While fundamental analysis helps illustrate the larger forces affecting the currency market, and long-term prospects for economic health, it has some critical failings. First, the almost limitless amount of factors that can be plugged into a forecast model might force a trader into a perpetual state of analysis, unable to pull the trigger on potential deals. More importantly, however, is fundamental analysis' uselessness in predicting entry and exit points. Technical analysis, on the other hand, ignores fundamental forces, focusing on short-term currency movements to identify trends and determine exactly when and what to buy and sell.
A trend is basically a prolonged price movement in a one direction. An upward trend can be identified by sketching a line beneath a series of lows; a downward trend by tracing a line above a series of highs. Over time, recurring price trends form support and resistance levels, or barriers at the top and bottom of the trading level. It is difficult for currencies to penetrate these levels because, over time, supply/demand has been built up in adequate abundance at both levels—demand at the floor, supply at the ceiling. These levels are obvious positions for buy/sell orders. Once these levels are definitively broken, however, they tend to form the opposite barrier.
Technical analysis allows traders to view entry and exit level prices apart from understanding better the overall trend of the market. It provides better insight in terms of actual price points to enter and exit trades and use various studies to suit clients trading style as well as requirements like day trading or long term trading, it gives clients flexibility to use time frames and studies on charts accordingly.
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