- What is Fundamental Analysis?
- What is Fundamental Analysis about?
- What are the Economic Indicators?
- News Time Trading with Fundamental Analysis
- Differences of Fundamental and Technical Analysis?
- Register and stay on top of the market
What is Fundamental Analysis?
Fundamental Analysis is the study of economic data as well as social and political factors that affect market movement, in order to predict future price movements.
When identifying price movements, traders can make more informed trading decisions and better trading plans.
Fundamental analysis evaluates the economic position of countries and the ways in which economic news affects the value of the current use and equities, or the value of the goods exported by those countries.
The economic news published by countries’ economists has a great deal of influence over market movements.
Since the USA is the largest economy in the world, it’s very important to follow it.
There are two basic types of market analysis.
- Fundamental analysis
- This type of analysis tries to predict future market movements according to a country’s economic news.
- Technical Analysis
- This method analyses current market movements, in comparison to past market movements in other words, it tries to predicts future trends, using past movements, with help of indicators provided by your trading platform.
What is Fundamental Analysis about?
Fundamental analysis is based on macroeconomic data that is provided for that country or currency for each country or economic block.
For example, Eurozone releases a number of particularly significant and important statistics every month.
This announcement often have an effect on the currency’s strength the following are a number of particularly important types of news announcements which have a particularly strong influence and usually cause very strong fluctuations in currency markets.
- Gross Domestic Product
- Retail sales
- Employment and unemployment rates
- Interest rate decisions
- Minutes from the most recent interest rate meetings
- Speeches made by influential figures in the market
- Ifo business climate surveys
- PMI (purchasing managers index)
- CPI (consumer price index)
- ZEW sentiment index (relevant only in Europe)
Market announcements are indicators of economy’s performance.
Experienced Traders know how to incorporate these announcements into their strategy.
It’s important to note that before an announcement is made public, forecast that announcement made by experts.
In many cases, the value of the underlined asset, reflex the forecast, and the actual announcement differs from the forecast, market can become much more volatile and interesting.
The following is an example which illustrates the effect such an announcements have on the market.
On April 27th 2011. an announcement was made regarding a decision taken for the interest rate in USA.
The forecast predicted a reduction of 0.25%, but in reality, the interest rate remained the same. This resulted in support for the US dollar as can be seen with the assets rise in value.
What are the Economic Indicators?
Data releases which give an indication into a country’s economic status are known as Economic Indicators.
Many economic indicators give important financial insights to investors and can also influence an asset’s value.
Most of them are released on regular, specific calendar dates, allowing investors to plan on reviewing certain information of a government or non-profit organisation.
Some important Economic Indicators include:
- Consumer Price Index (CPI)
- Real Gross Domestic Product (GDP)
- Retail Sales Data
- Housing Starts
- Employment Rates
About the economic indicators, investors should remember the followings:
- Economic indicators are only useful if they are interpreted correctly.
- Revised data has presented strong correlations between economic growth (measured by GDP), and corporate profit growth.
- Investors cannot determine a company’s growth solely based on one indicator of GDP.
- In order to optimise a trading strategy, investors should utilise multiple economic indicators and combine them to turn various insights into trading patterns and verifications of numerous sets of data.
News Time Trading with Fundamental Analysis
To trade on Forex news, you should follow the economic calendar where all major world financial news are collected.
Also, the calendar shows the time of the news release and the strength of its impact on a specific currency pair.
News trading is the strategy which is based on a fundamental analysis.
News traders make profit on the price gaps at the moments of important economic news releases.
There are two approaches:
- Traders foresee the direction of movement and the possible reaction of the market to the published news and place orders before the release in the direction where the price is supposed to move.
- Traders wait for the news release and watch the reaction of the price. Thus, traders monitor the price behavior, and then enter the market.
Differences of Fundamental and Technical Analysis?
Fundamental Data is a method of analysis applied strategically by traders.
The method is based on the theory that an instrument’s market price may have the tendency to reach its “real value.”
This type of data is based on analysis of the impact current global events and economic circumstances have on the Forex market, such as GDP, NFP, and monetary policy.
Technical Analysis is used to predict the movement of market prices based on past performance of various shares, Forex pairs, commodities and indices.
Technical traders typically apply mathematical indicators and charts to trade strategically.
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