Which is better for trading Forex -Fundamental or Technical strategies?

Technical and Fundamental strategies use different instruments to evaluate trading opportunities. In brief, technical analysis records historical price action and assumes that future price action can be predicted using tools such as trend lines and support and resistance levels. It involves identifying the patterns found on charts to identify situations that have tended in the past to result in price taking a particular course of action. Fundamental analysis involves evaluating core data relating to the strength or weakness of an asset’s fundamental worth. Then extrapolating whether this means that asset is currently being over or undervalued by the market. Currencies are generally determined by the strength of the economy they represent so fundamental analysis in Forex will be concentrated on an economy as a whole. Technical analysis can be used over longer time horizons but is particularly popular with those investing over a shorter period. The chart below shows the price action for EURUSD over several days. EURUSD 1H chart Source: www.avatrade.co.uk The two red lines illustrate a downward trend. Technical analysis would likely see you incorporate a range of other metrics that act to confirm viable entry and exit levels. Fundamental analysis works on the basis that an asset is currently mispriced by the market. The basic premise being that price is the function of the number of buyers and sellers which can be an incorrect representation of true value. Price action moving enough to generate your expected profit requires other market participants becoming aware of the information and agreeing with your analysis of it. How long this process takes is dependent on the nature of the information involved, but as a result Fundamental analysis is typically associated with longer time horizons than technical analysis. Both approaches are subject to what could best be described as ‘external shocks.’A news event can impact both types of strategy. Technical analysis tends to work better in ‘quieter markets,’ ones where there is sufficient volume for price patterns to emerge but without the distortion generated by significant news events. The trend line above may well be expected to continue downwards for a few more days but could easily be subject to a trend reversal due to some kind of significant news announcement. Range trading is a strategy based on Technical Analysis that is particularly suited to a low-news environment. Fundamental analysis actually requires the general market becoming aware of the information you give value to. It requires that external shock to occur and move the price. The obvious risk to your strategy is that different or more significant information becomes market knowledge prior to you closing out your position at a profit. A deeper knowledge of both types of analysis can help you form a rounded view of the Forex market but in terms of day to day trading one style is likely to suit you more. Technical analysis that isn’t automated can require you to be more hands on than the ‘buy and hold’ style of strategies based on Fundamental analysis.