Advantages and disadvantages of using technical and fundamental analysis on Forex

There are basically 2 primary methods that Forex traders use to analyze the market. They are technical and thorough analysis. Pure technical analysts will say that it is impossible to trade news because the market is moving so fast and whatever news is on the map for you too. Fundamentalists, on the other hand, will say that only news drives the market. Technical indicators are always followers. So what methods should we use? To find out, let’s look at the pros and cons of both of these methods.

Technical analysis

Technical analysis involves monitoring the movement of currency prices in the past and using indicators to help identify in which direction the current price is moving. This analysis can be performed manually or automatically. Under an automated system, traders use software (expert advisor) or robots to help them find stores and identify entry and exit points. Technical traders believe that all the necessary information needed to close a trade is contained in the charts.

Fundamental analysis

Fundamental analysis focuses on key economic, financial, and political factors fundamentally to determine the direction of currency prices. Basic traders believed that currency movements, whether becoming stronger or weaker, were related to the strength of the economy, financial and political situations. Therefore, basic reports and news are important to them. News and reports such as interest rates, employment, trade balance and GDP are of great importance. Other information such as retail, durable goods, home sales and ISM will also affect price movements.

Technical analysis

Advantages

-It helps in providing a certain entry and exit point to traders during trading.

-Karting can provide everyone with an easy way to instantly recognize trends. This is possible because the same data is viewed by millions of traders, which will result if a large number of Forex traders do the same, which will potentially create a self-fulfilling prophecy of further strengthening trends.

-Focuses on charts and indicators. It is without a doubt the easiest and most accurate method used by many traders so far.

-Cards and tools can sometimes help indicate when a trend will begin or end. So help traders plan their profits more accurately and stop losses.

Nah

-If many traders stop in the same areas, it could lead to a reversal in price movements, as it could potentially allow larger market players to deliberately initiate those stops.

-The tools used are basically lagging indicators. It can be dangerous to rely entirely on the assumption that the current price and trend will predict future prices. They often do, but not necessarily.

-Fully relying on charts means you may not accept other signals that could potentially change the trend.

Fundamental analysis

Advantages

-Fundamental analysis increases our knowledge and understanding of the global market. So help us get a clearer picture of the general health of the world economy.

-We can use a thorough analysis to explain some unexpected price movements. From there, you know what prices are moving higher or lower.

-Great news can sometimes trigger large price movements when there is a big difference between expectations and actual results. If you can predict and record this price movement, it can be very cost effective.

-Fundamental analysis is better used to predict longer-term exchange rate movements.

Nah

-There is so much information that one can easily get confused.

-It is very difficult to use all this information to determine a specific entry or exit point for a trade.

-Sometimes short-term news can provide a false signal and mislead the trader to open a store. This signal often develops a knee twitch reaction in the market.

-Sometimes information or news is already published in the market. Therefore, the information does not have a significant impact on price movements.

-We need a person who has at least some basic knowledge of economic background.

– News releases can sometimes create dramatic and rapid price movements for a currency pair both in an up and down direction as the Forex market tries to digest the news. Inexperienced traders can find themselves in a series of losses.

Conclusion

In my opinion, there is no ideal or best method of Forex analysis that will guarantee you 100% results all the time. Technical analysis and charts will help short-term traders make decisions, while long-term traders will need to keep up to date with the latest economic news and data relating to the currencies of the country in which they trade. Note that these methods of analysis are tools only. Used properly, it can usually help you trade more efficiently. This is why most Forex traders use both approaches to analysis to make a trading decision.