Analysing the Forex Market
When analysing the Forex market, there are two main options – traders can choose between using a technique known as fundamental analysis or the alternative option, technical analysis.
Fundamental Analysis
Fundamental analysis involves the exploration and investigation of multifaceted aspects of global culture. For example, the focus here is on the political, economic and social forces that have an impact on supply and demand worldwide. Large-scale and general economic indicators are used to make assumptions and judgements, leading to trading decisions based on the fullest possible available information. These include data on unemployment, interest rates, the rates of economic growth and inflation. Usually, it is possible to access much of this information for free. For example, CitiFX reviews outline the excellent quality of Forex news and information available via Citigroup, which is behind the CitiFX Pro trading platform.
In terms of how this information is interpreted, the short answer is that this is highly subjective – individual traders will consider the different types of data in different ways and weight their importance and relevance accordingly.
Technical Analysis
Traders who engage in technical analysis study the movement of currency prices and often use historical data to try to predict future outcomes. The theory at work here is that the price of a currency already reflects the relevant and available market data and a simple study of price movements will enable traders to make informed and sound trading decisions.
This is where charts become important tools of the trade, as they are employed to establish patterns and identify as a route to securing opportunities for profit. Technical analysts search the Forex markets for recognisable trends and advocate the identification of these trends as early as possible as the route to success.
Which is Best?
There is no right answer. Technical Analysis is generally preferred by most traders because it involves following trends and charts and is capable of covering a good number of currency pairs, as opposed to Fundamental Analysis which can mean wading through a considerable amount of market data that is relevant to a lesser number of currency pairs.