The thought of trading fundamentals seriously had been a dilemma for me for a long time when I started trading forex about a decade ago. I have seen and read a lot of debates on fundamental analysis versus technical analysis. The arguments got me confused pretty quickly. In my other articles, I wrote how we just can’t do away without all three kinds of analysis. To be as profitable as possible we need to incorporate all forms of analysis. But the degree to which we employ each kind of analysis is very key.
The question as to whether or not fundamental analysis is a waste of time or worth it clearly depends on one most important thing: The kind of trader you are or the style you’re executing at a given time. One trader might rely mostly on technical analysis while the other might solely be dependent on sentimental analysis.
So to what kind of traders is fundamental analysis most important to? Position traders. Who are they anyway? Position traders are the kind of investors who place trades and hold onto them for a couple of months to even a year or years. If you’re this kind of trader then we can’t say fundamental analysis is a waste of time for you. If you happen to be a scalper or a day trader, fundamental analysis won’t (or rather shouldn’t) be as relevant to you as it would be to position traders. With that being said, it doesn’t mean day traders should completely ignore fundamental factors.
What kind of trader one is would determine what kind of analysis is most important to them. Traders who hold positions for very long pay more attention to fundamental analysis. Those who scalp and day trade (should) pay more attention to technical analysis. Both kind of traders (the successful ones) acknowledge all kinds of analysis to some degree.
This post was inspired by one guy who said he had observed that “high impact” events on the economic calendar in most cases had little to no effect on price action or significant movement of the market towards one direction. And I think he got things a bit wrong here. Because news trading and fundamental analysis are not the same thing. Observing economic calendars and release of economic data to trade thinking its fundamental analysis is self-deception. This is why I’m writing my next post “Fundamental Analysis vs News Trading” to clear the blurry lines between the two.
Fundamental analysis is not a complete waste of time depending on what kind of trading you’re doing and surely worth it if you’re a position trader or tend to hold the position for a long time. I am not a position trader. The reason is I love price action and like to follow along and gather pips during bearish and bullish movements in the market. Volatility turns me on. There’s always something to do, something to analyze. These are things that have kept me in the game as a pro trader. I have gathered a lot of fundamental analysis skills over the years that have helped me tremendously. I advise you to do the same and not completely ignore it.