Are you a chartist or a fundamentalist?

Is technical analysis better than fundamental analysis?

Price movements are never random. With the proper analysis of a currency pair’s chart and past price action history you may be able to predict future price movements, ..that is until news of a high caliber economic event hits the wires and throws your awesome technical analysis (and the money you have invested based on it) down the drain.

For a trader there is no greater satisfaction than to identify chart patterns and to realize that you were indeed right in your prediction of price direction. The trend lines you have drawn on the chart were spot on and your pair seems to “see” the same levels support and resistance. Trading solely based on chart data would work in a perfect world, but Forex is definitely not the perfect world.

Technical analysis is great, but it only represents half of your Forex pair’s complete analytical evaluation. To complete the job, you must also take a country’s fundamental landscape into consideration. For example, if you are trading the currency of a country that exports oil, be aware that any sudden change in the crude oil price will also affect the currency, whether it fits into your chart analysis or not. The rate of unemployment, strength of the economy, inflation, manufacturing index and construction spending are just a few of the many relevant fundamental factors that contribute to establishing the worth of a country’s currency. A country that raises or lowers its lending interest rates can greatly influence the value of its currency and that of all Forex pairs associated with that currency. Sometimes, the event-based price fluctuations involve price moves of hundreds of pips in one direction or the other in a matter of just a few minutes. Therefore, it is best to do your research and stay ahead of the game.

In my opinion, the most efficient analysis is one that combines both fundamental and technical analysis. You cannot be just a chartist or just a fundamentalist. There is no other way but to be both at the same time. Factor the fundamentals into your technical analysis and be prepared to change your trading behavior when facts change.

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