There are basically two types of analysis in Forex Trading.They are:
1.FUNDAMENTAL ANALYSIS
2.TECHNICAL ANALYSIS
1.FUNDAMENTAL ANALYSIS
Fundamental Analysis is the process of examine the market through economic, social and political forces that affect supply and demand. It is the way to investigate whose economy is doing well and whose economy is not. The most common data used in Fundamental Analysis would be revenue, profit, earning per share, dividends, expenses, asserts, liabilities, book value, cash flow and projected earning growth rates. The idea behind this types of analysis is that if a country's economy is doing well, their currency will also be doing well (i.e.a when country economy is gaining strength then its currency is also gaining strength). The trust will be more in that country currency whose economy is doing well. As the economy gets better, interest rates gets higher to control inflation and as a result, the value to Dollar continues to increase.
2.TECHNICAL ANALYSIS
Technical Analysis is the study of statistics generated by market activity, such as past prices and volume. In other word Technical Analysis is the forecasting of the future price of a financial assert using primarily historical price and volume data. Information is taken by historical price movement and volume data. By looking at a chart, you have to identify trends and patterns which can help you to find good trading opportunities. Trend is the most important thing to learn in Technical Analysis. When trend and trade is in the same direction you are much more likely to make money. Technical Analysis can help you yo identify these trends and provides you with profitable trading opportunities.
DIFFERENCE BETWEEN FUNDAMENTAL AND TECHNICAL ANALYSIS
FUNDAMENTAL ANALYSIS
- Data are gathered from financial statement.
- It's function is investing.
- It's time horizon is long term approach.
- Stocks are brought when price falls below intrinsic value
- Return of Equality(ROE) and Return of Asserts (ROA) are concepts used in a Fundamental Analysis.
TECHNICAL ANALYSIS
- Data are gathered from chart.
- It's function is to trade.
- It's time approach is short-term approach.
- Stocks are brought when trader believes they can sell in on for a higher price.
- Dow Theory and Price Data are the concept used in Technical Analysis.
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