What is Fundamental analysis
when we are talking about fundamental analysis in this case we are talking about forex fundamental analysis and not fundamental analysis for stocks,
fundamental analysis is the study of fundamentals!
when people are talking about fundamentals, they are really talking about the economic fundamentals of a currency’s host country.
Economic fundamentals deal with a huge amount of information and variables – this represents itself in reports, data, announcements or events. concerning the economy or politics, environment etc .
Fundamental analysis is the use and study of these factors to forecast future price movements of currencies. you can see it now everyday with President trump doing his thing on twitter and see how this affects the market.
you have to look at the world and around us, in economic and finance terms of course, everything could affect the way we are trading and this and it tends to focus on how macroeconomic elements (such as the growth of the economy, inflation, unemployment) affect whatever we’re trading and this fundamental analysis in Forex means you are aware of what ever could move the price of your currency.
fundamental analysis give you as a trader the insight into how price action “should” or might react to a certain economic event.
So how do you get this Insight as to “what is Fundamental analysis
Fundamental data reaches you through different means and in different forms.
when you watch the news or some other financial news outlet and you see that a new unemployment report in the UK has come out and there might be a possibility that the European Central Bank will change its monetary policy. you have a reaction, good or bad news the world around it responds inviting a reaction from investors and speculators.
sometimes just the gossip of a report or some potential peace talk somewhere will have some affect on how investors see their investment. when this happens there can be a huge spike in activity as many try to manage the damage or ride the wave of profit. this is always very visible when there is a natural disaster that paralyses a country.
the market responds and keep in mind that for fundamental analysis of stock of companies that work in the relive sector or military sector will respond very different then stock of a energy company that saw it windmills being blown away , as a result the value of the domestic currency will also change as food might become an issue and thus the prices will be raised etc.
currencies can jump 100 pips in a short time
In fact, when talking about fundamental analysis Forex only. currency pairs have been known to sometimes move 100 + pips just moments before major economic news, making for a profitable time to trade for those willing to take a risk
You should get in to this action also and this is why you will see that most traders that make a profit do this on a currency where they are very close to
the That’s why many Forex traders are filled and trembling with anticipation just before a big announcement or prior to certain economic releases!
in short you can make it as complicated as you want but It’s simpler than it sounds and you won’t need to know astrophysics to figure it all out.
How to be updated on fundamental analysis of stocks and currencies
Fundamental analysis is a amazing valuable tool or process in estimating or guesstimating the future conditions of an economy.
that said ,fundamental analysis does not help you immediately in predicting the currency price direction.
there’s a lot of uncertainty in fundamental analysis!” There’s no way of knowing for sure where a currency pair will go because of some new fundamental data in the form of report.
Still Fundamental analysis is a tool and you should use it
Because of the online media coverage and huge amount of fundamental data available every minute of the day, most people will have a hard time putting it all together, i know i do.
you might be able to understand the implications of one report but have a hard tie to understand what this means on a macro economic level.
Also, since most fundamental data are reported only for a single currency of one country, fundamental information for the other currency in the pair you plan to trade would also be required in order to get a real picture of this currency pair’s situation and possible price direction.
Pair a strong currency with a weaker one
when you plan to trade forex it’s all about pairing a strong currency with a weak one.
fundamental analysis vs technical analysis
here we will not g in to deep as there are entire books written on this subject.
see it like this :
- Technical analysis seems to be the preferred methodology of short-term Forex traders, they focus mainly on the price action.
- Intermediate or medium traders and some long-term traders like to focus on fundamental analysis too because it helps with currency valuation.
still you have to use both of them
- Strategies that are primarily focussed on the technical part go out the windo the moment a large fundamental event happens.
- fundamental traders miss out on the short-term opportunities that pattern formations and technical levels bring.
so the perfect mix would be using both and have technical and fundamental analysis covers all the angles.
you follow and are aware when large events are happening or planned and at the same time have a close eye on the prices of the currencies and see the opportunity in the short term when it presents itself
what is Fundamental analysis