Fundamental Analysis and Technical Analysis Trading

November 17, 2009

Technical forces and fundamental forces are the two main drivers of the forex markets. They both give you valuable information but is one better than the other?

Technical forces are a reflection of fundamental analysis at the current market price. While fundamental forces include things such as money supply, interest rates, economic and financial reports, balance of trade data, and things of that nature.

Traditionally, fundamental analysis has been the default recommended method of trading. However this type of analysis takes a tremendous amount of time to do properly. Unless you have a few hours a day to devote to watching the markets, and know precisely what you are looking for, then it can be very difficult to do profitably.

The main problem with fundamental analysis is that because you need precise timing to move with the markets, you must always be “on”. Successful fundamental traders have usually made trading an integral part of their lives and they are never far from their trading platform — when a news story hits they are ready to trade.

Amateur traders on the other hand don’t usually have the many hours required on a daily basis to watch the markets and react in time. When they do try to trade using fundamental analysis they often get taken for a ride as they are simply too far behind the market to realize profits.

The key to understanding how fundamental analysis works is realizing that the underlying market data is NOT important. All you need to be concerned with is the market’s reaction to that data.

It’s important to note that most fundamental data is projected, meaning that the projections change based on the release of news or reports, rather than being created by them. What this means to fundamental traders is the timing of analysis is the most important thing and you profit due to the swing in market reaction.

However, trading on technical analysis requires much less time involvement and gives you flexibility, maneuverability and agility in the markets. Because technical analysis reflects the fundamental analysis at the current market price, that means the market has done the fundamental work for you. You literally skip ahead and let everyone else do the hard work. You then ride a trend based on your trading conditions.

The key to technical analysis is trend spotting — to be successful you need to identify, confirm and enter a trend while giving yourself enough time in the trend to realize your profit targets. At the other end of the trade, your technical analysis must also identify, confirm and tell you when to exit a trend when the trend is coming to an end.

That’s why I much prefer trading based on technical analysis — you still get all the benefits of fundamental analysis (with all the hard work done by the market) but you can trade in just a few minutes each day and make more profit with less work.

If you want the best chances of success in forex, you should look for a Forex Training Course that uses technical analysis, such as the Forex Profit Accelerator.

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Comments

2 Responses to “Fundamental Analysis and Technical Analysis Trading”

Point and figure charts on December 3rd, 2009 3:48 pm

Point and figure charting software is the way to go for profitable trading
amiel from options trading system on December 9th, 2009 4:31 pm

Good article, nicely presented in a way that amateur traders are provided with sufficient guidance to trading. Useful also to intermediate traders, nice.