Fundamental vs Technical Analysis

Fundamental and technical analysis play some of the most influential and critical roles in making trading decisions amongst traders today. They are widely accepted by stock, foreign exchange, indices and cryptocurrency traders worldwide. Traders use either or both of the methods to make key trading decisions in their respective markets.

Fundamental analysis refers to global economic news or events and how they affect the financial markets. These news event may be political, social, economic, Federal policy change and company earnings. They include the Gross Domestic Product (GDP), Interest Rates, Trade Balance, Retail Sales Index, The Producer Price Index (PPI), Consumer Price Index (CPI), Employment Indicators, Durable Goods Orders and Housing Data. Technical analysis focuses on price movement of a market and use this information to make predictions about possible future price direction. Technical analysts believe that world events are factored into price and such events are readily visible by analyzing it.

It is important to note that technical analysis plays a very significant and ignoble role in making trading decisions. It clearly reveals horizontal levels of support and resistance which are clearly significant. Furthermore, it is pertinent to note that markets often and usually react opposite to what an impending news event implies. Nevertheless, there are times when the market moves in the direction implied by a news event. Another vilifying fact about fundamental analysis is that it's almost impossible to build a consistent trading strategy and trading plan around it. Unfortunately, it is widely accepted because markets operate largely on future possibilities. Technical analysis provides a more coherent, consistent and reliable approach to trade the financial markets profitably as compared to fundamental analysis. If fundamental analysis must be used, then it is advisable to consider it alongside technical analysis to clear inconsistencies before making important trading decisions.

Technical versus fundamental analysis in forex is a widely debated topic. There is no right answer to the question of which type of analysis is better and traders tend to adopt one, or a combination of the two, in their analysis. Enhance your forex trading. If you are new to forex trading, download the WikiFX app.