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What is Fundamental Analysis?
Along your travels, you’ve undoubtedly come across Gulliver, Frodo, and the topic of fundamental analysis.
Wait a minute…
We’ve already given you a teaser about fundamental analysis during Kindergarten! Now let’s get to the nitty-gritty!
What is it exactly and will I need to use it? Well, fundamental analysis is the study of fundamentals! That was easy, wasn’t it? Ha! Gotcha!
There’s really more to it than that. Soooo much more.
Whenever you hear people mention fundamentals, they’re really talking about the economic fundamentals of a currency’s host country or economy.
Economic fundamentals cover a vast collection of information – whether in the form of economic, political or environmental reports, data, announcements or events.
Even a credit rating down****e qualifies as fundamental data and you should see how Pipcrawler turned this news into a winning short EUR/USD trade.
Fundamental analysis is the use and study of these factors to forecast future price movements of currencies.
It is the study of what’s going on in the world and around us, economically and financially speaking, and it tends to focus on how macroeconomic elements (such as the growth of the economy, inflation, unemployment) affect whatever we’re trading.
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Fundamental Data and Its Many Forms
In particular, fundamental analysis provides insight into how price action “should” or may react to a certain economic event.
Fundamental data takes shape in many different forms.
It can appear as a report released by the Fed on U.S. existing home sales. It can also exist in the possibility that the European Central Bank will change its monetary policy.
The release of this data to the public often changes the economic landscape (or better yet, the economic mindset), creating a reaction from investors and speculators.
There are even instances when no specific report has been released, but the anticipation of such a report happening is another example of fundamentals.
Speculations of interest rate hikes can be “priced in” hours or even days before the actual interest rate statement.
In fact, currency pairs have been known to sometimes move 100 pips just moments before major economic news, making for a profitable time to trade for the brave.
That’s why many forex traders are often on their toes prior to certain economic releases and you should be too!
Generally, economic indicators make up a large portion of data used in fundamental analysis. Like a fire alarm sounding when it detects smoke or feels heat, economic indicators provide some insight into how well a country’s economy is doing.
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While it’s important to know the numerical value of an indicator, equally as important is the market’s anticipation and prediction of that value.
Understanding the resulting impact of the actual figure in relation to the forecasted figure is the most important part. These factors all need consideration when deciding to trade.
Phew!
Don’t worry. It’s simpler than it sounds and you won’t need to know rocket science to figure it all out.
I suggest you visit Pip Diddy’s daily economic roundup every day so that you can stay in the loop with the upcoming economic releases.
Fundamental analysis is a valuable tool in estimating the future conditions of an economy, but not so much for predicting currency price direction.
This type of analysis has a lot of gray areas because fundamental information in the form of reports releases or monetary policy change announcements is vaguer than actual technical indicators.
Analysis of economic releases and reports of fundamental data usually go something like this:
“An interest rate increase of that percentage MAY cause the euro to go up.”
“The U.S. dollar SHOULD go down with an indicator value in that range.”
“Consumer confidence dipped 2% since the last report.”
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I basically like to believe that I have little experience on both forex and stock trading but I think forex trading is more better than stock market and we should know that no gambling can be happened in forex trading but in stock market gambler are always active.
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You’re actually very right.
There’s no way of knowing 100% where a currency pair will go because of some new fundamental data.
That’s not saying that fundamental analysis should be dismissed.
Not at all.
Because of the sheer volume of fundamental data available, most people simply have a hard time putting it all together.
They understand a specific report, but can’t factor it into the broader economic picture. This simply takes time and a deeper understanding of the data.
Also, since most fundamental data are reported only for a single currency, fundamental data for the other currency in the pair would also be needed and would then have to be compared to get an accurate picture.
If you’re too busy to go through a bajillion news reports and economic data, don’t fret. Our resident economic guru, Forex Gump, got yo back covered! Make sure you read up on his regular economic analysis on his Piponomics blog.
As we mentioned from the get-go, it’s all about pairing a strong currency with a weak one.
At this point, you’re probably still waiting for the answer to “Will I ever need to use fundamental analysis to become a successful forex trader?”
We totally understand that there are purists on both sides.
Technical analysis seems to be the preferred methodology of short-term forex traders, with price action as their main focus.
Intermediate or medium traders and some long-term traders like to focus on fundamental analysis too because it helps with currency valuation.
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Forex aur atock market do alag slag business hain magr in maun thora farq ye hai k forex k business main ham support aur resistanxe ki madad se kafi achi trading krty hain aur isvse kafi faida hasil krty hain so forex is a good business
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The foreign exchange market and the stock market (stock and securities markets) are two independent markets that are unrelated to each other. They differ in trade means: currencies are traded on the foreign exchange market and stocks are traded on the stock market. The securities market is often located on stock exchanges. The
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At this time forex market has the two main markets first is currency market and second is stock market. You are interest any market but you should the analysis the market. Than you are able to place the good order and entry. But market has the huge earning.
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My dear friend ham sabhi jannte hai ki forex bussness market sabse achha online bussness haii jisme ki aap acche kam kar sakte haii or ye stock market se bahut hi jayda aage hai or esme bahut se log kam kar rhe haii
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Compared with the industry, the foreign exchange market is also higher, many of which are traders. In the Forex market, you can purchase Forex Charts, despite the fact that the College has written or no understanding of the industry market. You can also run daily for a day on the foreign exchange market, industry, while writing a few hours.
