Nevertheless, some fundamental traders use short term news trading strategies that generally operate right after the release of a major economic number, central bank rate decision or news of a major geopolitical event, such as a war or natural disaster. The most useful tools for fundamental analysis consist of the economic calendar, the financial news media, and historic fundamental data. Trading news broadcasts from the financial news media keeps the market informed of any major economic or geopolitical developments that could directly or indirectly affect the market.

Chapter 18. Technical vs Fundamental Analysis

Historical fundamental data can be useful to determine trends in fundamental indicators, as well as to analyze how a currency might react to a specific economic release after examining its behavior in the wake of a previous release or central bank rate decision, for example. Some of them may also give traders an idea of what a future release could look like, such as preliminary GDP or survey numbers. Furthermore, some economic indicators often lead other indicators in signaling when an economy is turning up or down. The leading fundamental economic indicators include purchasing manager surveys, Producer Price Index or PPI data, and durable goods orders numbers.

Each major economy has a central bank that typically manages its currency, benchmark interest rates and money supply.

What Does Fundamental Analysis Entail?

Central bank activities and speeches by central bank officials are closely watched by fundamental traders for clues about future monetary policy shifts. Some fundamental traders use economic news and data releases to initiate and liquidate short term trades based on the results of the release. While it may sound simple to trade fundamental news, often the market will not react as expected, or in many cases it will move in a completely opposite direction to what traders would intuitively expect. Furthermore, volatility strategies involving the purchase and sale of options can be useful for opening a market neutral position that will appreciate with a significant move in either direction.

Another way to take advantage of extreme news related volatility when trading with fundamentals is to establish both a long and short position in the same currency pair and then trade out of each side — preferably for a profit — once the news or the economic report is released. Most professional traders try to avoid having a large position immediately prior to a significant economic release, simply because the volatility immediately after a major release could trigger stop positions on either side of the market.

Forex Fundamentals Mastery - FX Renew

Despite the volatility, having a position coming into a number can allow a trader to take advantage of the volatility. Trading fundamental analysis gives a forex trader a deeper understanding of how the market reacts to a variety of events.

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Nevertheless, having knowledge of technical analysis along with fundamentals can give the trader a significant edge over a trader that only uses one methodology. Fundamental trading involving taking shorter term forex positions can also make sense with a trading plan that allows for wide swings in the market.

Forex Fundamental Analysis: Interest Rates, Commodity Prices

Some traders might buy option combinations like straddles or strangles with both calls and puts to capitalize on the brief volatility often seen immediately after the release of a number. So regardless, of whether you are a short term or long term trader, applying sound fundamental analysis can help guide you in your overall trade decision process. Download the short printable PDF version summarizing the key points of this lesson…. Clear editor. Upload or insert images from URL. Post topic on Community.

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Fundamental Methodology

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