There are two styles of analysis that affect how you swing trade or trade any market. They are:
- Fundamental analysis
- Technical analysis.
There is and probably has always been debate over which one is better, so let’s take a look at them briefly.
Fundamental Analysis
Fundamental analysis is based on the concept that if a country’s economy is strong, its currency will in theory be strong. Investors, businesses, banks and governments gain faith in a currency if the economy for that currency is performing well (such as increased interest rates etc). This then implies that the currency should strengthen and be the stronger currency in the currency pair. If the economy suffers and goes into recession, the opposite is believed to happen. The currency will weaken as investors and businesses lose confidence.
Technical Analysis
Technical analysis is the study of price movement. This means the study of charts. The most important thing to be learned from technical analysis is the importance of the trend. A lot more goes into technical analysis than just this. There are many different trading indicators and chart patterns that also fall into this category. These will be covered later in greater detail.
Which one is better?
Neither. You should pay more attention to technical analysis but also need to be aware of fundamental analysis for upcoming news and other major events that could have an impact on the markets. Do you really want to open a trade 2 minutes before US interest rate figures are released? Technical analysis is important because the trend is your friend and when swing trading you want to be trading with the trend and not against it (at least until you master your skills of trading and are aware of the risks and rewards involved in counter trend trading).
To get the most from your trading, both styles need to be used and both with a grain of salt. Each style of analysis has its advantages and disadvantages and neither style is right 100% of the time. Use both styles to get the best of both worlds and gain an edge in your swing trading.
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