It’s important for any trader to understand the difference between fundamental analysis and technical analysis - and how important it is to use them together while analysing the markets before you trade.
You can read all about the two types of analysis - and the key differences between the two - on this page.
Forex Fundamental vs Technical Analysis
What is fundamental and technical analysis?
Put simply, fundamental analysis looks at the causes of market changes, while technical analysis looks at the effects of market changes.
Fundamental analysis looks at the economic, social and political factors affecting a country’s currency, and assesses industry trends and economic outlook for the future. It is more of a long term approach, looking at past events as well as potential future ones. Fundamental analysis is based on the fact that a currency’s value will be affected by factors such as the country’s economic or political climate (for example, unemployment levels, GDP, or general elections).
Technical analysis, on the other hand, looks at price movements and market psychology of traders - such as how emotions like fear and greed impact the markets. This is more of a short term approach, looking at past data to spot trends and to forecast where a currency might move in the future.
Both methods, then, are used to forecast how a country’s currency is valued and how its value compares to another currency, but each takes a slightly different approach.
What’s the difference between fundamental analysis and technical analysis?
Both fundamental and technical analysis are used to predict future price movements in the market, but there are differences between them.
Put simply, technical analysis focuses on market prices themselves, rather than the factors which might affect them (this is more fundamental analysis).
The goal of fundamental analysis is ultimately to ascertain the value of the currency, while technical analysis is used to identify the right time to enter (or exit) the market.
The two should be used in conjunction to get an accurate picture of the forex market.
Forex Fundamental Analysis vs Technical Analysis: Key Differences
There are several other differences between fundamental and technical analysis, which you can see in the table below:
|Technical Analysis||Fundamental Analysis|
|What it analyses||Past market price movements themselves||Factors affecting a country’s economy and market price movements|
|Goals||Forecast shorter term price movements by analysing trends in the market||Forecast the big picture of a currency by looking at other factors|
|Time frame||Short term analysis||Longer term analysis|
|Type of analysis||Largely quantitative||Qualitative and quantitative|
|Data used||Past data||Past and present data|
What are the risks associated with higher leverage? What does leverage have to do with margin? Here’s your ultimate guide to leverage in forex!