We will present technical and fundamental analyses and how they benefit you as a forex trader. We will also go through the differences, which are also presented in the spreadsheet.
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Comparison factors |
Technical analysis |
Fundamental analysis |
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Definition: |
Technical analysis determines future prices of trading instruments using charts to identify patterns and trends. |
Fundamental analysis is a method of analyzing economic, social, and political events. |
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Focus: |
Focuses on past data only. |
Focuses on past and present data. |
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Objective: |
To determine the right time to enter and exit the market. |
To determine the intrinsic value of trading instruments. |
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Future prices: |
Predicted based on charts and indicators. |
Predicted based on past and present economic, social, and political events. |
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Form of data: |
Chart analysis. |
Economic reports, industry statistics, and major news events. |
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Type of trader: |
For short-term day traders and swing traders. |
For short-term day traders and swing traders. |
Technical analysis
Technical analysis is the framework in which traders study price movements, determine current trading conditions and potential price movements. Traders who use technical analysis in their charts are known as technical traders who believe that all the information is in the charts.
Technical analysis is based on historical statistics that tend to repeat themselves. Technical traders look for similar patterns that have been formed in the past, believing an idea that the price could repeat itself. It is based on probability and not predictions.
Support & Resistance zones
Technical traders use charts, as seen above, to visualize historical data. They help you spot trends and patterns which can help you find excellent trading opportunities.
Remember that technical analysis is subjective, which means that every individual can have a different idea of where the price may be headed after analyzing the charts.
Fundamental analysis
Fundamental analysis focuses on analyzing economic, social, and political events that can affect trading instruments in the forex market. It is based on the supply and demand that is determined by the exchange rate between currency pairs. You can use a supply and demand indicator to determine where the price could be headed, but it is hard to analyze all the factors affecting supply and demand.
The idea behind fundamental analysis is that if a country’s current or future economic situation looks good, its currency should strengthen. So the better a country’s economy is, the more investors will invest in that country.
If you are determined to learn how to use fundamental analysis, you will be required to understand how economic, financial, and political news impacts different currency exchange rates. You should take a deeper look into macroeconomics and geopolitics to acquire knowledge.
