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Fundamental Analysis
Some traders use Fundamental Analysis for their trading strategy. They follow the effect of economic, social and political events on currency prices. Reading specialized Forex news can help keep you in touch with the Forex community to find out how events might affect currency prices. Psychological study of human behaviour is also a part of Fundamental Analysis. How do people behave when they start losing money? When do they desperately want to sell? Peoples' reactions are predictable when someone knows those psychological factors. Fundamental analysis, in short, is referring to the dynamic studies of distinct plans, erratic behaviors and unforeseen events that influence the economic of certain entity. The focus of fundamental analysis mainly lies on the political, social, and economic force that drives the supply/demand trends the currency. Government policies, bank policies, natural disasters, social stability, overall economic trends are some of the major factors that draw a fundamentalist’s attention. Fundamental analysis comes very handy in making mid-long term invesment decisions. However as the analysis method is mainly focus on the major thing, it will not be a good tool for Forex day traders. It is easy to understand that fundamental skills are useful in forecatsing currency overall trends but in term of detailing job, technical analysis seems to be more appropriate. Economy Indicators Thus, economy indicators of the country such as GDP growth rates, unemployment rates, retail sales, and interest rate are used heavily in when valuating a country's currency. Some of the frequent used economy indicators in Forex trading are as below: - The Gross Domestic Product (GDP) Besides those listed above, other fundamental factors used to analysis the currency strength include Industrial Production Reports, Consumer Price Index (CPI), Manufacturing PMI-ISM, and Manufacturing Production. Indicators used in Forex fundamentals: Also, it is recommended to study the fundamental aspects of several countries whenever trading in the forex market. For those countries that have strong political/economical connection, currencies value flux hand-in-hand. Thus researching a few countru in a trade is necessary. Some useful tips when implementing fundamentals analysis in Forex trading are: Economic calendar: When and where. Currency values response sharply to certain release of economy indicators. Keep an close eyes on the currency price trend whenver there is a release on related economy indicators. |