Differences between Fundamental and Technical Analysis

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Differences between Fundamental and Technical Analysis

Post  ilearn2t on Fri Aug 10, 2012 4:56 pm

Hello Everyone

When you first joining the "Forex" business you'll quickly realize that striving to reach your goals requires dedication and effort along with key tools that are essential to build and ultimately achieve your dreams.

For this reason we'll need to learn the difference between the "Fundamental" and "Technical" aspects of this business.

Some traders prefer to use the fundamental analysis, usually after a news report is release which can precede the price direction of a given currency, while others prefer to gauge the markets using the technical analysis

The fundamental data is largely a collection of economic factors, such as interest rates and the overall state of the economy to name but a few, which once released can often provide long term and or quick volatile movements within the exchange rate of countries involved in "said" data.

The technical data is usually a collection of lagging indicators designed for judging "support & resistance", "swing" trading etc.

Example:

Yesterday the Department of Labor released last weeks Unemployment Claims "Forecast" 371K "Precious" 365K, if you look at the week before data of 365k compared to the expected release 371k it shows an increase of 6k which would be a bad result for the USD again most other currencies, indicating a rise in the price action, but the true figures released, put the actual figures at 361k not only a drop in the expected "forecast" but also a drop in the previous weeks result also, which in theory would cause a major (quick) drop in currency pairs like EURUSD, GBPUSD etc and a rise in the USDCHF, USDJPY etc, and a possible long term movement in the "said" direction thereafter.

Reading the economic calendar report's is not as easy as one might think, as it often involves collecting as much previous data as possible before any report is due to be released.

The fundamental analysis can be unpredictable in their "Forecasts" at times and how much level a given pair might move in quick time, while the technical analysis can be a more precise tool when used to trade in a shorter-term setting, also for setting StopLoss and TakeProfit.

So while the fundamental analysis is more effective over longer time scales, and therefore makes it more difficult to control and judge the risk, the technical analysis comes more into its own over the shorter time frames, making it the number one choice for most traders in terms of making less risk taking decisions, but at the end of the day "Never forget to use money-management" in all trading. thumbsup

Good luck
ilearn2t
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