Technical vs fundamental analysis in forex

Traders usually decide what to buy or sell using technical analysis, fundamental analysis or a mix of both. Neither guarantees results; they are ways of organising information and deciding when to act.

Technical analysis

Technical analysis studies price itself: charts, trends, support and resistance levels and indicators such as moving averages or the relative strength index. The idea is that patterns in past prices and trading behaviour can help with timing entries and exits.

It is popular with short-term traders because it gives clear levels for entries and stop-losses. Its weakness is that patterns can fail, and indicators can be tuned to fit the past without predicting the future.

Fundamental analysis

Fundamental analysis looks at what drives a currency's value: interest rates, inflation, growth, trade balances and central bank policy. A trader might buy a currency because its central bank is expected to raise rates faster than others.

It suits longer holding periods but gives less precise timing, and markets often price in expectations before data is released. See how to use an economic calendar.

Combining them

Many traders use fundamentals to choose a direction and technical levels to time entries and place stops. Whatever the approach, position size and risk per trade matter more to survival than the method used to pick trades.

Go deeper on technical analysis:indicators, candlestick patterns, support and resistance and Fibonacci retracement.