Forex Education Forex Fundamental Analysis Forex Technical Analysis

Fundamental Analysis Vs. Technical Analysis

If you are trying with any kind of financial market for a significant period of time, you will start testing and forming some kind of system. Then, inevitably, you will begin to focus on technical or fundamental analysis, or maybe a little of both. The perfect understanding of the difference between the two types of analysis is the most important issue you should focus on when trying to make a decision about what kind of trader you want to be.

First, a bit of a disclaimer…

No matter what type of analysis you decide to use, it can be cost-effective. However, none of these types of analysis is 100% guaranteed. The fact that you become a good analyst from a technical or fundamental point of view does not mean you will inevitably earn money. As traders, what we’re looking for is the most likely scenario, not working with certainty. The long-term look is what you should focus on, which really means that you make transactions focused on what is most likely to happen, knowing that will not always work.

Technical Analysis

Most retail traders focus on technical analysis as it can be defined with some ease. What I mean by this is that it looks for things like support, endurance, trending lines, moving average crosses, and the like. For example, a trader who is using technical analysis to trade in the markets will observe the full share price.

With technical analysis, you can get a configuration like the following:

The EUR/USD pair has been removed from the upward movement. By using your Fibonacci recoil tool, you acknowledge that we have withdrawn 50% of the maxima, which is an area in which most traders related to Fibonacci would be interested in going long. Beyond that, we have the exponential moving average of 200 days just below the candle on the daily graph, which of course shows support. Finally, the candle formed a hammer, which is also bullish.

A trading system based on a technical analysis tells the trader to prolong.

The trader based on technical analysis is paying attention to what the price does, not necessarily to what it should do. Just follow what the market tells you in terms of price, and this makes trading in financial markets a little easier. This is why you don’t have to think about many other variables other than what the price is making and whether or not it comes close to your technical configuration concept. If you choose any other factors to participate in trade, such as fundamental analysis, something we’ll get to in a moment, things can get a little more complicated.

Fundamental Analysis

The fundamental analysis focuses on economic factors and what a market “should do”. What I want to express with that is that you will take the figures and the economic announcements and try to find out where the price is going. On an equal footing, if interest rates rise in one country over another, then that currency should rebound over the other. For example, interest rates are expected to continue to rise in the United States at the same time as the ECB remains quiet for the foreseeable future. If that is the case, the EUR / USD pair should eventually fall based on interest rate spreads. There is a multitude of announcements that could be looking at, perhaps, GDP figures, employment, and, of course, the prospects for interest rates.

Ultimately, Forex tends to move in the direction of expected interest rate movements. However, there are other problems that may arise, such as geopolitical situations. For example, Brexit has wreaked havoc on the price of sterling for some time. This is because there are many doubts and not necessarily due to the prospect of the interest rate. In a sense, however, even that route will lead to interest rates, at least in the long term. The idea, of course, is that there is a lot of uncertainty about the British economy when they leave the European Union, and we do not know what they will do with EU-related trading.

The EU is, of course, the UK’s largest trading partner, so this could obviously have a significant negative effect on the UK economy. People are essentially fleeing the British pound because of fear, or the fact that they believe that the Bank of the UK will have to keep interest rates extraordinarily low as the economy slows down. In the end, even the most opaque reasons eventually lead to interest rates, although it may not necessarily be immediately apparent.

Fundamental Vs. Technical

The most typical way traders get involved in the market is a combination of both types. For example, by using Brexit as a backdrop, we know that the British pound has fought for some time. A technical trader will understand the basics of that situation and recognize that selling the British pound makes more sense in general.

They understand the fundamentals of the negative for the British pound, although they don’t get too involved with all the nuances of economic advertisements. They just know the feeling is negative. With that information, they then begin to look for patterns of the sale in chandeliers, failures in resistance, or some other type of scenario in which we break down the support as examples.

With the use of both types of analysis, although most traders using a mixture probably use technical analysis of about 80%, the reality is that it gives you a bias in which to trade with the market. After all, fundamental long-term biases determine exactly what determines the trend, while the technical analyst simply looks for signals to get involved.

There is no right way to operate in the currency market, although it must be borne in mind that technical analysis is much simpler than fundamental because, at the end of the day, fundamental analysis suggests what “should happen,” ignoring what appears on the chart. So, I think most people use a little of both to make their trading decisions.

Forex Technical Analysis

Quantitative Trading and Its Differences with Technical Analysis

Today’s article is about definitions. Maybe for those who read us regularly, it is not necessary, but every day new readers approach for whom all this subject of quantitative trading, technical analysis, backtesting, chartismo… etc sounds more or less Chinese. Quantitative trading is my way of understanding trading today. It’s what I do and what I work with. So today I will provide my definition on the subject.

Quantitative Analysis: Talk of Numbers

When we refer to quantitative analysis we are talking about examining numerical variables. In the case of investment or speculation on the stock exchange, we are talking about quotes, volume, indicators, correlations, etc. Other aspects that cannot be reliably quantified, such as the change of the CEO of a company or the results of the presidential elections, are not taken into account. Working on the basis of these numerical variables, quantitative analysis uses mathematical and statistical methods to establish models for developing trading systems.

A quantitative trading system can be very sophisticated and trades highly complex derivative instruments, or it can be a simple system that trades shares. The asset type does not qualify for the type of trading. You need to work with models. I don’t know if you’ve ever heard the phrase: “All models are wrong, but some are useful.” When we refer to quantitative analysis, this is the case. So, indeed, you need to work with models. Why?

I personally have several reasons:

-On the one hand, the models are more accurate than our discretionary judgments. The psychological aspect has an important weight in our decisions.

-We are human and cognitive biases affect our perception of reality. Finding ways to master them is always positive

-They streamline decision-making. Using systems allows you to have a much faster reaction.

-It allows several approaches to be addressed.

-Models or systems give you the framework to work with.

But remember that models are simplifications. In order for a system to be efficient, it needs to cover only part of reality. There is no all-terrain system that never fails and is perfect. Hence, the plan to follow is the use of a portfolio of systems combining different strategies: pairs trading, arbitrations, mean-reverting until even tracking trends.

Working With Odds

In a quantitative trading strategy, you work with probabilities. There are no certainties but probabilistic models to explain the behavior of the market. In algorithmic trading, everything is written. There’s no algorithmic trading without computers.

Quantitative trading, also called algorithmic trading, is a systematic way of trading. It is said that a system does not exist unless its rules are written. Well, in algorithmic trading all rules are written in the computer code of the system. Metrics are used when quantitative trading systems are developed. These metrics and ratios help in the development and use of the system to make decisions.

HFT (high-frequency trading) is quantitative trading, but not all quantitative trading is HFT. It’s understood, right? Quantitative trading is not synonymous with high-frequency trading, nor does it necessarily mean intraday trading. Quantitative analysis can be used perfectly in larger time frames such as daily or even weekly.

What happens is that trading systems that operate in very short periods of time are automatic systems. It is an algorithm that sends the orders to the market and hence the association with algorithmic trading /quantitative.

A trader using a quantitative system may or may not transmit orders automatically to the broker. Transmitting orders automatically is the norm, but it is not mandatory. An automatic system retrieves quotes in real-time directly from the broker or other data provider, executes an algorithm leading to trading signals, and sends orders directly to the broker for execution.

A semi-automatic system, for example, can run the algorithm and generate the input or output signals, but it is you as a trader who is responsible for sending the orders to the broker. The advantage of the automatic system is the reduction of human error. Especially, that kind of human error that causes you as a trader to break the rules of the system. Does it sound like you have made this kind of mistake? It’s impossible to break the rules here. In addition, the obvious advantage is the increase in execution speed, so for systems that work in short time frames, a fully automated system is indispensable.

Quantitative Versus Technical Analysis

Quantitative analysis and technical analysis have commonalities, but also fundamental differences in their principles. To clarify the terms, we start by defining what is the technical analysis

The main idea of the technical analysis is that “the price discounts everything”. All the information you need to make your trading decisions is based on quotes, and in some cases also on volume. From quotes, the technical analyst tries to look for recurring patterns that can predict future price behavior.

This is a common point with quantitative analysis, which can also be based (but not necessarily exclusively) on quotations and look for patterns in them. But what differs is the method and the form.

In technical analysis, one way of identifying patterns is chartism. By chartism, we mean figures such as shoulder-head-shoulder, triangles, Elliot waves, etc. Well, chartist analysis based on graphs has a subjective component incompatible with quantitative analysis.

Technical analysis is mainly based on visual examination of charts or charts. By looking at the graphs, trends are established, the points of support and resistance, the crossings of indicators, etc. The technical trader makes his decisions, usually discretionary, looking at the charts and trading according to what he sees.

On the other hand, quantitative trading is not based on what you see in the chart. If you want, you can illustrate your system by plotting the signals on a chart, but it is not essential to generate the input and output signals to the market. Your signals come from the trading system you’ve programmed, not from what your eyes see.

Discretionary or Non-Discretionary

Quantitative trading is not discretionary. Trades are taken according to pre-established rules. The trader who operates on the basis of technical analysis does make discretionary decisions. I’ll tell you about my experience when I only operated by following technical analysis. Perhaps you are familiar with it.

1- You’re in front of the screen.

2- You are convinced that now is a good time to do a trade.

3- You look for any sign on the chart. You look, you look and you look.

4- In the end, you end up performing an operation, but based on the emotion and your previous belief that conditions you.

5- Evidently, then you try to justify the operation by arguing technical reasons: that if it looked like a certain figure, that if the resistance X would break, all this only to justify a decision not 100% rational and influenced by your cognitive biases.

Down Theory

The second idea on which technical analysis is based is Down theory. According to this theory, prices are driven by trends. The trader that operates on the basis of technical analysis tries to take advantage of these trends to obtain profitable trades.

Quantitative analysis is not based on this theory. It does not blindly accept that prices follow trends. What you are looking for is to analyze for each asset and time frame how its behavior is. From the results of the analysis, look for the best way to take advantage of the behavior studied.

Backtesting is something that distinguishes quantitative trading from discretionary trading. When you operate a quantitative trading system it’s because you’ve done a backtest before. Discretionary trading cannot backtest because the entry and exit conditions are not the same over time.


Remember that we already said at the beginning of this article, the main characteristic of quantitative trading is that it is based on mathematical and statistical models. Chartist figures, Elliot waves, and hunches are not incorporated here. It is not worth it if in the graph I see a flag or a bat, if I am in wave 4 of the extended third or if it is an ABC. There is no place at all for a subjective opinion. Only data matters. Then we can already say that it is the opposite of discretionary trading.

In quantitative trading, decisions to buy and sell assets, whether shares, ETFs, futures, forex, etc- are based on a computer algorithm. Hence quantitative trading is also known as algorithmic trading. The starting point of a quantitative trading system is data. What types of data? The system can incorporate quotation data such as price and volume, global economic data such as interest rates or inflation, asset financial ratios such as cash flow, income, DTE, EPS, etc.

A technical analysis strategy can be part of a quantitative system if it can be coded. However, not all technical analysis can be included in the quantitative, for example, some chartist techniques are subjective, cannot be quantified, and need candles in the future for the confirmation of the figure. Let’s say one of the differences is in the quality of the analysis. Many technical analysts look for patterns that they say repeat themselves, but cannot prove how often statistics these patterns precede certain price movements.

Forex Psychology

How to Avoid Analysis Paralysis

Analysis paralysis is a common anxiety experienced by many forex traders. Traders need to act quickly, but those suffering from this condition tend to over-analyze data, which can result in missed opportunities. In some cases, traders don’t even manage to enter trades because they are too overwhelmed by data and put off the decision for far too long. Having too many indicators on your chart contributes to this problem because they can give off too many signals, which results in a ton of information. Traders then prolong their decision because of the overwhelming amount of information and uncertainty about which signals should be trusted. At this point, the trader either spends too much time analyzing that data, to the point that they enter the trade past a favorable point, or they don’t enter a position at all because it is so late. This problem leads many traders to give up on Forex trading for good. 

If you’re suffering from this problem and looking to overcome it, we can help. First, you’ll need to understand that this problem is likely to be caused by information overload and can affect anyone. We always want to make the best decision and the thought of having more choices seems appealing since more choices should mean better decisions. This isn’t exactly the case, however. Limiting the number of indicators one uses can make it easier to analyze the data and make a quicker decision. Think quantity over quality here. Some professionals even recommend naked trading at first, which means trading without indicators. 

Another thing to remember is that every trading decision shouldn’t (or can’t) be perfect. If you spend too much time looking at data and never make a trade, then you won’t ever make a profit. Try giving yourself a time limit to help yourself make a faster decision. Also, remember that not deciding is a decision itself. If you don’t enter the position, you’ve chosen not to make a trade. This might indicate that you aren’t confident enough in the position you were about to enter. Perhaps this is a sign that you need to do more research or tweak your trading plan so that you will feel more reassured. 

Having a trading plan will help you to see your goals and what you need to be looking for more quickly. It can also help you to filter out which indicators you actually need to de-clutter your charts. Knowing what you’re looking for will help you avoid falling victim to the dreaded analysis paralysis that affects so many traders. A simpler plan can also help with this, as having fewer components to analyze will lead to faster decisions. 

Analysis paralysis has involvement with trading psychology. Emotions affect the way that we make trading decisions, and analysis paralysis certainly branches from anxiety. This is a real problem that stops traders from making decisions in time, or altogether. However, we have hopefully outlined some helpful points that can help traders to overcome this problem. You’ll need to come up with a good, simplified trading plan that you’re confident in first. Then, try to limit the number of indicators you’re using on your charts so that you don’t have as much information to analyze. Remember that trading is risky and decisions can’t be perfect. Educating yourself and following these steps will set you up with the best chance of success and should help avoid the anxiety associated with analysis paralysis.

Forex Fundamental Analysis

Fundamental Analysis for Beginners

Fundamental analysts believe that economic, social, and political events influence the forex market. Unlike technical analysis, which involves looking at past data on charts, fundamental analysis focuses on news headlines, economic data reports, and other qualifying factors to predict price movements in the market. This is mostly relevant to stocks but can be used with other instruments. Here are some things that fundamental analysts look at:

  • Economic calendars
  • News headlines
  • Unemployment records
  • Interest rates
  • Revenues, earnings, future growth, equity return on stocks
  • The Overall state of the economy
  • Supply & demand

As you can see, fundamental analysis is based on facts about a company or the economy. These different statistics can give one an idea of how the market is going to perform and whether to invest in a particular stock. The above examples can affect the economy for a country in different ways, for example, supply & demand can tell us whether the country has more imports or exports. Having more imports is not a good sign, as that means the country could go into debt. 

This data is usually used to determine a stock value so that one can determine if it is overvalued. Analysts that look at these factors often publish this data for their followers as this gives one an idea of whether the stock has a higher chance of rising in value or falling in price. Where technical analysts study past price data, fundamental analysis is more focused on how current or future events and economic data will influence prices. 

It’s important to know that fundamental analysis measures things in two different ways:

-Quantitative measurements can be measured or written in accurate numerical terms.

-Qualitative measurements are based more on characters, such as the size of a company or quantity.

Quantitative fundamentals are simply numbers and revolve around financial statements, revenue, profit, and other factors that can be expressed in accurate number readings. Qualitative measurements are more subjective. These could include brand-name recognition, the performance of a company’s executives, and other factors that cannot be measured as accurately. Most analysts take both types into consideration, rather than only focusing on one because both can tell us important information. 

When considering a company, fundamentalists consider their business model, competitive advantages, management principles, and important figures, and their policies. All of these factors can influence the company’s chances of success and the price of their stocks. 

If you’re interested in making decisions based on fundamentals, you’ll need to understand all of the driving factors that affect the economy and what influences decisions for companies. Be sure to do further research online to get into more detailed information about the things that fundamental analysts consider so that you can determine what you need to know before investing in an asset.

Forex Technical Analysis

Intro to Technical Analysis for Forex Trading

Technical Analysis involves studying the historical price action to determine current trading conditions and potential price movements in the forex market. Traders that use this approach are known as technical analysts or chartists and believe that everything you need to know can be found in the charts, so they spend a lot of time poring over charts looking for data. Technical analysts look at indicators, technical studies, and other tools for patterns that have formed in the past with the idea that history tends to repeat itself. Here are a few more facts:

  • Traders look for major support and resistance levels that have occurred in the past so that they can base their trades around that historical price level. 
  • Technical analysts make decisions that are based more on probability than predictions. 
  • The process of technical analysis bases decisions on what will possibly occur based on past patterns, but nothing is ever certain in the forex market. 
  • Technical analysts are often referred to as chartists because many of them spend a great deal of time studying charts each day. 
  • Technical analysis can help you determine when and where to enter the market, along with when to get out. 
  • Many other traders look at fundamental analysis, which places a great deal of importance on economic headlines and news reports.

It’s important to remember that technical analysis is subjective, meaning that one can interpret data in different ways. Those that want to practice this need to understand Bollinger Bands, Fibonacci, and other terms that relate to these studies. You’ll obviously need some experience studying and interpreting charts before you’ll be able to practice technical analysis effectively. 

Technical analysts also place a great deal of importance on trading indicators. While these tools can be effective, traders should know that many indicators don’t work correctly and can cause you to lose your money, especially if they are offered by an individual or a company for a price. Always be sure to conduct research before purchasing any indicator and it’s a good idea to test these before using them on your live account. You’ll also want to avoid cluttering your charts with too many indicators – instead, focus on finding a couple of really good indicators or trade without them.  

The theory is based on the fact that although the market is chaotic, it is not completely random. Even though nobody can know for sure what is going to happen next, mathematical chaos theory has proven that identifiable patterns tend to repeat despite the chaos associated with the market. While nothing is guaranteed, the technical analysis method has been proven to increase one’s probability of making favorable trading moves. If you want to practice this method, be sure that you can read charts and understand advanced concepts related to technical analysis. 

Forex Stop-loss & argets

Forex Price Levels: Why You Should Avoid Them

Price points in forex trading continue to be a popular tool but are they everything they promise to be?

While there is a veritable myriad of social media accounts and youtube channels out there singing the praises of knowing about and even using psychological price levels or price points, there are also those telling us traders to be wary. It is important that you get to hear this other side of the argument so you can make your own informed decisions.

What Are Psychological Levels?

So what are we even talking about here? Well, the simplest way to put it is that there is a phenomenon where the price of a currency pair will sometimes pause or bounce at a certain level and this level is a round number. In other words, prices that end in a double zero form lines across your chart where there could be significant price action in given circumstances. These numbers get called full levels or the big figure or anything imaginative forex bloggers conjure up (but full levels and the big figure are the most common).

There are a couple of other sub-categories that are worth being aware of here too even though they are even rarer than the big figure. The first is the intermediate or mid-figure (i.e. numbers between two full levels, which end in 50 rather than 00). The second is the bank level, which is a purely theoretical construct where the idea is that big banks like to use the levels ending in 80 and 20.

The idea behind these levels is that they are a tool you should keep in your toolbox and be aware of so that you can make use of them to enter into trades. This is where much of the disagreement in the forex online community occurs.

How Are Psychological Levels Traded?

There numerous ways to make use of these levels and lots of proponents or critics sitting on either side egging you on or warning you to stay away. The most common advice seems to be that these levels are useful for planning a breakout trade or a reversal. This is at best challenging or, according to some, total lunacy.

The best advice out there seems to be that you should be aware of these levels, mostly because they generate a greater volume of trading. This increases demand, if that was something that was worrying you, and does make a successful trade more likely. However, it is important that you tread extremely carefully here and use a number of other indicators and tools to ensure that price action around one of these levels is tradeable.


Are there any problems with psychological levels? You bet!

The first of these problems is that in the vast majority of cases the price of a currency pair will simply blow through a psychological price level, whether it is a full or round level (the big figure), an intermediate mid-figure (ending in 50) or a bank level at 20 or 80. That’s it. In most cases, nothing happens. This is a problem in more ways than one. First, it means that the very significance of these price levels is called into question. If the price just ignores them on its way through then what is their value supposed to be in the first place? Secondly, if the price fails to respect these levels on so many occasions, how can you know, calculate or intuit whether this is one of those rare occasions where the price will approximate something like respecting the level?

Ah, you think, there’s the rub! It’s precisely those rare occasions where psychological price levels are useful.

Well, there’s another problem with that too. It is precisely because psychological price levels are a thing in the online forex sphere – precisely because they are so talked about – that they could actually be dangerous. When the price approaches a full or big figure level, suddenly a lot of traders are paying attention. The volume of trading spikes as lots of traders try to set up breakouts or reversals and this creates a hotspot. Suddenly everyone is on the radar of the big players in the market. It’s like sharks being drawn to a feeding frenzy by smaller fish causing a commotion. Those big players, the sharks, now have to decide whether all this activity is worthy of manipulating the price so as to crash through the stop/losses of a large number of smaller fish.

You see, when the price of a currency pair approaches a nice round number – basically any number ending in a double zero – the forex social media universe comes alive with comments about the significance of this level. And for the army of inexperienced or downright inept traders out there, a pressure to trade builds up. But the big players, large institutional traders, and big banks will know this and they have a good sense of where the majority of stop/losses will be set. So one thing you’ll often see is that before a reversal or breakout happens, the price will spike in order to first crash through the stop/losses of potentially hundreds of hopeful but misguided smaller traders looking to take advantage of a situation they had heard was going to go in their favor.

Of course, that isn’t how it always plays out, that’s merely one scenario you have to be wary of.

So What Can You Do?

Well, the first thing that is smart to do is actually see for yourself. Take a currency pair that you trade regularly and look at its historical performance. You will want to go back a significant length of time so you catch as many examples of the price crossing these psychological levels as you can. If you’re a day trader, go back a year and if you trade on smaller timescales, go back far enough to sweep up a sufficient number of cases to look at. Draw lines across your chart at significant psychological levels and then go investigating to see how the price behaves around these levels.

What you will mostly see when you do this is that in a huge majority of cases the price just crashes through these psychological levels as though they weren’t there. And remember, that is ultimately the biggest criticism of this whole approach. In those cases where the price does linger at a level that you’ve picked out, explore whether your trading process would give you an entry point. The critics will say that even those times that appear tradable will ultimately be of little or no use. They will tell you that even price movements that appear, at first glance, to be somewhere you could enter a trade behave in reality more like traps that will draw you in but lead to failure.

The best thing to do is to see for yourself.


If there is one thing to take away from this, it is that psychological levels certainly exist in the minds of the forex chattering classes. People on social media and running trading blogs or websites talk about them a lot and, in that sense at least, they exist. Purely as a result of that chatter, it is useful to be aware of them.

But also be very aware that there are a growing number of critics of psychological price levels as a trading tool. The most ardent critics will tell you that the best advice is to simply ignore them. Trade as though they do not exist. This might be a little extreme as it is always good to be aware of various market phenomena, even if you don’t end up using them to actually enter trades.

Regardless of your level of experience or know-how, you should know that you only make use of any trading tool once you have put it through its paces by backtesting and demo testing it. These psychological levels are no different and you should not rely on others promoting them as the next big thing unless you are sure you can carefully and methodically incorporate them into a system that works for you.