There are so many Forex trading strategies out there that are not surprising. So many people don’t know where to start. But actually, all the strategies are a combination of two different techniques: fundamental or technical analysis.
A fundamental analyst looks at the whole picture of a country’s finances to guide its trade. They study international macroeconomics and the forces that drive currency supply and demand.
There are five factors from fundamental analysis, namely:
- whether the country’s government is in good financial condition or red, and what are their financial policies (pro-business, labor, etc.)
- the balance of imports versus exports, which directly affects a country’s money supply
- growth of the country’s real gross domestic product (GDP); in other words, the country’s purchasing power
- interest rates
- inflation rate; in other words, how high is the price
These last three are all relative, which means they are compared with the same measurements for other countries. That is to determine their strengths or weaknesses, rather than being considered as stand-alone numbers.
Fundamental analysts see all these factors and balance them with each other. Of course to determine whether a country’s currency will appreciate or depreciate. Of course, when the Forex market trades one country’s currency with another. Fundamental analysts cannot simply study the economic picture of one country. He must learn both, and then compare them to determine which categories are more financially attractive.
Technical analysts, on the other hand, only look at the chart. He sees the prices of currency pairs (or other commodities, such as oil prices or stocks). He sees how patterns vary over time. Check patterns that have been taken with the eyes to predict what might be done in the future.
Technical analysis is flexible.
It works the same way in any market with graphics (Forex, stocks, commodities, etc.). After you know how it is done. You can apply it in other markets and get the same results.
Fundamental analysis, on the other hand, is not flexible.
That’s because they only see economic data for each country individually. However, the financial figures for the United Kingdom have nothing to do with the figures for Japan or New Zealand. And fundamental analysts cannot bring their studies to other markets. He must study one currency pair and study the economies of the two countries intimately if he wants to succeed with this technique.
That said, fundamental analysis is good for understanding what should happen. And to predict the long-term trend of a currency pair. It is also true that many profitable trades are carried out immediately after the economic announcement. That is when skilled traders jump into the market while others are still panting because of the numbers.
Technical analysis can be more specific and simple.
On the other hand, technical analysis can give you specific strategies for trading. Including your entry and exit points and stops. It takes less time to learn than fundamental analysis and works well for shorter trends and individual trading.
The most successful traders from the technical analysis are those who use the best forex signals.
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