Two methods of forex market analysis are there:
1. Fundamental analysis takes into account economic, social and political agentsand how they impact the foreign exchange markets.
2. Technical analysis contrastingly , employs graphs and charts to deduce patterns that manifest price movement.
Choosing one over the other is not simple. A cursory inspection of foreign exchange trading related forums and websites show traders being staunch advocates of either one of these styles. Those who admire technical analysis dispute that graphs are the exclusive style that can predict way ahead of time the trends which is important to making a profit in trading.
On the other hand the supporters of fundamental analysis will convince that it is the economic factors that drive the changes in currency prices and this is unmistakably true, at least most of the time. From that stance they will defend that any patterns you would find on a chart are nothing more than coincidental.
That declaration should be taken with a grain of salt. While the direct and broader effects of economic changes is incontestable, in post major announcements stage and relatively event and change free times, technical analysis may be of aid in predicting movements.
If on the other hand you rely entirely on your charts, you are likely to be caught out when a signifcant financial event such as an interest rate change is abruptly announced. You were not giving heed to the financial news and left a trade open at the wrong moment. That may result in calamity.
The verdict therefore is that short term trading can benefit from singling out trends via technical analysis while the large price movements are usually created by socio-economic or political forces. Keeping both eyes open is the more sensible proposition as it empowers one to use mathematics to predict short term movements while monitoring current news and happenings that would effect movements on a longer term and greater consequence. After all money in the FX market is made when one trades based on predicted movement and that prediction comes to pass.
Currency market movements are quite like elastic that can stretch in one way or another and then fall back, although not always to its opening position. The fundamentals are the factors that cause it to stretch. Technical analysis foresees how far it will swing in each direction before reversing.
The resolution then is that a clever trader makes use of both methods. So to unceasingly make profits in the forex market you must understand when to use which tool and how much importance you will give to their reciprocal, predicted outcomes.
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