There are essentially two forms of analysis that traders divide between: the fundamental and the technical. Although both forms of analysis are great in their own way, they have their problem with it. In this article I will focus on the problem with forex fundamental analysis.
Fundamental analysis focuses primarily on the overall state of the economy, interest rates, and monetary policy that are in fact the economic conditions of a country. It is always great to know how markets move and the economy of the world, as this has a major impact on the financial markets, but only depending on fundamental analyzes to trade the market such as forex will be disastrous. By the time you receive economic news, there are other people who knew in advance that this piece of news was responding to it and the result will be reflected in the graphs.
Economic news is generally distorted by the fact that they do not always take into account some important data, because some countries sometimes wanted to show that they are doing well in good times and good in bad times, which is related to political factors. They cannot be trusted 100% and can only serve as a supplement to your technical analysis.
Normally, when news comes out, everyone will have the same idea of the markets and thus create a herd mentality. Because everyone is talking about buying, there is a tendency to just as well participate in a ride to commit a murder. But those who knew what was going on chose to stick to what they always believe in and that's what the card tells them.
A well-informed trader will use the basic long-term principles in combination with technical trends to establish a trade bias. Short-term news, such as non-agricultural payrolls (NFP), can often trigger knee-shock responses in the market, creating false signals that mislead traders that there is a change in market sentiment. Only after the dust has settled can one see the trend where the market is going.
Because only forex fundamental analysis does not give a complete picture of your trade decision, it is always advisable to combine with technical analysis to help you with your decision making. If you are not sure how news can affect your transactions, always try to prevent trading during high-profile news releases and wait a few days while still observing the movement of the markets before you decide that it is comfortable to trade again .
Feel free to use this article on your website or ezine as long as the following information about author / website is included.