Fundamental Analysis
Fundamental analysis in Forex is the art of accessing economic data and macro trends to correctly predict the value of one currency against another based on underlying intrinsic information. Unlike technical analysis, fundamental analysis focuses on the information that may drive price fluctuations and not on the market itself. Key events for Forex fundamental analysis include: Non-farm payrolls, CPI reports, central bank announcements and manufacturing/consumer reports.
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Technical Analysis
Technical analysis focuses more on the market itself, rather than the data underlying a currency pair. Forex traders who rely on technical analysis seek to use both history and psychology while maintaining a “mathematical” perspective. Technical models seek to identify key support and resistance levels over different intervals. Further methods include but are not limited to: moving averages, Fibonacci retracements, chart patterns and Bollinger bands.
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A Trader's Perspective
While both technical and fundamental analyses are important in their own respect, the proper application of the two together offers more insight and wisdom than the sum of its parts. While fundamental analysis focuses on the inherent value of an asset, technical analysis focuses more on the people trading that asset. As any marketplace is composed of both, one must attempt to look at the market as a whole, assets and traders.
When we are discussing building long positions, it is because our understanding of the conditions have made us bullish on a given currency against another. But you will find people, otherwise intelligent, who are bullish just because they are long.
"One cannot argue with the market or hope for a reversal. This is the difference between speculation and gambling. To be angry at the market because it goes against you is akin to being angry at your body for falling ill. Remember, you and you alone, are in control."
Peter Rosenstreich, ACM Chief Market Analyst
