Issues With Forex Fundamental Analysis

In terms of the point of separation between the two disciplines of technical analysis and fundamental analysis, technicians rely primarily on price and volume data, and information derived from those factors, as they evolve over time. Fundamental analysts, on the other hand, take into account just about everything else other than those factors.

Furthermore, when considering the relative merits of focusing on economic fundamental analysis versus technical forms of market analysis many seasoned market pros note some serious issues both with performing fundamental analysis and also with its effectiveness as a technique for forecasting future exchange rates. A discussion of some of their more common concerns with using fundamental analysis to trade follows.

Fundamentals Take Time

When it comes to performing an analysis to obtain a currency forecast, a fundamental analyst usually has to review a far greater set of information than the technical analyst. For example, they might have to look over a slew of economic data for the country of each currency in the pair, plus take into account interest rate, inflation and growth differentials, as well as supply and demand effects, political influences, geopolitical events and relevant commodity prices.

Basically, the task can get quite daunting. As a result, they can easily get left behind and stuck deep in analysis paralysis, while the technician may have already performed their analysis and moved appropriately into the market in a more timely fashion.

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Lack of Specific Trade Recommendations

Most technical analysts have developed and follow in a disciplined way one or more clearly-defined trade plans. These sets of forex trading guidelines tell them valuable and objective information about what to look for, when to enter the market, and at what levels positions should be liquidated at a profit or loss. Technical trade plans also usually incorporate money management principles that tell the trader how to size their trades, generally depending on their risk tolerance and portfolio size.

Unfortunately, fundamental analysts usually do not enjoy the advantage of having such clear trade plans. It can be difficult to incorporate all of the information they need to review into a specific trade recommendation with pre-defined entry and exit points. The resulting lack of objectivity can often make the difference between a forex trader being successful or not.

All News is Old News

The idea behind this issue with fundamental analysis is that any news released to the public has pretty much already been noted, analyzed and fully discounted into the exchange rate by professional forex market-makers. Basically, their intense job requires them to keep their fingers right on the pulse of the market using rapid market data services, news wires and the market