There are two main ways that traders analyse the financial markets:
- Fundamental analysis involves looking at the economic factors surrounding a currency, such as central bank statements, money flow and inflation
Technical analysis involves looking at an FX pair’s price chart, using indicators and patterns to determine where it is headed next
Your choice between the two will dictate how you navigate the markets, and which opportunities you’ll trade. You don’t have to stick to one of the other, though – many successful traders build an approach that works in both methodologies.
If you’re primarily a technical trader, for example, then you risk being blindsided by market volatility if you ignore the news surrounding a currency. By incorporating fundamental analysis into your strategy too, you can lower your overall risk.