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Fundamental Analysis
Fundamental analysis is a method of
forecasting the future price movements of a financial instrument where
fundamental traders basically trade the news.
News Trading has the
potential to be a profitable way to trade the Forex market. It must be
noted, however, that a high level of risk is involved. Fundamental
Traders analyze key economic data, including news and government
reports, to evaluate trading opportunities.
From the
fundamentalists perspective, currency exchange rates are affected
primarily by economic and political conditions, and occasionally by
central banks intervening in the currency markets in an attempt to
influence the value of their currencies.
Some of the key figures
tracked by fundamentalists include interest rates, inflation, trade
balance, GDP (Gross Domestic Product), CPI (Consumer Price Index), PPI
(Producer Price Index), capacity utilization, factory orders, durable
goods orders, inventories, and employment statistics. Fundamentalists
are also constantly evaluating the potential impact of military
conflicts, natural disasters, and changes in political leadership.
There
is a whole art and science to Fundamental trading, or more commonly
know as news trading. There are regular news events that get released
on a regular basis like weekly, monthly, every 6 weeks (FOMC - Fed
Interest rates). These are market moving events. Good news for one
currency could be bad news for another. Many times the market already
has an expectation, whether it is right or wrong, and for the most part
has already been priced into the market.
When an unexpected number
comes out, that's when the currencies can go wild, and if you're on the
right side of the trade you will make money.
News trading is not
black and white. A good number for the USD does not mean the USD will
increase in value. It could do the opposite. So keep this in mind if
you decide to be a fundamental trader vs. a technical trader.
Fundamental traders have to keep up with the news on a continuous basis and they need to understand what those numbers mean. I can't teach you everything there is to know about fundamental trading, but there are services out there that can help you learn.
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