Now,
the million dollar question: Throughout your journey as an aspiring Forex
trader you will find strong advocates for both fundamental and technical
trading. You will have those who argue that it is the fundamentals
alone that drive the market and that any patterns found on a chart are simply
coincidence. On the other hand, there will be those who argue that it is the technical
that traders pay attention to and because traders pay attention to it, common
market patterns can be found to help predict future price movements.
Do
not be fooled by these one sided extremists! One is not better than the
other...
In
order to become a true Forex master you will need to know how to effectively
use both types of analysis. Don't believe me? Let me give you
an example of how focusing on only one type of analysis
can turn into a
disaster.
·
Let’s
say that you’re looking at your charts and you find a good trading
opportunity. You get all excited thinking about the money that’s going to
be raining down from the sky. You say to yourself, “Man, I’ve never seen
a more perfect trading opportunity. I love my charts.”
·
You
then proceed to enter your trade with a big fat smile on your face (the kind
where all your teeth are showing).
·
But
wait! All of a sudden the trade makes a 30 pip move in the OTHER
DIRECTION! Little did you know that there was an interest rate
decrease for your currency and now everyone is trading in the opposite
direction.
·
Your
big fat smile turns into mush and you start getting angry at your charts. You
throw your computer on the ground and begin to pulverize it. You just
lost a bunch of money, and now your computer is broken. And it’s all
because you completely ignored fundamental analysis.
(Note:
This was not based on a real story. This did not
happen to me. I was never this naive. I was always
a smart trader.... From the overused sarcasm, I think you get the picture)
Ok,
ok, so the story was a little over-dramatized, but you get the point.
The
Forex is like a big flowing ball of energy, and within that ball is a balance
between fundamental and technical factors that play a part in determining where
the market will go.