Today we have better news resources than ever before to help Forex traders but the fact is most traders fail to use it correctly and lose.
Let’s look at Forex fundamental analysis in more detail
What is Forex Fundamental analysis?
Quite simply it studies all the facts in relation to the supply and demand situation of the currency and these are numerous and include:
Economic health of the country
And many more
These are the facts and all traders see them but they draw different conclusions from what they see – this is the problem for any Forex trader.
The major problem is working out how traders view the facts and how much they have been discounted.
A simple equation for market movement is
Economic Fundamentals + Human perception = market movement
Firstly, in today’s world of lightening communications the fundamentals are discounted in seconds so trying to trade off news stories is doomed to failure.
Secondly humans are not creatures of logic – they are ruled by greed and fear – these emotions push prices to far in either direction – up or down.
Ever wonder why a market collapses in the midst of very bullish fundamentals, or rallies when the news could not be more bearish?
This is human psychology at work and the emotions of greed and fear taking control of markets.
In Forex fundamental analysis the facts are their for all to see but the way they are perceived makes trading fundamentals hard, if not impossible for most traders.
The facts are there for all to see but as humans are not logical they are emotional beings and trying to trade facts is hard especially when they are discounted in seconds.
Is there a better way?
The best way to trade for Forex traders is not Forex fundamental analysis but technical analysis.
Forex technical analysis simply assumes all fundamentals will show up in price action as they are discounted in seconds – the technical analyst knows that human nature is constant and this will show up in repetitive price action.
The trader using Forex charts does not care why prices move he just wants to make profits when they do and looks for the right formations.
While technical analysis may seem simple its logic is sound, as it takes into account both parts of the equation for price movement – human psychology and the economic reality.
If you are considering Forex fundamental analysis then beware of the pitfalls and try technical analysis instead.