Pros and cons of fundamental analysis

Pros and cons of fundamental analysis

There are two groups of traders: fundamentalists and technicians. Fundamentalists are traders who use fundamental analysis to predict price action, and technicians are traders who use technical analysis to predict price action. Of course, many traders use both types of samples.

Let's talk today about fundamental analysis, which is based on economic factors.

Fundamentalists assume that supply and demand for currencies is the result of economic processes can be observed. So, they respect the economic, social and political forces that drive the supply and demand. They believe that by observing all kinds of indicators they can predict stock price.

Because currency prices are a reflection of the balance between supply and demand of currencies, by analyzing various data, such as interest rates, balance of trade, foreign investment, GDP and many others, retailers can predict stock price. The problem is that there are vast amounts of data to analyze. Fundamentalists can study any criteria except price action. Different fundamental analysts look at various economic indicators, but most important are economic growth rates, inflation, unemployment and interest rates. Especially data related to interest rates and international trade is analyzed carefully.

Fundamentalists know when different economic indicators to be released. They usually have a calendar where you note the date and time when different important statistics will be published.

By learning and observing different fundamentals of the markets can increase our knowledge and understanding of the global market. With that fundamental analysis can predict economic conditions very well. We can also have a clear picture of the general health of the economy. We will know what happens. These are the reasons why we can not completely ignore fundamental analysis.

But there are some problems with fundamental analysis. Fundamental analysis usually does not give us specific entry and exit points, so the craft can be quite risky. It is very difficult to find a way of translating all of the different information in separate entry and exit points to a particular trading strategy. There is so much information that is easy to be confused.

That is why many traders use some of the fundamental analysis to understand unexpected movements in prices and to know the forces that move them, but they use technical analysis to decide when to enter and exit trades.




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