As you may know currency market as any other market is analyzed by looking at charts and technical indicators as well as looking at the overall economic picture. The first way called technical analysis and the second one is fundamental analysis.
You may wonder which approach of market analysis to take. It is really up to your personality. There are many traders who trade only using technical indicators and think that making decisions based on fundamental factors is not profitable. However there are other traders who may think the opposite way.
Forex traders who use the technical analysis will argue that only chart patterns and indicators will give you the reliable signals by showing you the charts. However those traders who use fundamental analysis can show you how the economic news releases move the price. By knowing the certain fundamental parameters you can predict which way the price will go.
Sometimes looking at how the fundamental news releases impact the volatility of a currency pair we may think that it's the most reliable way to trade currencies. At the same time when there is no impact from fundamental indicators, technical analysis becomes much more reliable.
At the same time if you use only technical analysis in your trading then a big news event can upset your technical indicators. Since some economic news releases can significantly move the price of a pair against what the indicators tell you. That can cause your trades to get stopped out.
Economic news releases are responsible for short term ups and downs in the market. They also can set up the direction of currency pair movement. Therefore by following the fundamental factors in economy and politics can help you to predict the movement of the price. But technical analysis will help you to recognize the patterns that you can use for taking higher probability trades.
Price in Forex market always moves up and down. Fundamental traders are right it is the economic factors behind the big movements. But it is the technical analysis that can estimate how long the momentum of the movement set by an economic news can last. It can give you the exact levels to place your orders.
Today many traders focus on pure technical analysis and disregard the fundamental factors. In my opinion it is best to combine both. As I told you above you need at least to know when such-and-such economic news is coming to be prepared to adjust your open trades if you have them for that time.
