One aspect that is critical to successful trading is analysis. Analysis is the study of the market in action, through the use of charts and historical data, to predict future trends in the prices of currency pairs. Technical analysis does not attempt to measure the actual, or intrinsic, value of a particular asset. Instead, it provides a way for analysts to identify patterns and trends, and use that information to extrapolate future pricing activity.
Prices are studied through graphs that have a combination of opening, high, low, and closing prices for a particular instrument. The timing for the graphs depends on the platform being used and the preference of the trader, but usually show intervals of minutes, to daily, weekly, monthly, and in some instances, even yearly.
Technical analysis is built on a theoretical statistical model that is widely accepted. This allows analysts to use simple computer modeling without having to spend years earning a degree in statistics or economics to get reliable results. Technical traders are excellent Forex traders because they focus on short term investment opportunities that provide great earning potential.
Fundamental analysis is slightly different than technical analysis in that it looks at price movements and how they are affected by economic, political, environmental, or geopolitical developments.
The overarching objective is to determine whether a specific instrument is valued correctly, or if adjustments are eminent.
Some traders like to use this technique to understand how financial news can impact pricing temporarily, This trading strategy has proved hugely successful as it provides intraday trading opportunities for less technical traders. “News traders” prefer this method because technical analysis based on historical price movements cannot anticipate current important events and as such cannot adjust or “price in” accordingly to current affairs.
There are many supporters of both methods, in fact, there are many traders who use both methods of analysis, thus providing a view of historical technical data and trends, and then overlay real-time fundamental analysis to see for any potential disruptions or confirmation.
At Wenn Markets, we provide both Technical and Fundamental analysis tools at your fingertips, providing you with all the necessary information required for you to make educated trades.