FOREX TRADING WITH FUNDAMENTAL ANALYSIS
If you should do a Google search on how to trade the Forex market, the first and second page of the result will be populated mostly by what is commonly referred to as Technical Analysis. In the retail trading world, this is the most widely taught concept in trading, probably due to the fact that it doesn’t require studying economics or understanding finance to grasp it.
The truth is, Technical analysis alone will not make you successful in this industry. This is simply due to the fact that the foreign exchange market is made up of people and not just some pretty chart and indicators you see on your trading software.
Let’s illustrate this with a real life event that happened a couple of years ago. On June 23rd 2016, the U.K voted for Brexit( meaning to exit the European Union). The GBP plummeted over 10% within 24 hours. Its biggest one-day collapse in history.
This is a perfect illustration of how fresh information and breaking news moves currency prices up and down.
If news drives currencies up and down it makes perfect sense to understand the concept in depth. You are dealing with the economies of powerful nations here, so it makes sense to understand the underlying factors that cause the prices to move.
There is a famous quote by Galileo which says, “All truths are easy to understand once they are discovered, the point is to discover them.’’
When you understand something you can master it. When you master fundamental analysis, you will naturally make more money and not end up being a statistic.( Over 80% of retail traders lose money in the forex market).
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By understanding fundamental analysis, you are adding a very powerful strategy to your trading arsenal.
WHAT IS FUNDAMENTAL ANALYSIS?
Fundamental analysis basically means the reasons why currency prices are moving. If you realized that the price of the US dollar has risen over 200 pips, the reason why it did so will be called fundamental analysis.
In other words, fundamental analysis is finding the reason why currencies are moving either up or down. Now get this, this is not to say that you will be able to know the reason behind every move in the markets. What I mean is, most often you will be able to know why certain currencies move in a trading session.
ASPECTS OF FUNDAMENTAL ANALYSIS
Fundamental analysis is made up of Sentiment and the long term fundamental outlook.
On a daily basis prices of currencies move based on news and information that is coming into the market. News such as North Korea threatening to Nuke the United States, Donald Trump’s latest tweet concerning China. This information has the possibility of moving currencies in the short to medium term. This is referred to as Sentiment.
It is the moves in the market that last usually for a couple of hours or trading sessions.
Thank you for reading this far. The rest of trading using fundamental analysis will be available in my eBook which is available on amazon. Thank You once again.
