Technical and fundamental analysis
Successful investors usually take an analytical approach when they invest in volatile markets such as the stock or foreign exchange market. For investment in the financial markets, two common strategies are used. These are known as technical and fundamental analysis. Fundamental analysis is a long-term investment strategy whereas technical analysis focuses on the short-term.
In order to minimize risk, investors use technical and fundamental analysis techniques to assist them in making profitable investments.
The two main analysis techniques are described below:
Technical analysis involves studying past trends in order to ascertain patterns. It forecasts future financial price movements based on past price movements in order to help investors predict what is likely to happen to prices over time. Technical analysis involves reading and interpreting charts in order to identify the best time to enter into a trade.
If there is a pattern, technical analysis usually provides a safe prediction of how the market will behave in the future. The use of this analysis technique can help investors and traders make sound financial investments in the markets.
Fundamental analysis looks at the forex market by analysing economic, social and political events that may influence the supply and demand of an asset. All this information can give a trader an idea of which businesses may be making a profit in the future. Knowledge about the future profitability of businesses can allow investors to make a healthy investment and earn a profit.