Fundamental Forex Analysis - My Personal Look
Hello! Beginning forex traders believe that fundamental analysis is something very complex, requiring the presence of three higher educations, and one of them is economic, outstanding intelligence and a lot of free time to analyze statistics, coefficients, etc.
This is not true. Fundamental factors are not as complex as many people think. In fact, this approach is very simple. In today's review, I will tell you my PERSONAL outlook on fundamental analysis, which I consider to be correct and practical. This is purely my opinion, the way I apply external data in my trading myself. This is not the ultimate truth, but I find this method simple and effective.
Forex Fundamental Analysis
To get started, let's look at the definition of fundamental analysis.
Fundamental analysis is the analysis of the situation in the foreign exchange market and the corresponding forecasts based on data that are not directly related to the charts. This is an analysis based on the economy, news, the current situation in the foreign policy of a country, as well as other factors. For example, oil prices, gold, unemployment and other data not related to technical analysis.
If you go to a site with some kind of analytics, you will see a lot of news.
And every day something new appears:
Having cast a glance at a similar site, the forex trader immediately tries to find an addiction among his news and draw any conclusions. And then he goes to the chart and builds his trade on the basis of his findings. And there a completely different picture develops, which, it would seem, directly contradicts the headings of the articles.
All this seems very difficult and confusing. But in fact, fundamental factors are not as complex as many people think.
The main secret is a very simple approach. At any given time, the market focuses on one or two factors that are easily identifiable.
How to understand what these factors are?
They will be shouted about at every corner. Moreover, not some narrowly specialized sites, but those that are visited by the most ordinary people.
For example, regular news on the first channel, Mail.ru or in the newspaper Vedomosti.
In order to understand what is currently affecting the foreign exchange market, you do not need to dig deep somewhere.
For example, let's take the Russian ruble. The factors that affect him at the moment are very simple, and they have been talked about at every step for many months. What is it at the moment? First of all, this is the price of oil. The dollar is growing, the ruble is falling. The second factor is the country's foreign policy. Recently there was news that the sanctions were extended for another year. In turn, Russia also extended the food embargo for one year. All news portals, including specialized ones, spoke about this. Even if you watch only the first channel, turn it on, and they will also tell you about it.
One of you now thought that with the ruble everything is clear. They tell us about it every day and we can easily find out. But what about, for example, the Eurodollar?
Everything here is also very simple and clear. At the time of writing, the main factor that affects the dollar and the euro in terms of the foundation is a possible default of Greece.
All sites trumpet this.
These notes appear every day. Something happens, a new note appears, but the topic remains the same. Someone took an interview, which tells about this situation, somewhere posted statistics. But the main theme is constantly unchanged.
In order to notice that all the news speaks only about Greece, higher education is not required.
At the weekend, there was news that there was a panic in the country, everyone was devastating ATMs, and on Monday, Greek banks would not open.
So there was a gap:
There were many fears that Greece would be declared default at any time. It was expected. There was not a single trader who believed that there would be a gap up. Everyone was waiting down, and it happened.
The EURUSD pair has recently been declining with growth periods:
Why is this happening?
Because in the news the topic of unemployment in the eurozone has been constantly revolving. And in turn, America presses and imposes its opinion on other countries. As a result, the dollar is growing, and the euro is falling.
In order to understand this, it was not necessary to turn to complex statistical calculations or apply any complex algorithms.
How easy is it to calculate fundamental factors?
We go to the site Mail.ru.
The main news constantly publishes news about Greece, America, Europe, Russia and so on.
In addition, you can go, for example, to the site Finam.
It has a news column in which you can easily find what you need and draw general conclusions:
Follow the link and read the news themselves is not required.
Usually the meaning of the news is fully reflected in the headline. And in order to understand that the same news is repeated, but only in a different context, it is not necessary to go into each article and study it thoroughly.
If you suddenly see something incomprehensible to a simple person, then simply scroll through this news and move on.
For example, there was news that the business activity index fell by several points. For a simple person who does not have an economic education, she does not say anything. Therefore, just skip it and look for the information that is understandable to most people.
Another example, the site has news about the further strengthening of the ruble, which should not be expected:
Further, we see the news that the rating agency Fitch evaluates Russia and gives it a new rating. Most likely, it will be bad, because all the news before that was bad. America imposes sanctions, inflation is increasing in our country, and so on.
Accordingly, the dollar will rise, and the ruble will fall.
He is very simple. Visit news sites a couple of times a day. Browse the loudest headlines. And based on this, you make certain conclusions.
At the moment, going to the news site, we see that Greece is still bad. This means that the fundamental factor of Greece will continue to affect the EURUSD pair.
But it is worth remembering that the news is subsequently forgotten. There are new relevant news and forget about the old ones. With the same Greece, most likely, some loan will be extended to her, or a new one will be issued. Everything will calm down and this factor will be forgotten.
Therefore, it is important to behave like an ordinary layman, not too versed in the economy. Thus, we perform a fundamental analysis.
But I remind you that this algorithm is my opinion, which may not coincide with yours. In practice, it works in my trade.
The main mistake of the fundamental analyst
The main mistake of fundamental analysts is that they do not take into account other traders. They do not take into account technical analysis. The technical analysis, as we recall, takes into account the actions of other traders and the situations that occur on the chart. Last weekend, there was a peak of unrest over a possible default in Greece. All the news blew that banks would not open on Monday.
The gap market has opened, and the gap has the property of closing:
The main thing is not to forget about flashy news.
Same thing with USDJPY.
When working with this currency pair, we watch news about oil.
I recently did overview about the currency pair dollar yen. In it I told that it depends on oil.
Therefore, we look at the technique, but remember the foundation.
We evaluate it by the headlines of the most flashy and repeating news. We look at the fundamental factors that everyone knows about.
Different statistics come out every day, meetings are held, speeches of politicians and so on:
You do not need to calculate or assume something from them. Either exclude news from your trading, or trade in technical analysis.
How to work with similar calendars?
First of all, we look at the previous value, then at the estimated and final actual that appears after the news release.
If the actual value is worse than the forecast, then this is bad for the currency. If vice versa, then this is good. If there remains approximately the same indicator as expected, the market will not react to this in any way.
Pay attention to the news marked with 3 exclamation points.
On other sites, they may look different. But usually these are 3 badges of importance of the event.
We do not pay attention to other news.
Frankly, I try not to bet specifically on this method of analysis, because the price can quite go against logic.
But at any moment in time there is a line of least resistance on the market, which is due to the foundation.
Line of least resistance
The line of least resistance is an imaginary line against which it is difficult for the price to move up or down.
At the moment, on the EURUSD pair, this is a downward line:
You can call it a global trend. Price is now much easier to fall than to grow.
For us, this means that if there is any slightly positive news, it will be easier for the price to stay in one place or to fall than to grow.
In order to lift it, it will take a lot more effort, then not to fall.
The same thing happens with a different currency pair, just the opposite. If the line of least resistance runs below, then the price is easier to rise, as is the case with USDRUB:
At the moment, we need some very positive news in order for the ruble to become much more expensive.
But at the same time, in order to continue the growth of this pair, a not very strong negative is enough.
Therefore, remember, if the general trend on the chart follows down, then even if there is some positive news that will be slightly better than the forecast, this does not mean that you need to run and open long positions.
But if the news is bad, and the trend has already been down, then it is likely to continue further.
In order to take into account the fundamental analysis in trade, one does not need to be some kind of superman. You do not need to have 3 higher education.
We just pay attention to the fact that every day they lurk in the news. On the most common news sites, on TV or in newspapers. That is what everyone says and knows. These factors mainly affect the market most.
We pay attention to economic news only with a high degree of importance.
If the actual value of the statistics is better than the forecast, then this is good for the currency. If this value is below the forecast, then this is bad.
However, remember that price does not have to follow this. If there is a strong trend down, then it is unlikely that positive news can easily change the situation on the chart. The price may continue to decline further, because it is easier to do, because the bulk follows the big trend.
We remember the fundamental factors, but we take into account technical analysis.
And the opposite is also happening. If now we all know that Greece is expected to default, then there is no sense in opening a long-term buy position on EURUSD. This is logical and understandable to the simplest layman.
Remember these simple rules and then it will be much easier for you to trade in the Forex market.