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Fundamental Analysis
What is Forex Fundamental Analysis ? Fundamental Analysis focuses on key underlying economic and political factors to determine the direction of a currency's value.
Fundamentalists predict price movements by interpreting a wide variety of economic information, including news,
government-issued indicators and reports, and even rumors. There are a number of fundamental indicators traders may
follow that reflect how an economy is changing and gleam insight into Forex market prices to come
How can economic and political news affect currency price movement ? Lets understand this. Actually, news doesnt affect price
movement. Only demand and supply affect every price movement. So what is the corelation between news and demand-supply ?
As we have known so far, traders usually react against news. (as human nature always make speculative decision for
reaction to every thing that happens repeatedly and / or predictable).
In case an economic /politic news is good for a country, its currency value will increase, and the other side, if related news is bad
for a country's economy, its currency value will decrease.
News traders usually pay particular attention to economic reports. Why ? Because they are vital barometers that tell us what
the economy is up to and more importantly, in what direction it is likely to go in the future. These indicators describe
the economic backdrop that will affect corporate earnings, interest rates, and inflation.
Most Important News Reports
Interest Rate Statement
Employment Change
Gross Domestic Product (GDP)
Trade Balance
Consumer Price Index (CPI)
Retail Sales
Durable Goods Order
Important Factors in News Trading
News Trading is trading forex based on economic news report result. News traders compare actual and forecasted result of
a specific news. If the actual value differs a little or the same as forecasted value, market will usually not react much.
But if the actual value differs a lot compared to predicted/ forecasted value, then market price is more likely to make a
drastic price movement.
Important factors to pay attention about News Trading:
Potential Economic reports which usually shake market price.
Its usually considered by how important a news to its related country. The more important such news to a specific country, the bigger the movement
Trigger Value to Trade The News (usually set in range / interval)
News Traders trade the news based on difference of actual and forecasted news report result. Lets say, if Non farm payroll
actual value differ more than 50K compared to forecasted value, it will be a trigger to Buy or Sell. If the difference is less than
50K, a trader will not trade the news.
Currency pair used, Spread Widening, Slippage, and Freezing Platform
Some "strange" currency pairs should be traded more carefully as even there is important news, such pairs will act peculiar,
for example no price movement (price spike). In fact, they are more difficult to predict. (like eur/usd)
Spread widening, slippage, and freezing platform are external factors caused by forex brokers interverence. You should think
of these factors before trading the news.
Daily High-Low Range prior to news announcement (less important)
The smaller the range and the quiter the market before news report may indicate that market is waiting for incoming report.
And the volatility can be bigger. But this should be used only for confirmation of 3 points above.
How to trade during News Report Announcement ?
There are 2 ways to trade News Report (News Trading):
Trade on market price during news report.
This technique is traded by comparing the actual and forecasted value of news report. Traders should make trigger
level set in interval (range) in order to trade effectively.
Forecasted value is 100K, Trigger difference is 50K. This means :
If the actual report value is between 50K and 150K. The trader will not trade the news (NO TRADE)
If the actual report value shows more than 150K. The trader will go SHORT GBP/USD
If the actual report value shows less than 50K. The trader will go LONG GBP/USD
In news trading, determining trigger value plays an important role. Next question is how to determine trigger value ? By
averaging a few months data. The more the better.
The benefit is :
You can easily get more profit before price hikes
Able to catch small profit in less volatile market
The lacks are :
Your success will depend on what news service you subscribe, how fast you can think and act
Harder to stop the trade if the trend moves against you. Simply because you dont put a stop loss
Tips to use this method :
Use a forex broker that allows instant execution
Draw your Trigger Level on a piece of paper in big size
Make sure you can use shortcut or 1 click order
Dont use a lagging news service
Placing Buy Stop dan Sell Stop Pending Order
This technique is traded by placing 2 pending orders just before news release. Traders put a Buy Stop order above
current price and at the same time, put a Stop Sell order below current price (straddle). These Stop Orders will catch
every trending price movement, upward or downward.
The benefits are :
You dont need to subscribe for news report service
There is no need to pay attention to actual news result (but it will be better if you know the result though).
No more Buy or Sell prediction mistakes. As long as the price move in a trend, you will get profit.
The lack is :
When there is whipsaw, you will lose double
You cant catch on all possible profit
Tips to use this method :
Use EA or script to place pending orders automatically
What is Forex Fundamental Analysis ?
