysis to use.
Don’t rely solely on one.
Instead, you must learn how to balance their utilization. Only then will you be able to get the most out of your trading.
Next Lesson: 3 Types of Forex Charts and How to Read Them
