TECHNICAL VERSUS FUNDAMENTAL
There are two types of analysis that can be applied to FOREX trading—
fundamental and technical—and traditionally they are thought of as
“opposed” views. There has always been a controversy about which one is
better or which one is the “truest” one. The truth is that both are an important gauge and a reflection of the markets. Each one has its own methodology and rules.
I will be discussing each one in detail in Parts 4 and 5 of this book, but
I want to give you a summary here that will help you to integrate both views
into your basic trading skills.
Fundamental analysis helps you to understand the macroeconomic indicators and political decisions of every government. It provides you with
an indication of the economic situation in a given country that results
from political decisions that quite possibly have an effect on currency
value. When a trader studies the global economic environment and the
political situation of the day, he or she will be able to develop a perception of the world situation and its influence on the various markets
involved. Unlike technical analysis, fundamental analysis focuses on the
cause and not the effect.
Technical analysis is used to interpret price charts. You can see what is happening in real time and react instantly. You also can study past prices and
volumes and, based on that information, make projections of the probable
levels to be attained.
With several technical analysis tools, you can identify trends and patterns that reflect the buy and sell operations being made by all market
participants at any given moment. Those trends and patterns can be seen
on short, medium, and longer time frames, allowing the study of recurring patterns or particular conditions that are related to specific economic
You must be able to understand and apply both types of analysis because
the best-studied technical strategy based on past action can go horribly
wrong if fundamental events are not part of the equation.