Fundamental Analysis - What Are Its Pros And Cons?
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The two groups of traders are namely fundamentalists and technicians. Fundamentalists are traders who use fundamental analysis to predict price action, and technicians are traders who use technical analysis to predict price action. Of course, both types of analysis would be used by a lot of traders. What we can talk about is fundamental analysis which is based on economic factors. As for the fundamentalist, they would assume that the supply and demand for currencies is a result of economic processes that can be observed. So, they observe economic, social, and political forces that drive supply and demand. They think that if they observe all kinds of indicators, then they can predict price actions. Traders can predict price actions since currency prices are a reflection of the balance between supply and demand for currencies, by analyzing different data, such as interest rates, balance of trade, foreign investment, GDP and many others. However, the huge amount of data to analyze is the problem here. Studying any criteria except price action is what fundamentalists can do. Different fundamental analysts look at different economic indicators, but the most important are economic growth rates, inflation, unemployment and interest rates. To data that is related to interest rates and international trade is analyzed very closely, this is especially true. There are fundamentalists who know when different economic indicators will be released. Usually, they have calendars where they note the date and time when different important statistics will be made public. We can increase our knowledge and understanding of the global market by learning and observing different fundamentals of the markets. We can also predict economic conditions very well by doing fundamental analysis. Not only that, but we also have a clear picture of the general health of the economy. We will be aware of what is going on. Those are the reasons why we should not completely ignore fundamental analysis. When it comes to fundamental analysis, there are some problems. Fundamental analysis usually does not give us specific entry and exit points, so the trades can be pretty risky. It is very difficult to find a method of translating all of the different information into specific entry and exit points for a particular trading strategy. There is a lot of information which is why it is easy to be confused. That is why many traders use some fundamental analysis to understand unexpected movements of the prices and to know the forces which move them, but they use technical analysis to decide when to enter and exit the trades. Million Dollar Pips