What’s The Difference Between Fundamental Analysis and Technical Analysis Trading
There are two primary forces that drive forex markets: Fundamental forces and Technical forces. Each can be used to evaluate and select potential trades, but what is the difference and which is best?
Technical forces are a reflection of fundamental analysis at the current market price. While fundamental forces include things such as money supply, interest rates, economic and financial reports, balance of trade data, and things of that nature.
In the past, most professional traders have primarily used fundamental analysis to determine their trades. With many hours each day devoted to trading they were able to invest the time required to do this type of analysis properly. However most amateur traders simply do not have the time it takes to do this type of trading properly, without taking short cuts and seriously compromising their data.
The main problem with fundamental analysis is that because you need precise timing to move with the markets, you must always be “on”. Successful fundamental traders have usually made trading an integral part of their lives and they are never far from their trading platform — when a news story hits they are ready to trade.
Amateur traders on the other hand don’t usually have the many hours required on a daily basis to watch the markets and react in time. When they do try to trade using fundamental analysis they often get taken for a ride as they are simply too far behind the market to realize profits.
What you need to realize about fundamental analysis is that the underlying data doesn’t matter — all your are concerned with is how the market reacts to that data.
It’s important to note that most fundamental data is projected, meaning that the projections change based on the release of news or reports, rather than being created by them. What this means to fundamental traders is the timing of analysis is the most important thing and you profit due to the swing in market reaction.
Technical analysis, on the other hand, requires a lot less time and effort. It also allows you greater flexibility and mobility in the markets. Technical analysis, being based on fundamental analysis at the current market price, gives you a shortcut as all the fundamental work has been done for you by the market. You simply establish your trading conditions and ride the trend.
As you might have guessed, trend spotting is a crucial skill in technical analysis. Successful technical traders are able to identify, confirm and enter a trade with just a few key indicators. And they give themselves enough time in the trade to realize profit targets while identifying, confirming and exiting the trend before it comes to an end.
This is why I advise new traders (and pro’s alike) to trade based on technical analysis. You leverage all the hard work done by the fundamental traders without exposing yourself to the time, energy and effort required to do all the work. Because of this you can trade in just a few minutes each day and still make more money on a consistent basis.
If you want the best chances of success in forex, you should look for a forex training course that uses technical analysis, such as the Forex Profit Accelerator.
Grant Grady enjoys trading, golfing, and shares his profitable trading strategy in his Easy Forex Trading Strategies Newsletter. Be sure to check out his recommended Forex Training Course.
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