When people think of trading, they imagine a guy sitting in front of several monitors and erratically checking the rapid fluctuations in price of several financial instruments at a time, buying some while selling others intensively. It is true that trading, as an activity, involves execution (buying and selling) certain financial instruments, but ideally most of the time a trader dedicates to his craft is spent analyzing the market. There are 2 main types of analysis a trader can conduct when constructing a directional bias, which eventually is refined to a desired entry point in the market when specific criteria are met.
Fundamental analysis is the process of examining economic factors that may affect the value of a country’s currency. Such factors include the current interest rate, price level, inflation rate, changes in unemployment, and many more macroeconomic elements. These indicators are used by traders to gain a further understanding of how the economy correlates to exchange rates. The publication of these macroeconomic factors usually injects the market with intraday volatility, while their true impact on the exchange rates take longer to become apparent. Technical analysis is the process of examining price movements on a chart. In order to do so, traders use different charting software, such as TradingView, which gives us access to live data feeds and numerous analytical tools. This type of analysis consists of marking up different price levels and areas, depending on your understanding of technical factors. These price levels can be used later on for entries or exits. There is no right or wrong when it comes to technical analysis, it is a very subjective topic, where each individual participant will inspect the market through his own beliefs and experiences. Most traders focus their work mainly on 1 type of analysis, but even if you prefer one over the other, it is important to have a broad understanding of both. The MarketNerd specializes in technical analysis, having spent so much time analyzing charts that now he has to wear glasses.