as a newbie in forex, i have a question regarding fundamental analysis, in what ways to trade it properly or how to trade using fundamental analysis,
But short-term trading is almost all done using technical analysis - price action as seen on charts and indicator displays. Sure, it is the fundamentals which drive national economies and currency strengths long-term but their effects cause currencies to be either bought or sold, and this is obvious in price movement - if fundamentals are powerful, they will move the price and you will see it: if price is not moving, then there is nothing to be gained by knowing why.
A small number of traders trade news - they watch for news events and economic data releases and either follow the market’s reaction or try to predict it. This is difficult but the rewards can be great as entry is made at the earliest possible time.
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i wonder because when i read it to babypips educational source, if you only depend on one analysis, you may result to lose, yeah fundamental analysis is hard to analyse most particularly on short term trades, but as long as you have a deliberate practice you have a complete tools to be profitable, i dont think it can be use in a short term trade or long term?
Lot of traders watch for important news events concerning the currencies they are currently long or short in. Even if the news is positive and you have a long position, the volatility caused by the news event can trigger your stop-loss prematurely. We all hate that, and you can use some strategies to avoid the problem -
- close the position before the news
- widen the stop-loss until after the news
- cancel the stop-loss (risky!)
some advise if I pursue studying fundamentals? because I already read some articles that most or all institutional traders aside using technical analysis (their second option), they depend on fundamentals… some advises if I pursue to study more on fundamentals aside from technical? and it is not complicated to combined this two kinds of analysis?
I think some institutional trading is done using FA but I’ve no idea how much compared to TA and how the balance might have changed. In any case, we’re not institutional traders.
I’ll give you a trivial example. Have you ever been to a supermarket? Did you buy groceries? Like every buyer you chose. So it is on forex. Only here the products are different
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Start off right at the basics.
The ultimate driver of investment price is return - how much will I get back for my money and how long will it take.
In FX often a country’s interest rate is such a measure.
With GBP an experienced analyst commented yesterday that Brexit is driving price and the numbers are taking a back seat - there is a degree of truth in that comment - but check again.
Central banks decide interest rates, on Nov 7th past BOE decided to leave rates unchanged - as was expected. Yet on checking Nov 7th GBP fell. So how come?
BP calendar maybe does not show it but the rate is decided by a committee of 9 and they each have a vote (the MPC). These votes are published with the rate announcement.
If the driver of price starts with the Central Bank then anything that may come to their attention that helps form their decision making (such as inflation etc) then the market will react in the short term to those numbers - and sometimes it’s possible to get a handle before the release.
Back to Brexit et al - absolutely nobody expected a BOE rate raise in these times of uncertainty - that would have been very GBP positive but also BOE madness - and they are not that.
Would it have been possible to expect a cut? - unlikely, why rock a boat that is already being badly rocked?
So that only leaves the vote count - would they all agree to leave things alone? - right here was the possibility - interest rates are a tool that a CB uses to control inflation, raise when inflation is upward (slow economy down) , lower when going down to stimulate business/consumer spending & investment.
The BOE has a published policy of maintaining inflation at 2% uk inflation was at 1.7%
So thinking about likelihoods - would they raise (Gbp up)? - Not likely - would they Maintain rates - very likely (Gbp neutral) or would they lower (possible -Gbp negative).
So the rate decision was offering a likely Gbp neutral outcome - not much use to a trader.
What about the vote count (most calendars red flag it) what likelihood of impact on price?
0.0.9 was expected, i.e. zero to raise, zero to lower and 9 to keep everything as was (Gbp neutral)
Can you see where it is possible to take up a very safe position before this announcement on Nov 7th with a worst case scenario of Gbp neutral.
How many of the committee would raise their hand and say “Raise”, was there a better chance that at least one guy would say “lower”.
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Trading fundamentals take a lot of time and effort. That’s why I research on youtube and IG for knowledge on other methods. Are you sure you want to trade fundamentals?
Fundamental analysis is why things are supposed to happen.
Price is actually what happens.
I know which I prefer.
Fundamentals eventually reach their real value, but I don’t think anyone has an idea when that will be.
If you are concerned about trading in line with fundamentals then study the COT report. Those big players have a much better idea of the fundamentals than any of us could ever have.
The great thing about analysing the COT is it gives you an actual mechanical framework you can incorporate into your trading plans
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yes , to be experienced about fundamental is a long term approach and need a great patience also. for that reason mostly traders quit from after passing sometimes.
it can take much time , but its the real base in good knowledge and experience.
Think about that.
Have a quick skim on my post up above re interest rates. If rates are the driver of Price then anything that can influence rates in advance - the data that a Central bank will look at - must be important.
So imagine this - the largest portion of a country’s economy happens to be Services.
Imagine further that you are the Purchases Manager of a large Services Company, being in Purchases you have to think ahead, that’s what comes with the job.
Imagine even further that you get called up and asked how do you feel right now, are you in buying mode or are you a little more hesitant?
It happens that not only did you get called but most the other large company’s buyers got called, and then their responses were indexed - brilliant - now we have an index of how these buyers are thinking.
It’s called the PMI, in the most recent case for UK released this morning - the really huge surprise is that it was a miss.
UK in the middle of a General Election, the outcome possibly a hung Parliament and Purchasers are hesitant - is this really a shock/surprise?
What this shock looks like on a chart (pmi release at arrow) - yet there are still guys who say you cannot use FA short term 
BTW check out the hrs in the lead up to the FA news - take it up to sell - same old
All that sounds like a lot of hard work, when by following the COT or Big mac index you can accomplish the same thing.
What time frame trades do you take? Im interested how you use this data in your trading, or is it just as a backdrop?
Id never really thought about using the PMI on the gbp - but i suspect that shock announcements could in some way be tradeable.
There are many factors but ultimately it’s about supply and demand…
Eur/Gbp is my thing - long story, slightly different to the norm.
Time frame is each day so important to be aware of what is likely to happen on any given day ahead.
Long term on FA - probably same on TA is like weather forecasting - the further ahead the greater the chance of being wrong.
Very true - it’s good to step back and think about the drivers of supply and demand.
Often i think that phrase is wrong way around, especially in FX - think first about demand, what will cause it to change, to fluctuate.
On supply, sometimes it’s helpful to think about buyers / sellers. If price is rising and stalls because of some FA event - figure is that event and possibly follow up events enough to cause buyers to desert the market, thus driving down price or is it an increase of sellers causing the downturn.
This can be where Price Action (fancy term for how price is behaving) can assist.
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Many times “events” seem to happen at key price levels… I think of it in terms of using broad “support and resistance” levels to trade “supply and demand” by identifying accumulation and distribution… it’s all very similar but has differences.
Normal Supply + Normal Demand = Sideways market
Normal Supply + Low Demand = Down market
High Supply + Low Demand = Spike down in market
On the flipside
Normal Supply + High Demand = Up market
Low Supply + High Demand = Spike up in market
In regards to price action, it’s the aggressiveness of the buyers and sellers that can move markets. On the floor they used to call it “taking out the book” meaning when buyers are aggressive they take out the best offer and the offers above that which in turn can change the mind of sellers sitting there with limit orders above the market into cancel replacing their orders to even higher prices thinking they could get a better price… and vice versa when sellers are the aggressor, they take out all the bids…