The effectiveness of fundamental analysis.
For many years now, there have been debates among traders about how effective fundamental analysis is when trading on the stock exchange; recently,
it is the opponents of this method of market research who have won.
Technicians - traders who trust exclusively in technical analysis - argue that the effect of news on the market is not predictable and this becomes the reason for unprofitable transactions.
Indeed, this fact takes place, but not everything is so clear in this matter.
Firstly, it should be recognized that it was fundamental market analysis that was the first to be used as a method of studying the market, long before currency pair charts and other technical analysis tools .
So why are so many people now claiming that fundamental analysis is not effective?
• At the same time, an important event occurred that affected the exchange rate of the second currency in the currency pair, thereby reducing the impact of the first news. For example, you are trading euro/dollar, a message comes out about the improving economic situation in European countries and at the same time positive data is published about a decrease in inflation in the United States. It is clear that the latest news 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, a large corporation began to gradually buy large volumes of dollars for its needs on the foreign exchange market; if the amount is large enough, this can spur up prices for the purchased currency.
• The trend is strong enough for the news to have an impact on it.
• Incorrect use of fundamental analysis in practice.
The last point is especially important; in order to increase the efficiency of application, you should simply abandon those moments that do not provide a 100% guarantee of success.
• We open trades only if really important news comes out, it is better if it is not a standard event. Unfortunately, most often such events are unpleasant, for example - natural disasters, terrorist attacks, wars, financial collapses, therefore transactions will be for the sale of the currency that was affected by the event.
• We use news signals in already open transactions, we close existing ones if the news may 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; it is especially effective when trading in the stock and commodity markets.