Correlation between Fundamental and Technical Analysis. Basic Notions
The analysis of the ongoing market situation is the key to a trader’s success. Its quality has a direct impact on the accuracy of forecasts and the latter – on the amount of the received profit. The overarching aim of every Forex player is to make an accurate forecast based on politics, economy, and other factors. Apart from that, one should assess gossips objectively and reveal manipulations.
For forecasting, technical analysis and fundamental analysis are used. The fundamental analysis brings together a raft of measures focusing on the study of processes and events in particular countries, regions, or the world community as a whole. The events studied by the fundamental analysis take place in real time and may have a profound effect on rates of traded currencies.
All factors for carrying out the fundamental analysis fall into economic and political ones, force majeures, and gossips. Basic notions for the fundamental analysis:
- Central Bank’s interest rate level;
- Economic growth indicators;
- Assumption of the national currency on the part of the customer;
- Equity market and trade balance situation;
- Monetary growth;
- Trade balance situation;
- State’s solvency.
The technical analysis of the Forex market enables to predict the price of a traded currency having a set of data for several previous periods. These are purely mathematical calculations. After the technical analysis is conducted, a forecast of trade behaviour in future, based on the quote history, is made.
Basic principles of the technical analysis:
- Price moves in one direction;
- Rate is sensitive to everything. Any factor that can affect the currency quote has already been considered and included in the price by the market. This suggests that analysis of the price chart is enough for the market analysis;
- History repeats itself. Modern trends may often be found in the past, and thus, their further movement may be predicted.
Outright supporters of the fundamental analysis are billionaires Warren Buffett and George Soros. Nevertheless, traders recommend to conduct the fundamental analysis parallel to the technical one – this will increase chances of success. The combination of methodologies will enable to learn the views of other traders and help to understand the market fluctuations.