Fundamental or Technical analysis in Forex, Which is better?

One of the core problems of new traders is opening trades outside their trading strategy. Your trading strategy has a lot to do with your fundamental analysis and your technical analysis.

It is however sad that most traders are stuck between the choices of which they would adopt: fundamental analysis or technical analysis? Before we discern which is better, let us look at each as an individual entity.

In the first place fundamental analysis entails predicting future price movement by analysing the economic factors of the currencies at hand, so when you want to trade on a pair like the EURUSD, you have to look at for macroeconomic indicators from the United States and the euro zone and measure them against themselves. Such macroeconomic indicators cut across the gross domestic product (GDP) data, interest rates differential, non farm payrolls and the rest. So when trading the EURUSD for example and there are talks of the United Kingdom leaving the EU while further interest rate hike from the US federal reserve, then it gets very likely the euro would lose strength against a well supported dollar. This would cause the EURUSD to go down.

Technical analysis though is a sharp contrast from fundamental analysis. Here we are no longer essentially looking at the economic situations of the currencies involved in the pair. This time we thrust our focus on price charts, trying to work out the patterns, price action and all trying to leverage on them to predict what we will be having as to price movement in the future. Here the trader is concerned with the trend and how he can use such trend to predict future movement generating signals on them to extract his entry and exit points. 

Although fundamental analysis has been largely deployed by forex traders but with the advent of technology, fast algorithm computer programs, traders are looking closer at computerized trading and more adept technic.  Today, well developed trading computer programs like the TenkoFx Mt4 platform bring further a plethora of technical trading indicators like oscillators, moving averages, and lots more. Technical analysis traders even go as far as incorporating several trading instruments together into a comprehensive trading system. We see traders using the RSI (Relative Strength Index), moving averages etc. 

So we have gone a reasonable distance in knowing what technical analysis and what technical analysis. The question surfaces again, which one is better, technical analysis or fundamental analysis? The true reality however is that neither can work successfully independent of each other. Technical and fundamental analyses are not mutually exclusive of themselves. Rather they work better when you use the two together, bringing the news to your chart analysis. So for example when you are using the exponential moving averages on the EURUSD and the short moving average crosses the longer period moving average up, technically it is a typical signal to buy. But we now go to consult the news, if for example at such point, data in US employment claims is discouraging, then we can take the signal from two moving averages and open a position. Fundamental analysis works hand in hand with technical analysis for the best of trading results.

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