Currency Trading: Fundamental vs Technical analysis 

Analysis of the market is not a part of trading, but it is essential for forex trading. Market analysis generally prefers one component at a time from two, or sometimes it merges both the components. These components are known as approaches. The first approach is a fundamental analysis that considers events and factors, policies and opinions that will affect the future value of a currency. 

The second approach is known as Technical Analysis which includes the study of historic, trading volume, and current values. It doesn’t matter whatever approach you select; the main aim of analysis-technical analysis, fundamental, or merge-is to display currency prices and finding the best trading opportunities.

In this article, we are going to discuss two approaches to currency trading, such as Fundamental vs technical analysis. Here we also discuss factors of each approach of forex trading. For further information, continue to read this article. 

Fundamental analysis

Fundamental trading for currency traders targeted factors that should influence currency value, involving the comprehensive report of affected economies, interest rates, government monetary and central bank, gross national products, and fiscal policies, etc. Some key factors considered in the fundamental analysis are explained below. 

The Economy

During the global recession of 2008 was a factor of all countries, It harmed various countries to multiple extents, and different countries are facing challenges with the help of different strategies. The resultant of those differences had made a change in the value of currencies. Including worldwide responses and events, more common changes in localized economic conditions harm the value of particular currencies. 

Events that consist of knowing effects on economics shift to decrease the connected value of the economies. For instance, a comfort drought in Australia may result in reducing pressure on the Australian economy when a rise in oil prices shows an increment in the Canadian dollar. 

Political (In) Stability

All major currencies are launched by politically stable countries. Although, political stability changes sometimes will interrupt the value of currencies. Must note that drastic changes in political stability will affect currency value drastically for targeting confidence in the currency and through decreasing economic activities. Fundamental analysis of currency trading involves keeping updates about political stability in a specific country, begin with general knowledge of regional political stability. The best source of collecting information about the political stability of currencies is the United States Central Intelligence Agency.   

Government Policy

Government policies of particular countries and fiscal policy have a harmful impact on the value of a country’s currency. In monetary policy, countries always use interest rates as an essential tool for increasing interest rates to drop economic growth and curb inflation. And it may decrease the rate to support economic growth. Fiscal policy also affects currency value, such as higher taxation can reduce economic growth. When low taxation and spending can support economic growth, all these factors affect economic growth. 

Events and reports

Many agencies across the world track statistical data that shows the components of the economy. These agencies will display the results of their data analysis and collection at regular intervals. These reports are directly related to the regional economic conditions. 

Technical Analysis

Forex markets are analyzed via the use of charts that display market prices over a time period. In the past financial charts were drawn by humans, But now charts are provided by the forex trading platform. And They are also available online on websites. Brokers also offer charts to their clients. Some brokerage platforms that offer charts to their clients are ABinvesting, HFTrading, IGMFX, and Capixal. 

Charts are used for studying historical patterns of price movements, finding current trends, and through these charts, they also predict future price movements. Here we explain two charts that are used for technical analysis. 

Bar Charts

The bar chart is the most popular type of forex chart, which is used for representing price movements over a specific time period. It is always preferred by the users to view the price trend. These charts are available online, and traders can also view them through a forex trading platform. In the bar chart, each single line shows 4 distinct costs over a period of time. Those prices are represented as: “Open” which a price shows in the beginning; the last “Close” the costs of the currency at the end of timing; High- the highest costs at the time of period; And low- the is represent the weakest costs during the time. 

Candlestick Charts

This chart is also similar to the Bar chart. It may also show a representation of price level over a period of time. Candlestick shows the exact details as bar charts, such as Open high, low, and close. But in candlestick charts, price trends of a particular period are represented in small charts. It consists of a vertical line that moves up and down and extends the chart. The top and bottom of the main body show the opening and closing costs of the period. 

Conclusion:

Currency trading can take place on the basis of two approaches as Fundamental and technical analysis. Collect complete details about both approaches from this article. Here we also explain the factors of both approaches in a deal for enhancing your knowledge.