Employ Fundamental Analysis

Fundamental analysis in foreign exchange tells you the direction and general magnitude of future price movements which can be critical information that can be invaluable while trading. Let us deal with the practical aspect of how to successfully employ fundamental analysis, which is the prime focus of the page. Read on to know more.

The suggestions listed below for employing foreign exchange Fundamental Analysis are based upon many years of actual trading with fundamentals:

Avoid doing your own fundamental analysis

Even if you have had some specialized training, try not to employ Fundamental Analysis on your own. Remember that true fundamental experts, who are much more qualified than you are devoting full time to this task already. You can avail of their conclusions which are readily available at no cost. Just look around for qualified experts whose fundamental analysis is available to the public. Call the major brokerage firms and ask them to put you on their mailing lists. Pick out the ones you like and can rely upon. Weed out the weaker sources. You only need one good source of fundamental information for each market. Getting too inputs from too many sources will only leave you confused and indecisive.

Fundamental analysis and News are not the same thing

Fundamental Analysis in foreign exchange predicts price direction, while news follows price direction. With plenty of bullish and bearish news floating around the markets each day, just remember that what ever gets reported in the papers is whatever “news” happens to correlate with the direction of the prices for that day. You will also observe that the pending news will move a market much longer and farther than actual reported news. The anticipation of bullish news can support a market for weeks or even months, but when the actual reporting of the bullish may move the market in the opposite direction.

Reacting to fundamental reports

Before you start analyzing the bullishness or bearishness of a report, you have to be well aware about the expectations. Put the report into the context of the expectations. Also its important to not to judge the bullishness or bearishness of a report by the initial reaction. Always give the market some time to adjust to the news. You will often see that the first reaction to a report is either overdone or incorrect.

Levels of demand

As the demand factor is the motivator, look for markets that are encountering rising levels of demand. The demand makes for long sustained up trends that are easier to trade for big profits. Making long-term trades in demand-driven markets produce unusually high levels of profits. The price movements motivated by supply concerns tend to be short-lived, although the markets will show a rise because of supply shortages. Always look for demand-driven markets to trade.

Timing is important

Be patient with your fundamental scenario around you. It is seen that the best fundamental analysts seem to be able to forecast price trends much more easily than most market participants. This can be a big advantage if you are careful about your timing. Being impulsive and entering the market too soon, can make you lose a great deal of money. So, show patience and let your technical indicators guide on when the market is beginning to trend in the direction it should. Remember, your goal is not to be the first one to have the correct forecast, but to make money, while keeping your risks in control.

Finding accurate sources

Many forecasts of a major price changes often fail to materialize for one reason or another. But if you have done a good job of finding good and reliable sources of fundamental information on a broad group of markets, than expect to be correctly informed of eight to ten forecasts of a major price change in a typical year. Even if you can manage to get rightly positioned in half of those in a timely fashion, then you should have an extremely profitable year. This is important while employing Fundamental Analysis in foreign exchange.

Be decisive and willing

Don’t be afraid to chase the market moving with big fundamental potential or take your share of losses. Many traders often lack the nerve or discipline to get into a market once it has started running. It is human to want to get in at more favorable prices and avoid taking any risks. One has to develop the confidence and courage to act promptly. Lacking decisiveness may harm even the best analysis, fundamental or technical.

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