The majority of the traders working in the FOREX market prefer methods of the technical analysis. It is absolutely defensible, if it is a question of intraday trade – exchange rate fluctuations on 100-200 points in this or that party have frequently absolutely casual character and aren’t connected in any way with fundamental tendencies. But quite another matter is if you are the strategic trader who is opening positions in a direction of the basic trends for some months, and even years…
Fundamental against the technical analysis:
Before you there is a task of creation of the long-term investment portfolio consisting of bonds, nominated in various currencies. Without the analysis of fundamental factors in this case it is not to manage, though also it is not necessary to forget about methods of the technical analysis. Unlike intraday jumps, long-term trends in the international exchange market always develop according to macroeconomic realities, but they here come to an end at times rather unexpectedly and to predict the crisis moment of fundamental methods is rather difficult to do.
So was in the Mexican crisis in 1995 when the real situation in economy of the USA in any way didn’t foretell catastrophic crash. Such situation also happens in the autumn of 1998 when very few people could assume that the default in Russia will cause one of the loudest bankruptcies in financial sector of the USA and will provoke mass repatriation of capitals to Europe and Japan.
In such cases when the fundamental reasons of the begun sharp movement aren’t clear, the analysis of schedules should help and technical methods should become priority. But in a quiet situation only fundamental analysis can prompt a right direction of long-term trade which will be already visually confirmed.
If for a technical analyst the basic entering information are the prices and volumes on which basis various indicators are under construction and schedules are drawn, in fundamental analysis an initial material there are balance sheets of the companies (if we deal with shares), the macroeconomic statistics (if we analyze economy of the countries) and various market indicators (structure of interest rates, spreads, etc.) .
It is excessive to explain that on quality of an initial material depends both resulting effect. Accuracy and completeness of the entering data shouldn’t cause any doubts by determination, otherwise estimate cost of the company or predicting dynamics of economic trends becomes almost impossible. This year will be in history of financial markets as year of corporate exposures in which has been put result under doubt of the basis of functioning of the markets. Catastrophic crashes of Enron and WorldCom and a number of smaller scandals have forced investors to reflect that is covered behind financial reporting figures.
The drawn conclusions have appeared rather sad. There are no doubts in mass character of such phenomenon, as distortion of booking data. There are no doubts and in that market representations about many companies are rather far from a reality so new shocks are inevitable. However, investors have already reconciled to this sad conclusion. Possible new scandals are already pledged in the stock market prices. And now begins correction of not only corporate management principles, but also approaches to an estimation of the companies which will be already produced on the basis of more conservative preconditions.
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