Fundamental Analysis and Technical Analysis in Forex Trading

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.

In the past, most professional traders have primarily used fundamental analysis to determine their trades. With many hours each day devoted to trading they were able to invest the time required to do this type of analysis properly. However most amateur traders simply do not have the time it takes to do this type of trading properly, without taking short cuts and seriously compromising their data.

For professional traders, this isn’t as much of an issue. Because they trade 24/7 and are always watching the markets, they are able to trade with the precise timing you need to move with the markets. This is why fundamental traders are never far from their trading platform and are always 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.

One thing many traders don’t realize is fundamental data is projected — and those projections change when news reports come out, but they are NOT created by the news reports. It’s a small distinction but one with far reaching meaning. It makes the timing of analysis the most important thing, and it means you profit from the swing in market direction.

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.

As you might have guessed, trend spotting is a crucial skill in technical analysis. Successful technical traders are able to identify, confirm and enter a trade with just a few key indicators. And they give themselves enough time in the trade to realize profit targets while identifying, confirming and exiting the trend before it comes to an end.

This is why I advise new traders (and pro’s alike) to trade based on technical analysis. You leverage all the hard work done by the fundamental traders without exposing yourself to the time, energy and effort required to do all the work. Because of this you can trade in just a few minutes each day and still make more money on a consistent basis.

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.