Fundamental analysis mostly encapsulates social, economic, and political analyses of the forex market and in what ways they may affect currency pairs. It is known that in the trading strategy we have 3 types of analysis: technical, fundamental, and sentimental. How big attention we should give to this type of analysis? Could fundamental analysis be detrimental to our trading?
There is a big difference between the forex investor and the forex trader. Forex investors have time to just sit back and let somebody else do the work. They can make trades based on pure speculation or slow-moving events. On the other hand, traders grind, they do hard work, they get dirty. They get in, make money, and get out, based on what they have right in front of them. Does fundamental analysis apply to traders? How exactly forex twitter and big multi-billion dollar financial organizations and their experts affect our trading?
Fundamentals include politics, global market conditions, and economic indicators and reports. We will try to dig deeper into these. Politics can greatly affect the price of a currency pair every once in a while especially because of media. We just never know when. So trying to follow anything politically might be the waste of time because we are never going to be able to anticipate what some of the world leaders are going to say or do. If we can’t anticipate then there’s no way we can trade it. Global market conditions like: “What is the state of the European Union right now?” or “What is the state of the United States economy?”
With questions like this people can speculate for hours and how that might affect the economy which when it trickles all the way down to us and what we want to happen with the currency pair we trading, means absolutely nothing. Finally, when we do hear a piece of news that might be beneficial for us, it is really hard to process. For example, something big happens in China. How is that going to affect the economy and interest rates? Then, how will that affect inflation? Ultimately, how is that going to affect the price of yuan? Simply, it can be too many variables in place for anybody to really decipher how any of this information is going to directly affect the currency pair that we want to trade.
With fundamentals, it’s usually big, grandiose, complicated guessing game with all these movable parts that in the end doesn’t amount to anything. When it comes to technical analysis at least we have things in front of us that we do know and we actually can use. Now in our world, what we in real-time do have to contend with are economic indicators and reports. Things like non-farm payrolls, PMI numbers, or interest rates. When news reports come out saying if those figures have changed or if they haven’t, we know when they are coming. That might be our advantage. A lot of traders are used to watching different news outlets but we need to try to distinguish the real information from the people who give us useless fundamental analysis that cannot help us. These things only divert us from what is important.
Forex Twitter channels are also sources with questionable usage. Someone can be pretty unhelpful and make a lot of money in the forex world just by tweeting out news events that already happened. As traders, we are on top of the things, and we don’t need to be told some things because we have 2 eyes and we have a chart and that tells us all we ever need to know. So we might consider clicking the unfollow button on most of these twitter feeds. Sometimes we might hear about a news event that already happened and somebody on financial news saying things like: “Building permits in the US came in at 1.24 million and this is slightly below the forecast of 1.27 million”. Well, we could be grateful for that update but the thing is this is not really an update. Like every forex trader on planet, we also have our news calendars and we are usually pretty informed, we already know that all of that just happened. If we were trading the dollar, for example, we would probably be aware of all this. If not, most of this information would be totally irrelevant for someone who is a forex trader.
Like we said forex investors might do something with this kind of information because of their slow, laid-back pace of playing the game, but we as forex traders have been moved on five different ways since that news event came out. Financial news channels and forex twitter are full of these things. Another thing that these news outlets like to do is not only do they tell us what happened in the past, they tell us what’s coming up. Again, we have a calendar, we know that. It is our responsibility to know. Things like this don’t really apply to a real trader. If someone of us is a super forgetful, irresponsible trader then paying attention to fundamental analysis is the least of his problems. Sometimes on certain web sites, we might see people try to predict where the price is going to go based on the news that just came out or the news that might be coming up.
Still, there are major issues around this. It is still information that is hard to use. A lot of times what boils down to what they’re saying is: “Price might go up or down”. Well, thank you guys for that, that’s ultra helpful. And when they do some kind of predictions they almost always point to price levels, support and resistance line, or Fibonacci level. These predictions are usually wrong according to professional traders. Traders, who is responsible for making prices go up and down? We all know this. It’s the big banks, it always has been. When it comes to news events banks don’t have a reason to move, they just don’t react. Before the news event even comes out the big banks already know where they’re going to take price. It’s just the matter if the trader’s money switches from one way to another based on the news event that comes. if that news event is so one-sided and for example, the euro gets stronger. The banks still control when that happens, so they might lose a little amount of money during this process because the news could be just great in this situation.
In the meantime, they are going to find out where all those stop losses are and they are going to knock them out so they can collect as much money as they possibly can from spot forex traders before they take price where it’s going to go. It is not the case that great news just comes out for a particular currency and price immediately starts shooting that way. We usually see a lot of up and down jagged action first, a lot of fake news, sometimes prices are going the wrong way and we wonder why. That is the banks doing what they’re doing and they will always get theirs. The sooner we realize this the better off we could be. Simply, trying to follow fundamental analysis might be a glorious waste of time. This could actually be good news because technical analysis in the end always wins. If our technical analysis is amazing we might almost forget about fundamental analysis which can be liberated because it is a huge discombobulated confusing time-eater in most cases.
Of course, we still need to be aware of big news events but that shouldn’t be a problem because we have a news calendar. That might be the reminder that we need to focus on unless there’s a major political election coming up or some financial turmoil. The news event coming out usually does not apply to any of the currencies we trade, most of the time we can just slip through it. We could pretty much widdle all of the fundament analysis down into a small handful of news events that we’re already know are happening and when they’re happening, we could adjust our levels a little bit and move on. We have this wonderful luxury as spot forex traders that people who trade stocks, bonds, and CFD’s don’t have in a sense to where we can do over 99% of our trading directly from our charts and still potentially have great success with it. Most traders never realize this. After everything discussed here, we might try to re-think how and where we should invest our time.