Originally posted at forexfactory on August 9, 2010
Originally Posted by Shpokas
Thanks for your reply. Â I’m just curious, do You use fundamental analysis for your trades?
No I don’t really use fundamental analysis. I like to know where each country is in the business cycle and stuff like that so I can understand the market environment that I am trading in. But I don’t use it for trade entries or exits.
Fundamental analysis usually involves holding trades for long periods of time. I do mostly intraday and swing trading. Very rarely do I hold a trade over a week or two.
By the time your fundamental analysis can turn out to be correct, the market can put you through an emotional roller coaster as the position goes in and out of profit by hundreds of pips. And the problem is that it is difficult to get good entries with fundamental analysis.
Lets say you are fundamentally bullish on AUD/USD back in April 2010. You say ok I will buy some AUD/USD at the lows around 0.9200. Problem is the market eventually caught some global growth jitters and commodity currencies retraced around 1000 pips. How is your fundamental analysis going to account for that? If you got caught on the wrong side of that 3-4 week momentum you got burned probably.
Yeah AUD has finally retraced and is almost back up to the recent highs but are you really going to hold through a 1000 pip retracement? Proper stop placement is very difficult with fundamental analysis. You don’t really know if your 500 pip paper loss is a mispricing, and the market will correct itself quickly, or if the market is entering a blow off/capitulation phase and you need to endure a few hundred more pips of pain, or if the fundamentals started to change against your position.
So I don’t really care or try to predict where a currency is going to be a few months from now. What I care about is the intraday/swing trading momentum which is far easier to predict and build trading systems around.