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2023-02-14 13:55

Fundamental analysis in forex and learning fundamental analysis

Introduction and review of fundamental analysis in forex and learning fundamental analysis
 Fundamental analysis in forex Fundamental analysis in forex

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.

Contents

Fundamental analysis in forex
Fundamental analysis tools and data in forex
Fundamental analysis is suitable for which traders?
Forex fundamental analysis advantages and disadvantages
Learning fundamental analysis in forex

Fundamental analysis in forex

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.

Fundamental analysis tools and data in forex

  • Different countries' governments' and central banks' policies analysis that affect the market and currencies are part of the fundamental analysis.
  • The economic calendar , which includes different countries' economic indicators' publication times, is another part of fundamental analysis. There are analysts' forecasts, data's previous and actual value at the time of publication for economic indicators, and data in this calendar. There is also other information in the economic calendar, which by reviewing them, we can analyze the effect of data and economic indicators on the general trend of countries' currencies. Trendo users can easily access the best economic calendar in the Trendo app.
  • Fundamental analysis is a comprehensive and general approach, so every data and tool that impacts the economy, such as a country's political news, wars, the world's important economic contracts, etc., should be reviewed.
  • Fundamental analysts in forex predict the economy's general direction by analyzing economic data such as inflation rate, interest rate, and gross domestic product. In fundamental analysis, traders review news, data, and important political and economic events that affect the price fluctuations of currencies and assets directly and indirectly.
  • In fundamental analysis, the important economic and political news of the world's major media , such as Reuters, etc., should be checked because these media sometimes change the overall direction of a currency or asset's fundamental analysis by publishing economic and political news.

You can also click here to see the economic calendar on the website.

Further, we will mention some important points about fundamental analysis.

  • Many users think that fundamental analysis is unrelated to price chart analysis. However, to accurately understand the fundamental factors' impact on price, we must review the effect of data and news on the chart and the price chart in this analysis.
  • In fundamental analysis, paying attention to the market's reaction to news and reports is much more important than its publication. Therefore, traders must understand how news affects the currency pairs' and symbols' prices.
  • Fundamental analysis is more complicated and time-consuming than technical analysis due to the various price-influencing factors. But the result of fundamental analysis is better and more accurate if done correctly.
  • Sometimes the price may move against the fundamental factors in the short term and confuse in trading, but we should consider that the fundamental analysis pays attention to the overall economic situation and affects the market's long-term movement.

Fundamental analysis is suitable for which traders?

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.

Forex fundamental analysis advantages and disadvantages

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.

Advantages of fundamental analysis in forex

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.

Disadvantages of fundamental analysis in forex

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.

Learning fundamental analysis in forex

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.

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