The two main methods of analyzing the Forex market are known as technical analysis and basic analysis. There is no concrete answer to the question of whether technical analysis or fundamental analysis is better, as there is no way to predict what will happen in the market. Most experts who base their trading on market technical analysis will say this is the best method. Others will praise their own methods. So how do you determine which one is best for you?
Before addressing the advantages and disadvantages of the technical and basic approaches, we need to clarify a point. It is best to try using both analyze in your daily trades. If you take the best aspects of both methods and apply the principles correctly, you get the best results. However, most processors cannot focus on technical and fundamental analysis equally, so they have to choose which one is the main market analysis method.
Fundamental analysis is a more traditional tool than its competitor; Basic analysis means the exact meaning. You make your market decisions based on the basic principles that direct the currencies. These may include political developments in a country. It will always contain economic events and even environmental factors.
Fundamental analysis is based on the premise that the movement of one or the other currency is not random; if we know the random effect we can predict the basic response.
For this reason, basic analysts will trade by constantly locking their eyes on the screen and pay less attention to the past movements of the foreign currency they are interested in. They will determine the factors and values that determine the actual value of a currency based on supply and demand. If there is a decrease in supply, if demand increases or stays the same, the value of the currency will increase or vice versa.
To give a more concrete example, we can say that a Forex basic analyst will work on the economic indicators of the country with its export and import figures, the stability and popularity of the government, as well as the level of supply and demand of a country’s money. Depending on these and other factors, the analyst will have a certain judgment about the resistance of the currency and will have an idea of whether it is a rational investment for an average processor.
As you can see, this is a very good way to analyze the market and there is no doubt that it will give definite results. The question is: can everyone be a professional fundamental analyst or do they require extensive knowledge of numerous complex situations?
Advantages of Basic Analysis:
- Based and comprehensive
- Deciphering relevant information is simpler than others
Disadvantages of Basic Analysis:
- The information to be analyzed is infinite
- Difficult to measure relationships between variables. How much attention should be paid to the political environment against the economic or environmental arena?
“Forex technical analysis is a method of estimating the price movements and future market trends, the prices of instruments, the volume of trading, and the study of the statements of the past market movements that account for the apparent interest in the instruments.” Technical analysis is a much more scientific and objective way of analyzing the market.
Technical analysts do not argue that there are forces driving the Forex market; add another factor not supported by basic analysts.
Technical analysis is based on the concept that yesterday revealed a clear picture of what would happen tomorrow. Technical analysts do not keep the news open while trading, but instead show interest in daily, weekly and monthly tables. If there’s a pattern on the tables, technical analysts will find it.
Technical analysis has the advantage of focusing and analyzing one or two tables. However, basic analysts have to use and analyze enormous complex data, and there is no indication of what kind of information is more important than others.
There are three principles in technical analysis:
- Although there are many factors influencing the market and currencies, including policy and economy, the forces driving the technical analysis are irrelevant. The important thing is the currencies movements between themselves, not the motives behind the movements.
- As I mentioned above, technical analysts suggest that when you look at the tables long enough and deeply, you will notice a trend or a particular pattern. Follow that trend, you will succeed.
- Trends are based on the human psychology of how people buy and sell in the market.
To simplify the concept of technical analysis, let’s say: Technical analysis brings together historical data (more than 100 years of recorded data in the Forex market), it enters the data into the computer, searches for the data in the data and displays it in graphic format.
In this case, we conclude that technical analysis is a more focused and specific method of analyzing the market. But does this result lead us to the conclusion that this method is a more sensitive method? Consider the advantages and disadvantages of technical analysis…
Advantages of Technical Analysis:
- Allows you to focus on a topic or table, not to worry about analyzing a huge amount of complex data.
- 2. Clear definitions of information are the most important thing.
- Most of the trading platforms have a technical analysis tool.
Disadvantages of Technical Analysis:
- The technical analysis completely ignores the presence of the driving forces behind the currencies.
- The information in the tables is sometimes presented in a highly technical form that makes it difficult to understand.
There is no one to answer any questions. But in order to lose your track, you are advised to use both methods in the Forex market, both of which have their own advantages and disadvantages.