Plenty of
forums about Forex-trading are full of threads where traders try to answer the
same question: what is better? Fundamental or technical analysis?
In my
opinion the answer to this question even does not exist. In many respects it is
because the question as itself does not contain a correct comparison of two equivalent
issues. That is why I would like to take up both types of analysis separately.
Of course I will not be able to avoid oblique compares.
Fundamental
analysis is based on the information of one kind, and technical one considers
another data. There are also differences in fields of application of each analysis’s
types. Fundamental research is made during a long-term period, and technical
analysis - short-term.
It is not a
secret, that fundamental factors are crucial macroeconomic indicators of the
national economy state. These indicators influence on participants of exchange
market and on currencies’ rates. Looking it another way, fundamental analysis
studies all the economical indices, which affect the price of an investment object
of in distinction with the technical analysis of trend patterns on graphics.
However, not each adherent of fundamental analysis remember, that it is
necessary to note one and all the economical indicators. Basic among them are:
- Interest rates
- Money
supply
-
Unemployment
- Non farm Payrolls
- Gross
National Product
- Gross Domestic Product
- Consumer
Price Index
- Producer
Price Index
- Trade
Balance
- Jobless
Claims
- Industrial Production
- Capacity
Utilization
- ISM
- Personal Income
- Car Sales
- Retail
Sales
- Durable
Goods Orders
- Consumer Confidence
- New Home
Sales
- Construction Spending
- Factory
Orders
- Business
Inventories
It is
necessary to understand that to interpret economic indexes is not an easy job.
The person should have good economic education, analytical mind in order to
make qualified conclusions on the basis of fundamental analysis. Interpretation
of indexes by newbies in the way like “the level of industrial production in USA
increases that is why US dollar rate rises” has nothing in common with
qualified analysis and forecast. Only professional analytics who read regularly
records and press-releases, communicate with people from trading and investing
fields are able to examine all indexes in complex. However, do not give your
attempts to master fundamental analysis up for lost. Even basic fundamental
analysis based on small experience and common knowledge in economic may help to
“catch” trend, sometimes even long-term one. Unlike fundamental analysis,
technical analysis studies predictable events inside of trading process with
the help of trend indicators which are seen among lines at chat. Trend models
and figures of technical analysis are formed from these lines. It is possible
to forecast prices movement at chats with the help of trends method.
Adherents
of the technical analysis hold by an opinion that fundamental analysis has
already taken into account by the market and included to the price. That is why
price chat studying is enough for technical analysis forecast. In other words
technical analysis is a part of fundamental analysis.
In spite of
some simplifying of the real situation - time shift from the moment of
information receipt to the moment of its influence on a price is not taken into
consideration - this is difficult to question. Technical analysis is a
short-term analysis and price always moves in one direction. Three types of
trends are distinguished:
“Bullish”
trend – prices move up. The definition “bullish” was arisen in a similar way to
a metaphor “a bull which raises a price on his horns”. This is situation on
price chat when assets’ prices take support level as starting point and set new
price maximum. Support and resistance lines are directed up.
“Bearish”
trend – prices move down. In this case, a bear crushes a price down falling on
it by its body. The situation is reversed to the previous one, prices go to the
resistance level, push themselves away from it every time set new minimum, so
trend will be directed down.
Sideways
trend – there is no definite movement of the price. In this situation the
prices are “closed” in some range and go from the line of resistance to the
support line and back without new maximum or minimum set. Usually such movement
is called “flat”, rarer “whipsaw”.
It should
be mentioned that long “flat” is an indicator of price storm at the market –
strong movement of the price to some direction.
As a rule
prices do not move linearly up or down. However, trend line is directed up when
we have bullish trend and prices grow quicker than fall. Quite opposite thing
happens when we have bearish trend.
Consequently
basic laws of trend construction may be deduced:
-
“active
trend with more possibility will continue when change its direction”, or
-
“trend
will move in one and the same direction till becomes weaker”.
However, do
not use oscillators during heavy trend because they are designed for short
trends, when long-term fall takes place oscillators signal about resell and
advise to buy but the fall is far from bottom. That is why it is more
reasonable to trade trends and oscillators use during sideways trends.
Technical
analysis is based on unchanging laws of physics, economy and psychology in
different historical periods. Other words those rules which work in the past
work in the present and will work in the future. That is why this statement
gives traders, who use technical analysis, basis with a big likelihood ratio
forecast future while trading trend.
Summing up,
I must say that there is no need to divide fundamental and technical analysis
into correct and incorrect, effective and ineffective, useful and useless. Both
types of analysis complement one another. Fundamental lets count the
perspectives of the movement main direction and technical lets start and finish
trading in time.
The article is added by Vladimir Syrov,
Chief development manager
