Forex Trading Signals: Fundamental Or Technical?

The type of forex trading signals that you need will depend upon one thing above all else: which type of forex market analysis you prefer to use. The two types, of course, are fundamental analysis, which is based around economic performance indicators; and technical analysis, which relies upon charts and mathematical indicators.

Which is best? It is a difficult question, and one that forex traders do not always agree on. Both can provide useful forex trading signals. It is true that discussion on the internet tends to center around systems based on technical analysis but that does not necessarily mean that these systems are more successful. They are probably easier for the home trader to access, and certainly easier for most people to understand without the need to know a lot about economics or international affairs.

Supporters of fundamental analysis will argue that it is the fundamental factors like interest rate changes, GDP, sales and employment figures, etc, that drive the currency markets and therefore the only reliable forex trading signals are based on these economic factors. Some even say that technical analysts are just studying the past, imagining patterns from out of chaos, and cannot possibly hope to predict any future price movements.

However, this does not explain the number of successful traders who base their forex trading signals and systems on trends identified with technical analysis tools. Certainly for the beginner, a good grounding in charts and indicators is vital.

So how can we base predictions upon a chart that only records the price movements of the recent past? It may help if to think of a currency price as if it had some of the properties of elastic. It can stretch out to certain limits, and then it will bounce back. It may not bounce back to exactly where it was before; it could stop short or go further, but it will not keep on moving in the same direction forever. Technical analysis tools can give us an idea of the strength of a trend so that we can predict how far the price will stretch and when it might turn back.

At the same time, it is certainly true that any economic report or announcement will have an effect on the market. Usually there is a lot of volatility around the time of any forex news. To some extent this is predictable, since most economic reports are released at pre arranged times. This means that even traders who are fully committed to technical analysis for their forex trading signals need to be aware of the forex news calendar, just so that they can stay out of the market when a news release is due.