Technical Analysis vs Fundamental Analysis

 We start with a brief outline of the difference between Technical Analysis and Fundamental Analysis

Technical analysis relies on the price of currency pairs to identify trends and measure the price volatility of a given currency. With this information, you’re able to detect the trading signals (when to buy and when to sell). They also focus on volume data. Basically Technical Analysis analyzes the different Chart Patterns and provide forecasting. 

Fundamental analysis takes a different approach. Instead of evaluating the currency pairs, fundamental analysis requires to look at external factors such as the unemployment rate & the current political situation in that country. Politics can have enormous impact on the value of currency and many fortunes have been acquired by relying on the techniques of fundamental analysis. In other words, Fundamental Analysts examine the basics of a company. 

Why it matters?

• Fundamental analysis, like technical analysis, attempts to predict which stocks are valuable and which are not. According to its proponents, fundamental analysis offers a fuller picture of the possible movements of both the stock market and individual stocks because as many elements as possible are investigated. Technical analysis, on the other hand, only looks at past data of stock prices

• While Technical analysis is helpful for making short trades, and Fundamental Analysis is helpful for making longer term investment decisions, some traders employ both methods at the same time. For example, traders might first select a group of stocks that have strong fundamentals, such as high growth rates and increasing earnings. Such stocks might be considered good long-term investments on their fundamentals alone. But by then looking at the technical data, and identifying periods in which those stocks are undervalued, traders can purchase a stock at a bargain price with good odds of the price rising in the near future.

When to use What?

• Both fundamental and technical analysis is effective for Currency(Forex) Trading. It depends on us and our personality that which type of analysis is suitable for us. If one is a long term investor then he should focus on the Fundamental Analysis and if one is a short term investor, then he should focus on Technical Analysis. Both of these two methods of analysis have advantages and disadvantages, but these two methods can be combined to get better results in Forex trading.

• Fundamental analysis can help us to predict the direction of the major price movements. Then, we can confirm the major movement by technical analysis using trend lines, moving averages, breakouts and can also detect buy and sell signals. So, a trader can use fundamental analysis, technical analysis or both in a combination in forex trading. But one should use the method of analysis based on his personality, trading style and expectations.

Conclusion

Both technical analysis and fundamental analysis are helpful ways of evaluating stock data, and determining when the ideal buy and sell points are. When technical and fundamental analysis are combined, however, traders get the benefits of both worlds. And that's the type of trading edge that serious traders should explore.