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FOREX FUNDAMENTAL ANALYSIS:WHAT YOU NEED TO KNOW

By November 20, 2019 No Comments

Forex fundamentals and news are esentially economic factors that can be understood as catalysts for price movement on the markets. The school of thought known as ” Forex fundamental analysis” basically says that you can predict future movement on the market based on a market’s fundamentals or news data. I’m sure you think now that you can simply study the economic fundamentals and news of a matket and make predictions about it’s future movement based on this data, but you will see that things are not quite that simple. 

Ever heard the old saying: ”Buy the rumor, sell the fact”? This saying has been on Wall Street for hundreds of years, and there is a reason why. It’s because when market data is released, it typically has already been factored into the market and it’s influence will be minimal once it finally gets out. Traders and investors work based on anticipation of what is going to happen in the future, and the base for predictions are fundamental analysis and news data. Here is where the ”buy the rumor” part comes in at. The tricky part is that we can’t know exactly how much of any piece of impending economic news has already had an effect on the market vs. What is going to happen when that data is out. That’s why you should not pay to much attentionbto upcoming Forex news data and funfamental analysis, because everything that has en affect on the market can be seen much more clearly and effectively from analyzing tge price action on s raw price chart. 

 

PRICE ACTION REFLECTS ALL FACTORS THAT AFFECT A MARKET 

Perhaps the most important thing you should learn from this lesson is that the raw PRICE ACTION of a market can show you directly what factors caused that market to move.one daily bar on a daily price chart is the end result of economic variables that effected the market during day. There are thousands of factors that can make the markets to move on any given day, but trying to analyze these fundamental andnews factors doesn’t necessarily mean they are useful or even relevant for short or mid-term Forex traders, even though they are the catalysts for price movement in a market. 

In many cases, when some big economic news break out, like an FOMC policy meeting or Non-Farm Payrolls, traders and investors make asumtions about the outcome for weeks or even months before the actual event, so that when it happens it’s already factored into the market and is practicaly a non-event. Usually the market becomes more unpredictable during there big news events, but if you keep your focus on the HIGHER TIME FRAME CHARTS like I do, this unpredictability won’t have effect on you or your success. The core of how I ”trade the news” is if there is a strong daily chart trend in place, I am more concerned with that, and I will use any opposite trend retraces that occur as a result of the news to look for PRICE ACTION SIGNALS in-line with the daily chart trend. 

In the chart below, we can see a GBPUSD daily chart and that on December 18th the market surged higher shortly after the FOMC meeting announcement. Now, the important point to consider here is that traders and investors had been discussing this announcements “potential” for weeks leading up to it, and that the GBPUSD was ALREADY trending higher for a long time before this. The announcement itself was actually somewhat positive for the U.S. dollar as the Fed announced they were scaling-back their bond- buying program, but what happened? The trend continued as usual. The point is that you can’t stop a freight train…there are very strong reasons why market’s trend, and one single news event is very unlikely to change the course of the trend. Thus, this is why I ignore the news except maybe to note when the volatile reports are coming out so that I can look for a nice entry in-line with the daily chart trend… 

 

HOW IMPORTANT IS ECONOMIC NEWS? 

If you try to analyze all the economic news factores that are affecting a market everyday, you will just end up stressing, second-guessing you ”gut” feeling and become confused and frustrated, where there is no need for that feelings to exist. A lot of traders think that all the economic news are important, because if so many experts talk about it they must be important, right? Well not really. The financial news industry is huge and employes thousands of people , but it’s your job to see if the economic data is useful to you as a trader. 

As we already discussed, the price action in a market gives you all the important information you need. You can stop reading economic reports and listening to news with ”expert views” on the market, because all that matters is absorbed into a market and reflected through its price action. If you want to know how to interpret and use the raw price action in the market, checkout my ELITE TRADING COURSE for more informations. 

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