Fundamental analysis in Forex

Fundamental analysis in Forex

What is fundamental analysis

In the fundamental analysis of Forex, there is a method of trading using economic news. In other words, it takes into account fundamental political and economic events that could significantly affect the value of various currency pairs, commodities, precious metals, stocks, and other instruments available for Forex trading.

Despite the fact that fundamental analysis differs from technical one, many traders start from learning the basic factors directly affecting the value of the selected trading instrument. In fact, this is the basic principle for any kind of trade. For trader, it is important to determine if there will be demand for this product or not.

Use of fundamental analysis

A trader analyzing the main events in the political and economic sphere of many countries and using economic calendars of such events can make a good deal in time and in advance. Otherwise, he can close an existing deal or establish the optimal limit losses if the estimated predictions are not in favor of the chosen trading decisions.

As practice shows, prices are set in the direction of the important events forecast and culminate just before the news release. On the basis of the above data, experienced traders understand the direction and duration of every particular price.

There is also another advantage of this trading method. It is a considerable value change value in the price charts. Most of the fundamental factors greatly change the situation in the market. Sometimes the price drastically goes up or down for a huge number of points. A correct prediction allows a trader to get decent profit during one successful trade.

However, more secure method of fundamental analysis is based on commercial transactions immediately after important news release. Many professionals enter the market only when they see the direction of a price after the news impact.

Advantages of fundamental analysis

Fundamental analysis is more important than a technical one, because the news background mainly determines the situation in the Forex market. Because of this reason, many traders know the situation when technical indicators give a buy signal, for example. However, the the signals change after important economic data release. If talking about Forex tools characterized by high volatility, this situation with technical indicators can be repeated several times a day.

When using fundamental analysis, it is important to consider the fact that this trading method suits medium or long-term trades that last mostly from three days to a week. Undoubtedly, the results can be obtained in the same trading day. Nevertheless, trading based on fundamental news indicators often involves longer periods including time before the release of the key events and after them.

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