If you want to earn on forex market consistently, it is essential that you have a fixed strategy for carrying out your trades. Before investing, you should carry out thorough analysis of the forex market. It is absolutely essential that the trader is able to predict where the market is moving and find a platform that best suits his trading style. Basically, there are two ways to carry out analysis, fundamental analysis and technical analysis. Ever since people started trading in currency market, there has been this comparison between the merits of the two trading strategies. Both come with their own benefits and loopholes.
Fundamental analysis is more concerned with the fundamentals of the market. It focuses on the larger picture and tries to time the market from a long term point of view. The factors considered by this form of analysis are the economic stability of a nation, its political nature, the trade deficit of the country, the employment condition in the country, the GDP of that nation, government strategies, monetary plan etc.
Technical analysis on the other hand has a smaller time frame in the mind. It focuses on the current market trends and predicts the market in the near future. It makes use of the various indicators available. Technical analysis also consists devising different types of charts and establishing some trends in the market. It draws its inspiration from the fact that the psychologies of traders remain more or less the same, whether you consider traders of current era or traders a decade ago. Hence, you can establish trends in the market and based on that hope that the markets will behave in similar fashion.
A general observation is that long term investors rely more on fundamental analysis whereas day traders and swing traders rely more on technical analysis. But as a matter, no matter what is your trading style, each form of analysis is incomplete without the other. A technical analyst cannot ignore the data like the economic conditions of a country or social and political situation of the countries involved. Similarly, with fundamental analysis you can predict only the direction where the market is heading. To time the market, you need to take help of various indicators and charts. Fundamental analysis gives an idea about the direction of the market where as its technical counterpart vaguely gives the idea about the currency rates.
The best example is that using the factors like the economic conditions, GDP, import and export etc, one can guess whether the currency is strong or weak. With that much knowledge, you will not earn much profit. So you will have to take help of technical analysis to define entry and exit points.
To say small story short, each form of analysis is useless without the other. To earn big on a consistent basis, you have to form a formula based on both the analysis.
