Technical Analysis vs Fundamental Analysis

8 Dec

Forex technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments, volume of trading and, where applicable, open interest in the instruments.

Forex fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument.

In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their forex trading strategy . One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments, whereas the fundamental analyst needs to know a particular market intimately.

Main differences between the two types of analysis:

Fundamental analysis

Technical analysis

  Focuses on what ought to happen in a market     Focuses on what actually happens in a market
     Factors involved in price analysis:

  1. Supply and demand
  2. Seasonal cycles
  3. Weather
  4. Government policy
      Charts are based on market action involving:

  1. Price
  2. Volume
  3. Open interest (futures only)
The fundamentalist studies the cause of market movement, while the technician studies the effect.
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