If you have ever been in forex business, you must have come across the technical and fundamental types of analysis. There is a lot of arguments concerning the two analysis methods technical and fundamental with every forex trader preferring one more than the other but other use both. The forex technical analysis method enables traders to understand the trend of the market by predicting the future prices by use of charts, and the process deals with the actual price movements. Fundamental analysis on the other hand use wide-range approach in Forex trade by using the environmental or political factors or events that may affect the currency.
Technical analysis is the most accurate method in foreign exchange business; it has three principles which are:
- Prices have trends thus analyzing the patterns on the behavior of a currency is very useful.
- The currency price reflects what is on the market that can affect it.
- Patterns tend to repeat themselves.
Technical analysis pros
- The method is very objective – technical analysis basis its focus on tools and charts and does not consider feeling but only facts.
- Using the method makes it easy for you in making decisions since technical analysis provides you with actual currency price and how the market conditions.
- Those who use the technical analysis method have useful information about the market trends and the current situation in the market and thus being in a position to know where to invest and where to risk money.
- Technical analysis method points out the end of the market trend which helps you minimize losses or hold to profits. Monitoring the market currency trends is a vital information you need to survive in the forex market and earn more while losing less.
Technical analysis cons
Despite the benefits above the forex traders who use the fundamental analysis avoid the technical study due to the following reasons:
- The method relies mostly on the assumption –the technical analysis methods depends on current market trends to predict the future prices which may not be accurate. Sometimes the prediction may be valid but if anything changes the users may incur severe losses.
- The method uses charts which may not indicate the changing trends till the change occurs which is very dangerous for a foreign exchange trader. Before the tables pick the changing trends, the traders may lose almost a one-third of the ever-fluctuating forex market.
- There is a possibility of forex market acting on patterns sometimes, but the market is very dynamic. If you rely on technical analysis sometimes, you might end up losing money since it uses the patterns in the market to predict the future prices which may not be true in certain circumstances. In, forex trade the trends might change, drastically and if you don’t notice immediately you miss a lot.
Once doing the forex business you can’t ignore the technical impact analysis brings on but when using it, you also need to be careful and even use the fundamental analysis to weigh the situation in the market. Relying on one method to analyze the market it might be dangerous since not all the times the system is correct. Make the analysis system be your servant not the master hence will enhance your success in the forex business.