Traders rely on fundamental analysis and technical analysis when trading in the foreign exchange market.
Fundamental analysis is defined as a type of market analysis involving the study of the economic situation of countries to trade currencies more effectively. Fundamental traders will analyze the country’s inflation, trade balance; they will study the political and economical events that might influence the currency market.
Fundamental analysis in FX Online trading attempts to predict the causes of Forex trends, therefore it uses a number of indicators and statistics to predict money flows into an out of a particular currency.
On the other hand, technical analysis compromise pattern recognition on a price chart, it relies on price history in order to predict the future. Technical analysis is based on marketing action takes everything into account and prices moves in trends.
The only input studied by a technical analysis is the price of a currency pair, as they think that is the market sentiment at any given moment. The basic price pattern a technical analyst use, is called a candlestick; a single candle stick summarizes the effect of decisions made by all of the active forex traders around the world during the time the candlestick was forming. The outcome obtained by this is recorded in the open, high, low and close of a candlestick.
Technical analysis makes it possible to make precise timing decisions for traders' entries and exits, by categorizing the trends into separate groups, technical analysis allows to accurately defining a preferred holding period. However, traders will focus on specific types of support for traders to enter and exit their positions.
Technical analysis will give traders the chance to understand the meaning of the charts and help understand why certain price movements occurred.
Most traders use a combination of both, fundamental and technical analysis when trading decisions have to be taken, either when to enter or when to exit. Both analyses provide tools to the trader, with the perspective needed to ensure trades are accurate and profits are maximized.