The Secrets Of Trading With Fundamentals

Between the two main schools of thought for analyzing the financial markets, technical analysis often trumps fundamental analysis. If you look around, technical analysis is more widely quoted than fundamentals. And almost any forex trader you meet is more likely to learn about the technical indicators rather than the fundamental analysis.

Part of this is because traders prefer to make a quick buck rather than wait and invest in the long term.

Technical analysis is the study of past price history to predict future price action. In combination with the volatility in the currency markets and the use of leverage to help traders maximize their profits, traders make their gains.

You will, therefore, see many traders focusing on building a trading system, or looking for an automated solution. They do this to take advantage of technical analysis for the mere purpose of maximizing the returns from forex trading.

The Problems with Fundamental Analysis

Meanwhile, fundamental analysis is often relegated to the background.

This is primarily because fundamental analysis is regarded as being complex. Plus, the impetus to using fundamental analysis is also lesser.

Traders ignore fundamental analysis, or perhaps give it less relevance as it is the study of the factors behind the price behavior. After all, who would want to spend time learning what the reason is behind every move?

The markets are irrational most of the time. Thus, in a way, technical analysis makes more sense.

With most of the traders in forex being day traders, it is not surprising that most of the media focuses on the technical charts. However, as a quick comparison, if you look to the equity markets, you will find that fundamentals are more often quoted.

This is due to the very nature of the equity markets. The stock markets usually have a majority of investors who are long term investors (via the 401k plans, etc.).

Thus, fundamentals tend to outshine technical analysis when it comes to stocks. To add to this, big names such as Warren Buffet who make use of value investing, a niche form of valuation. And this also adds to the weight of the argument.

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