It is indeed overwhelming where to start looking for a working Forex Trading strategy especially with how many strategies there are. However, all strategies known are just combinations of two basic techniques namely ?fundamental and technical analysis.
What makes a fundamental analyst?
A fundamental analyst carefully considers the entire nation’s financial state for trading assistance. Furthermore, he will study macroeconomics at the international level as well as the factors that affect both the demand and supply of a currency.
There are five factors that affect a currency’s supply and demand, including:
The financial status of a country’s government as well as the country’s financial policy such as pro-business and labor, just to name a few.
The Import-Export balance status that directly affect the country’s currency supply.
The country’s GDP or real Gross Domestic Product growth or their purchasing power.
Levels of interest rates
Levels of inflation
The last three factors are related to each other in the sense that they are the same measurements all countries are using to determine whether they have a weak or strong currency instead of just numbers.
The fundamental analyst considers these factors as well as check its balance to know the appreciation or depreciation of a country’s currency. In line with this, the fundamental analyst will consider two countries when it comes to Forex trading so that he can paint the entire financial picture of both countries. This helps him in the decision-making.
What makes a technical analyst?
A technical analyst will determine the following information through charts:
Price of two country’s currency or other commodity like stocks and oil prices
Variation (or fluctuation) of the prices through time
Any patterns in its fluctuation that might give an idea of what happens in the near future
This form of analysis is extremely versatile and works similar with the way other charts in the market including stocks, commodities and forex, just to name a few. If you know how the process is done, the information you gain can be applied to other markets and still get similar results.
Difference between Fundamental and Technical Analyst
The main difference between the fundamental and technical analyst is on their flexibility. A fundamental analyst is not that versatile as compared to a technical analyst. The fundamental analyst will study specific economic data for every country as a separate entity. For instance, the financial status of Great Britain has nothing to do with the financial status of New Zealand or Japan and therefore must be studied individually. Studying the specific economic status of a country cannot be applied to another market of the same category.
The fundamental analyst must study two country’s currency and both of its economic status closely before he can become successful using this technique.
Therefore, fundamental analysis is a great technique for predicting what should happen and analyzing the long-term trends of two country’s currencies.
A technical analyst, however, gives specific methods used for trading such as entry and exits as well as where the limits lie. Learning this strategy requires lesser time and can work only for short-term trends as well as individual trading.
Successful traders in the Forex industry use the combination of the two strategies. Studying the chart from technical analysis combined with the timing of economic fluctuations obtained from fundamental analysis lets you understand the entire picture.Tags: forex profits forex trading strategy