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Tag Archives: currencies

Fundamental Analysis V Technical Analysis

This is a big point of conflict for a lot of Forex traders. Do you follow the news, which is fundamental analysis, or do you follow the charts, which is technical analysis.

If you have a background in trading and investing in shares, then you will probably be very comfortable with fundamental analysis. Its very easy to get hold of fundamental information for a company, and therefore, easier to make a decision to invest, based on how good a company looks fundamentally. But there are so many variables to fundamental analysis of currencies, it is not very easy to trade currencies based solely on that. If Ben Bernanke gets out of the wrong side of bed, it can affect the price of the dollar. Yes this is an extreme example, but you get the idea. Some traders only trade on fundamentals, and would not thank you for a moving average or a trend line, but i am not one of them. I am purely a technical trader, and 90% of my trading decisions are based on charts rather than news. I do pay attention to the news, as this can affect my decision to enter or exit a trade.

For example, if i know that there is market moving news about to be released, i will generally not enter a trade, or i will close out of a trade if i am already in one. The reason for this is the fact that the market can move very erratically when news is released, and the technical analysis aspect generally goes out of the window when that happens.

I do pay attention to the fundamentals of currencies, as its in my interests to do so. For example, its seems like forever that the Euro has been fundamentally weak, and although i have taken many short term long positions on Euro Dollar, i would be very reluctant to invest heavily in a long term long position on Euro, because the majority of traders are shorting it, so i would be bucking the trend. Bucking the trend is not always a bad thing, but in the case of the Euro i have a bearish bias, as do most traders, so opening large long positions in Euro Dollar is not a good idea in my opinion.

Fundamental analysis and technical analysis are both time based indicators, but technical analysis is much more flexible in my opinion as it can be applied on a much shorter time frame. For example you can trade technicals on a 1 minute chart, but you cant really trade fundamentals that way. Fundamentals are generally traded over a longer time frame, weeks to months rather than days. As i am a day trader technical analysis gives me far more flexibility than fundies, and are by far my favorite way to trade.