I hope you dont get puzzled when you see this word “fundamental analysis” once more. We shortly discussed fundamental analysis during our introduction part so i hope you have a clue as we get ready to get into details.
If you know nothing, just yet. Just relax, we will go through everything together.
Let us now be attentive and see what the heck is fundamental analysis and why we need it to trade.
Whether we like it or not, we cannot hide from fundamentals because they are the main reasons why things happen the way they do in the market.
You will need the fundamental knowledge to help you as you make decisions in your trading life.
You might have shifted your focus only to technical analysis because you have already got yourself a strategy to use and for sure it’s not disappointing you. You can feel your account multiplying to thousands of dollars. That’s quite impressing.
But a small pinch of fundamentas analysis could improve your results dramatically.
Market fundamentals are major determinants in the market for example; economic factors, political factors, social factors & environmental/natural factors.
You must be wondering what these have to do with you when all you need to trade forex is a computer and internet. Yes, that’s true but you must have some knowledge on what moves the market in order to get good signal setups to buy or sell.
Fundamental factors affect demand and supply of goods and services which is the major determinant of trade.
Fundamental analysis critically relates the country’s economy and its financial performance in relation to the value and future performance of its currency. The country’s economy and financial performance is backed up by different factors such as monetary policies, macroeconomic activities, political events and natural factors.
When all these factors are rounded up they lead us to only one thing, an economy.
An economy also depends on foreign exchange trade which now brings us to the exchange rate.
You have to go through all this trouble of knowing the economic status of a certain country because you need to know how it will affect the currency’s value which you are interested in so that you know the position to take.
Studying fundamental factors helps you to know how macroeconomic elements such as interest rates, inflation, unemployment, consumer behavior and trade balances affect currency values in the global world.
As a forex trader, you need to know how currency prices react to such fundamental news.
Unlike in stock markets where fundamental analysis is a basis for investors to estimate the true value of a given company, in forex trading it will help you to evaluate currencies and their respective countries to know the actual value of the currency through studying the basic elements that affect the economy.
Fundamental data reports.
To trade fundamentals, you need to know what the market is expecting in relation to the actual news released. Whether it’s positive or negative from the expectations. The more it deviates from expectations the greater impact it has on the exchange rates.
Markets react to data release within half an hour from the time it is announced and then settles giving you a chance to analyze the behavior of the affected currency in relation to other paired currencies.
However, not every data released brings an impact on the market. Sometimes you will realize changes just for a few minute or no change at all.
Next we are going to look at some of the major indicators that normally cause pollution in the market.
How long you should hold an open position, is a personal thing for all traders. The decision is all yours. You know what your goals are as a trader, the kind of strategy you use to trade. All this starts from what you are? and What you want? If I am to answer, this...