Fundamental Analysis

Fundamental analysis is an analysis that examines the movement of currencies with the help of present and past economic and political events. Forex traders have been using fundamental analysis in order to take decisions regarding their Forex trade activities. Fundamental analysis involves analyzing a large amount of data which is quite complex in nature. The fundamental analysis requires you to have extensive knowledge about various aspects of Forex trading. Most often the relevance of data is questioned and at other times lot of arguments take place regarding the importance that needs to be given to each of the factors. In addition to these shortcomings, fundamental analysis does not demonstrate either the entry points or the exit points. This shortcoming of fundamental analysis can make trading very risky for the Forex traders. Therefore, these days technical analysis is also taken into consideration while making decisions regarding Forex trading. Technical analysis is considered to be more complex than the fundamental analysis but in reality it is easier to learn the components of technical analysis. This can be verified by seeing at a number of people who are taking training in technical analysis. Technical analysis gives more importance to price movements rather than to various forces that affect the movements in currency rates. This is what makes technical analysis easy to understand as compared to fundamental analysis which put more stress on the forces that affect currency rates instead of the price movements itself. Therefore, a lot of people have started using technical analysis in place of fundamental analysis. The fact of the matter is that the prices of currencies follow a tendency which can easily be understood by looking at the patterns of price movements in the past few years. What technical analysis does is that it feeds the price movement data of past hundred years into a computer system which in turn demonstrates this data in a graphical manner. With the help of this graphical representation an investor can compare the current movement in currency movements with those in the past years. This helps the trader in predicting future movements that currency prices are inclined to take. However, it should be remembered that neither of these systems can predict the price movements of currencies with 100% accuracy. Therefore traders are using the good points of both the analysis in order to get the benefits of both types of analysis. They use fundamental analysis to explore and understand the unpredicted movements and the forces that result in these unexpected movements. In addition, they also look at the technical analysis to decide the entry as well as exit points of trade. To conclude, though fundamental analysis has a number of shortcomings regarding the prediction of movements in the prices of currency but it is still used in addition to technical analysis so as to bring more accuracy in the prediction of currency movements. Thus, a lot of Forex traders use the combination of technical analysis and fundamental analysis.