Disbenefit of fundamental analysis
Fundamental analysis has been used in trading since previous years, i.e. with the first appearance of trading on Wall Street, and is superior to technical analysis, especially in long-term investments and in some markets such as stocks. Technical is the most popular in it than fundamental analysis, but it does not necessarily mean that traders in the forex market do not adopt fundamental analysis as well. Fundamental analysis continues to maintain its popularity as it is preferred when used by a large number of professional traders, but here lies the question about what are the disadvantages and negatives of analysis The main thing that may lead to a big loss or the loss of the entire capital when relying on it only and not others?
The three most important things that a trader might misthink about while adopting fundamental analysis as a main tool in his trading strategy will be clarified:
Relying on the effect of the news only
You cannot rely on the news on what you think is the potential impact on the price movement of the financial instrument. For example, when a positive report on the US economy is released, this will not necessarily lead to a rise in the US dollar, and bad economic news will not always push the dollar down! In addition, the release of this economic news, the most important of which is the most important, may be accompanied by sharp and random fluctuations in the trading markets, which may be enough to erase all expectations built by the trader based on fundamental analysis only, and this will definitely lead to a big loss because it was the opposite of expectations.
This rule is not limited to basic economic indicators that are issued in the United States only, as such scenarios are repeated with economic news for other countries and other currencies, in addition to the fact that the forex market is known to trade through currency pairs. He is associated with her as a pair while trading.
Adopting fundamental analysis in day trading
One of the most common mistakes that traders make is to use fundamental analysis in day trading in the forex market! This is definitely not a good idea, there are a lot of traders who adopt day trading taking advantage of economic news and these often face huge failures in their trades and most likely cause huge losses, because fundamental analysis cannot achieve good results in this way, it must be understood that the main function For news and economic indicators on which fundamental analysis depends is to detect trends in the long term, they are not suitable for detecting the occurrence of short-term changes, which are volatile and unstable in nature.
Confusing what is “good for the currency” and what is “good for the economy”
It often happens that the trader confuses the effect of a news, whether it is positive/negative, is it for the country’s currency or the country’s economy! Where the weak reading of some economic indicators leads to support the currency of the economy, and vice versa. The interpretation of this matter involves the idea that the weakness of the currency provides support for the exports of this country, which are negatively affected by the strength of its currency due to the damage it causes to the trade balance and the increase in the cost of industrial products. Positive macroeconomic reports are not necessarily a good thing for the country’s currency, that is, they do not represent a justification to buy it
If you are one of the traders who adopt the use of fundamental analysis as a main tool in the trading strategy, you must be fully aware of these negatives and drawbacks, and you must be careful and know enough about the correct way to apply the concepts of this type of analysis, and you can know all the economic news through the economic calendar that is Presented by TNFX Analytics Experts.
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