Foreign exchange traders rely on two basic analysis forms around the stock market. These include fundamental analysis and technical analysis. Technical analysis involves studying charts to identify patterns and strengths, while fundamental analysis involves studying news, headlines, and reports on economic data.
The forex fundamental trading strategies and other financial markets consider that the price of an asset may not be equal to the real value. Therefore, different markets may misprice an asset for the short term. However, regardless of the mispricing, the assets always fall back to their real price. Therefore, fundamental analysis’s main goal is to determine an asset’s real price and compare it with the current value.
The diagram below demonstrates the difference between forex fundamental and technical analysis. Technical analysis does not consider the current price. One major disadvantage of fundamental analysis is that it is not an ideal tool for a short-term trader or a day-to-day trader.