In the cryptocurrency, Forex or binary options trade sectors, there are several strategies and techniques that may be categorized in two primary ones: Technical analysis and Fundamental analysis.
How does it relate?
When you are to make a choice about either of the two, it is important to have a sound understanding of what they entail and stand for. One of the very basic questions relates to the efficiency of each analysis. However, there are other questions circulating these two types of analyses in the binary options market; e.g. can we conduct technical analysis without the fundamental one? In this article, we overview the two analysis and clear the conceptualization of these analyses.
Let’s Get ‘Technical’, First!
Well, as the name suggests, this analysis has all the technical fancy aspects within it. As a trader, you would find indicators, trend lines, formations, oscillators and more technical jargon in a ‘technical analysis’. It often sounds counter-intuitive and cumbersome but it would provide you with the foundations of binary options or forex strategy building and you would be able to devise a well-researched trading strategy.
One of the underlying principles of technical analysis relates to ‘history’. What this means is that according to technical analysis, history has a tendency of repeating itself over and over again. Therefore, it is fruitful to analyze trends and potential repetitions of patterns in trade market. This insight into the repeated patterns of similar nature, provides a certain margin of safety and edge to the traders while selecting a trade option. For example, if you have observed that X has been often followed by ‘Y’ previously, it is very likely that a similar pattern recurs in near future.
If you are the kind of trader, who has been into trend lines, graphs, indicators, pin bars, or Fibonacci lines, then you wear the hat of a ‘technical trader’. This simply means that you are more specific about the technical aspects of trade. If you translate this aspect in the binary options jargon; it would mean that such strategies usually make the assumption about particular formulas or monitoring tactics, that they actually play a role in improving the chances of a trend movement in a specific direction. A lot of traders go for this analysis type as this provides a weighted predictive value.
Going Back to the ‘Fundamentals’!
This isn’t like the technical analysis; in a fundamental analysis you explore the data related to macroeconomics. For instance, in case that you are considering to trade USD/EUR it would be only wise to stay aware of a piece of information that may be somehow relevant to the USA and EU economic conditions.
You would be interested in the import and export (or the payment balance), the rate of unemployment, political situation, real estate market and the exchange rate of the central bank. This data would offer you a foundation to figure out the final rate and then consider whether the final rate happens to be way too low or high. You can easily adopt this strategy for cryptocurrencies or trading shares.
Which analysis should you opt for?
A lot of traders are looking for an absolute answer to this question and often think that it is an either-or situation. However, the best answer is that it all would depend on the situation. Both types of analyses offer some advantages and have certain shortcomings as well. Let’s take the example of technical analysis, that functions well if you are concerned with a short run trade. So, if you are a trader who is involved in daily trade decisions, then, technical analysis would be best suited to your needs. While, fundamental analysis is best for longer duration.
Basically, everything would rely on the specific type of trade that you are involved in. Being a forex or binary options trader, you must rely on both the analyses and make use of the combined strength and insights. When you are using insights from technical analysis, that doesn’t have to discount all the aspects of fundamental analysis.
When the market is going through extensively volatile period, technical analysis in exclusion may not pay off much. When making use of technical analysis, It is a thumb of rule to never trade during the time of an important news publication. On the other hand, when drawing insights from the fundamental analysis, you need to carefully assess the situation however, never move against a technical pattern of strong nature.
At the end of a trading day, it does not matter whether you have been using fundamental analysis or technical one. All that matters is how much progress and profits have you been able to make. The technical analysis functions best during short periods of time, while the fundamental one is beneficial for longer duration.
Which of two analyses do you put to use most? Share your tips and tricks when using either fundamental or technical analysis, in the comments below!