For those engaging in forex analysis, you have two distinct methods to choose from. The first is fundamental analysis, which takes a close look at a particular country’s general welfare. To put it plainly, if a particular country’s economy shows indications of success, then its currency is a good bed. The supporters of this outlook argue that currency fluctuations occur in response to economic indicators, and that if one understands these factors, speculation powers are improved.

The second method of speculation is known as technical analysis. The argument in support of this method goes like this: Prices follow patterns, period. The technical analysis does not focus all its energies on what is going on with a particular country’s economy. Its primary concern is the study of patterns and how market fluctuations can be predicted according to these patterns.

They see the market as less based on the physical world, and more based on how people consistently react to the physical world. It is a subtle distinction, but it leads to vastly different market strategies.

So which method has more success?

If one were consistently better than the other, then we would only have one. The fact that there is even an argument means that both have had their good days and bad days. Additionally, in order to be really successfully, you should attempt to integrate both forms of analysis into your overall strategy.

If you focus on patterns alone, and ignore what is really going on in the world, you may fail to see that what looked like a pattern wasn’t a pattern at all.  Pattern analysis abstracted away from the real world can get you into a lot of trouble.

Let me give you an example: Imagine you are analyzing your pattern charts. You see something happening. You have seen this pattern before and you think you have a good shot at cashing in. Everything is confirming that a massive upswing is ready to occur.  You jump in and buy up the currency in large numbers. Then you pat yourself on the back and wait for the pattern to manifest itself as it has done in the past.

All of a sudden, the price starts plummeting! You can’t believe it. How could this be happening? In a rage, you storm out of your office and see a TV in the next room. The news is on, and to your surprise, interests rates had been adjusted. Moreover, employment rates were down. Lastly, the automakers all reported lower than expected earnings.

You see. The real world does indeed have an effect on the market. Patterns are great, but you cannot properly assess which pattern you should be analyzing if you don’t know how the market has reacted to real life indicators in the past. Your price charts are only as good as their relationship to history. Patterns in complete abstraction are meaningless.

You have to use both methods to truly understand what you are doing. They are not so much different strategies as they are different angles of the same picture.