Technical forces and fundamental forces are the two main drivers of the forex markets. They both give you valuable information but is one better than the other?
Fundamental forces include things such as interest rates, balance of trade data, economic and financial reports, money supply etc. Technical forces on the other hand are simply a reflection of the fundamental analysis at the current market price.
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.
For professional traders, this isn’t as much of an issue. Because they trade 24/7 and are always watching the markets, they are able to trade with the precise timing you need to move with the markets. This is why fundamental traders are never far from their trading platform and are always 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.
The key to understanding how fundamental analysis works is realizing that the underlying market data is NOT important. All you need to be concerned with is the market’s reaction 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.
The key to technical analysis is trend spotting — to be successful you need to identify, confirm and enter a trend while giving yourself enough time in the trend to realize your profit targets. At the other end of the trade, your technical analysis must also identify, confirm and tell you when to exit a trend when the trend is coming to an end.
That’s why I much prefer trading based on technical analysis — you still get all the benefits of fundamental analysis (with all the hard work done by the market) but you can trade in just a few minutes each day and make more profit with less work.
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.
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This post was written by admin on September 19, 2009
