Many beginners traders fine it difficult to understand how technical and fundamental analysis work.
In a recent days, I have stumbled with many question online such as:
“what is the difference between technical and fundamental analysis?”
“Which one is better, technical analysis or fundamental analysis?”
This is the most frequent question i have seen many times online, in this article you will be able to know the difference between these two ways of analysis, and which one is better.
As you know forex market is traded using technical or fundamental analysis or both, some traders only make focus on technical as they analyse the market using candle stick price action. And this technical is the most common way of forex market analysis.
Other people trade only fundamental which is a setup that form by reading economic news. But expert and professional traders trade using both method at the same. This article will show you how these method works.
WHAT IS TECHNICAL ANALYSIS
Technical analysis is the most famous way of analysing forex, stock and synthetic index market, by studying the behavior of price using chart candle sticks, line and bars. The most familiar technical tool is candle stick.
A candlestick chart is a technical tool for forex analysis that consists of individual candles on a chart, which indicates price action. Candle stick has an opening and closing price in every time frame, example in 15 minutes candle If the market opens at 9:15AM, the candle will begin forming at 9:15 until the next 15 minute, then it close and another 15 minutes candle form.
Prons of technical analysis
– one of the most major advantage of technical analysis is that, forex market can be analyse quickly in a shot period of time.
– some task can be automated to save time by using forex robot in metatrader 4 or 5.
– technical analysis can be use to know the price entry and exit target, by targeting a
specific point of interest.
Cons of Technical analysis
– technical analysis is difficult to understand more especially if the trader is complete
beginner, without having and financial exchange experience.
– technical analysis may be destroyed by a sudden economic news.
– technical analysis setup may have a low winning rate, if fundamental analysis not involve.
WHAT IS FUNDAMENTAL ANALYSIS
now that you know technical analysis as a most use method of analysis, it does’t mean fundamental analysis should be left unuse.
Fundamental analysis is seems like a driver in forex market, having a car and key without driver it means nothing. Fundamental is a type of analysis which is use to understand the future market movement through the Reading of Economic calender (news) of every forex financial instrument (currency).
The news is the main driver of Forex market, without news the market will remain sideway, without making any profitable move. Such news that is consider as major market movers are: GDP news, CPI news, Interest rate etc.
Where to get new?
Their are many sites that is giving a free forex news to traders such as, Investing.com and forexfactory.
Prons of fundamental analysis
– Identify long-term trends and opportunities
– Spot value stocks to trade
– Develop your business acumen
– Categorize and value shares accurately
Cons of Fundamental analysis
– It could take a long time to pay off
– It’s important to remember that no two sectors are the same
– Objectivity can be difficult or impossible
– You’ll need to look beyond the spin companies put on their news
From the above explanation i hope now you will be able to understand how each one of those analysis work, and you will make a good choice to begin or improve your trading career.