The effectiveness of fundamental analysis.
For years, traders have been debating the effectiveness of fundamental analysis in stock trading,
with opponents of this method of market research gaining ground.
Techies—traders who rely solely on technical analysis—argue that the impact of news on the market is unpredictable, leading to losing trades.
While this is certainly true, the truth isn't so clear-cut.
First, it should be acknowledged that fundamental market analysis was the first method of market research, long before currency charts and other technical analysis tools .
So why are many now claiming that fundamental analysis is not effective?
• An important event simultaneously occurred that affected the exchange rate of the second currency in the currency pair, thereby reducing the impact of the first news item. For example, you are trading the euro/dollar pair, and a report comes out about an improving economic situation in European countries, while at the same time, positive data is published about a decrease in inflation in the US. Clearly, the latter news item may have a greater impact on the trend.
• There are other factors influencing the trend – not all information from interbank exchanges makes it into the news, so you may simply not realize that supply or demand has changed. For example, if a large corporation begins gradually buying large volumes of dollars for its own needs on the foreign exchange market, if the amount is large enough, this can spur the price of the currency being purchased.
• The trend is strong enough that the news will have an impact on it.
• Incorrect use of fundamental analysis in practice.
The last point is especially important; in order to increase the effectiveness of the application, you should simply abandon those aspects that do not provide a 100% guarantee of success.
• Open trades only when truly important news is released, preferably a non-standard event. Unfortunately, such events are often unpleasant, such as natural disasters, terrorist attacks, wars, or financial collapses, so trades will be for the sale of the currency affected by the event.
• We use news signals in already open transactions, we close existing ones if the news can cause trend reversal, or extend it if the trend is confirmed.
• We carry out actions with orders after confirming the fact of changes using technical analysis.
It is the correct use of fundamental analysis that allows you to achieve the best results, and it is especially effective when trading on the stock and commodity markets.
