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Technical or Fundamental Analysis – Which is Better?

There are ardent adherents of technical analysis, and there are born fundamentalists. Both categories of traders are in irreconcilable hostility with each other: which analysis is more accurate and more important, and what is the best way to be guided?


To shed some light on this much debated issue, we need to define these two terms.


Technical analysis makes it possible to make forecasts based on information about previous price fluctuations. What reflects them? Chart. From the article " How to start trading onForex: beginner's guide " you already know about Japanese candlesticks, the edges of the bodies of which indicate the price values at a certain point in time.


Candles themselves are a good source of information, but the chart consists not of one candle, but of hundreds – a treasure trove of knowledge about the market.


If you see such a sequence of candlesticks, how will you trade (up or down)? Probably, after all, to go down, since the market entered the overbought zone, touched a fairly clearly marked level.


And, indeed, you can earn good money. What was the forecast based on? Based on the history of price fluctuations, which is reflected in the candlestick chart. This is an example of successful technical analysis (a method of trading in a sideways trend).

Fundamental analysis comes from the word "foundation" — the basis, the basis on which everything is based. Why is the currency growing in value? Because traders think that everything is good in the country and buy it (of course, there are crowd follies like the tulip boom, but more on that later, in the psychology of trading). And what makes them think that everything is fine? This is proved by low inflation and unemployment rates, high interest rates, growing GDP, a constant increase in the number of residential buildings, and so on.


Thus, fundamental analysis involves studying various economic factors that affect the exchange rate of a particular state, forming a clear idea of "where the market is looking" and making trading strategies based on this.


Technical analysis clearly shows where to open a trade – from what level the price will bounce in the process of movement, which support and resistance lines it will rely on, and so on.


Complete information about current strategies that have already brought millions of passive income to investors


Fundamental analysis doesn't tell you anything like that, but it does tell you which direction you need to open a trade in order to hold it for weeks or months, and then take huge profits.


Therefore, opening long-term positions requires large amounts of money and there is no guarantee that they will remain intact.


Second, Forex is still more technical than the stock market or the commodity market. If the euro is falling steadily against the dollar, a news item or even a news package will not change the situation. Yes, there will be sharp fluctuations, but when traders "absorb" the information received, they will continue to follow the original path.


Consider a very (in my opinion) illustrative example. The Swiss franc has long been considered a very technical currency, with movements that are easy to predict and usually well practiced.


This was due to the fact that the Swiss National Bank did not allow the franc to grow or decline much against the euro. Basically, it was growth that was held up.


The year 2015 has arrived. At the beginning of January, the head of the Swiss Central Bank admonished everyone from the podium that the financial policy would remain the same, and the franc exchange rate would be fixed within strict limits. A week passes. On January 15, the Central Bank announces that it is releasing the franc to float freely. Its exchange rate is no longer fixed. What happened? See.


This is a daily chart of the euro against the franc (the euro collapsed enormously due to the rise of the Swiss currency), each candle shows price changes in one day. Compare how prices have changed before, and how the market reacted to the news. If we had opened a short position with a minimum lot (0.01) before Izvestia was released, we would have earned $ 300, if we had opened the whole lot - $ 30,000. Per day.


But that's not the point. The news turned the Swiss economy upside down, but let's see how the dynamics of the franc exchange rate changed in the future.


The price almost returned to the previous trend, continued to move sideways, and then updated the previous maximum. It did not fly even lower, but remained true to the previous trend.


Naturally, nothing passes without a trace, now USD / CHF is capable of sudden unforeseen fluctuations, but this is not important. The bottom line is that the foreign exchange market is more exposed to existing trends.


With stocks, the situation is completely different. For example, if a company publishes a financial report on its activities that contains a lot of negative data, the shares will collapse in price and not the fact that they will rise, because there is no reason for this. Let's not forget that the company can easily cease to exist, while Switzerland will not just disappear because of the refusal to fix the franc exchange rate.


The above examples demonstrated that signals Forex reacts to emerging news, the reaction is often very violent, but still the foreign exchange market is more technical and trends play a crucial role in shaping price movements.


The third reason is if we move the position through the night (read the very first article "What is it?").Forex: divorce or the opportunity to earn very good money?", if you haven't done it yet), we will see in the swap trading terminal, for most currency pairs, swaps are negative. In principle, the income from long-term retention of trading strategies more than covers them, but still, you should not forget about swaps.


Fourth – imagine that you have opened a long-term position, the market should move, but it freezes, does not go up or down. And then what?


Fundamental analysis, like a compass, indicates the direction, but does not say whether there will be a tailwind.


Evaluate your emotional state. And in addition, swaps are also dripping.


Ideally, you need to combine technical analysis and fundamental analysis, and use the news as an opportunity to earn a good amount in a short period of time (useful for both beginners and pros). Don't get involved in arguments between techies and fundamentalists, just make money.


Go directly to analytics and learn how to determine how the market will react to news. As such, there are no stages in fundamental analysis, you just need to be able to see patterns.


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