Fundamental analysis is one of the analysis methods in the forex market, also called basic analysis. Fundamental analysis is a comprehensive and general approach consisting of three components: economic analysis, industry analysis, and company analysis. Fundamental analysts should be able to provide the basis for a company, institutions, or individuals to earn profits with a deep understanding of economic factors, the ability to read financial statements, and knowledge of evaluation techniques.
Traders and fundamental analysts in forex review the general and basic situation of currencies and assets in the market and address a country's economic and political situation's impact on various currencies and assets. There are indicators and standard reports to check different countries' economic situations, and we can reach an important conclusion about a country's currency by reviewing these indicators and reports.
We can categorize forex market traders into different groups based on their trading strategies. Fundamental analysis may be essential for a group of traders and not necessary for other groups. Forex traders are usually grouped by time.
1- Short-term traders or scalpers
Short-term traders or scalpers trade based on technical analysis and usually choose one-minute and five-minute trading time frames. These traders do not need fundamental analysis; Because checking fundamental data in low time frames is not practical. Although scalpers have short time frames, they should pay attention to the economic calendar because there may be unusual and large fluctuations in the market during important economic data releases.
2- Mid-term or daily traders
This group of traders usually chooses their trading time frame of one hour and four hours, but they may have trades open for up to four days. Mid-term traders usually trade based on technical analysis. Fundamental analysis can be effective in optimizing the trades of mid-term traders and help them greatly.
3-Long-term or weekly traders
Long-term or weekly traders usually use daily and weekly trading time frames, but they may keep a trade open for several days or weeks. Fundamental analysis is important for long-term and weekly traders because it can predict future prices by analyzing economic data. Long-term traders can receive confirmation of their fundamental analysis from the chart with technical analysis. These traders can make more profitable trades by using technical analysis.
4- News-oriented traders
News-oriented traders do not have a specific trading time frame. These traders mostly trade according to the fundamental news publication time and the economic calendar and look for strong ascending and descending fluctuations before and after the news release. For example, when different countries' central banks' interest rate news is published, which causes extreme fluctuations in the market, news-oriented traders start trading immediately.
Fundamental analysis in the forex market has its features. Traders should be careful enough to choose the type of analysis and avoid bias toward an analysis' advantages and disadvantages. Many traders think that they should only analyze the forex market and that technical analysis is nothing more than a painting. Despite its advantages, the fundamental analysis also has disadvantages, which should not be exaggerated.
For example, some traders believe that all fundamental events in the chart are predictable with technical tools. Further, we will review the advantages and disadvantages of fundamental analysis.
Defining the value of currency or other assets by studying macroeconomic data and factors: This analysis type is suitable for traders with a long-term trading strategy. This way, traders can get their desired profit after evaluating the economic factors in the long term. Fundamental analysts get the market's overall picture regardless of the time they spend studying the economic index. They know when to buy and sell currencies and other assets.
Pinpointing the reasons for the currencies and other considered assets' movements by studying the macroeconomic factor data: Identifying the currencies' and goods' movement allows the trader to obtain a correct forecast of their price trends.
Fundamental analysis is complicated and time-consuming: Studying all macroeconomic factors requires a lot of time, and some traders believe it is not possible to study all macroeconomic indicators.
Hard signaling: Finding signals in fundamental analysis requires expertise and careful study of economic parameters. Some traders are unable to find entry and exit points due to a lack of proficiency and attention to economic indicators.
Can be manipulated: Some traders believe that companies manipulate numbers and figures to buy and sell their shares. Also, sometimes news agencies may do media mischief for their benefit.
As mentioned, fundamental analysis in forex deals with the general situation and the effect of a country's economic and political situation on currencies and assets. Therefore, to learn it, it is necessary to conduct a study regarding the knowledge of economics and the economic and political components affecting the forex market's currencies and assets. There are various resources, such as books and training courses online. However, teaching fundamental analysis in an advanced form requires careful study and professional training, in which one must gain a deep and correct understanding of different countries' economies, acquiring this knowledge is only possible with specialized study and analyzing how economic data affect the forex market and gaining experience. On the other hand, for the fundamental analysis' basic training, one can get basic information from online sources and check how several fundamental effects occur in the currency pairs' and assets' price charts.
A significant point in fundamental analysis is having an accurate and deep understanding of fundamental data and news and how it affects currencies and assets and their price charts. Such a deep understanding is possible only by gaining experience in the real market. Some people may gain enough insight and knowledge for fundamental analysis in forex after a while of working in the forex market.