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Show Notes:
Fundamental analysis in Forex is a type of market analysis which involves studying the economic situation of countries to trade currencies more effectively.
It’s the interpretation of statistical reports and economic indicators like changes in interest rates, employment reports, and the latest inflation indicators. All of which fall into this area of fundamental analysis.
This is actually not that much different than studying different companies for trading in the stock market. Only we are studying entire countries or regions instead of a mere individual company.
Now I will say this, Although I firmly believe in studying the fundamentals, not every trader in my opinion needs to know all about the fundamentals. I know this kind of sounds like a contradiction, but it’s not, let me explain.
There are different types of traders out there. Position traders, swing traders, day traders and scalpers.
Position traders (those trading on timeframes like the daily, weekly or even the monthly charts), those in the trade for the long term, need to know everything that is going on with the fundamentals** of whichever country they are trading the currency of. So if you trade the Euro, you need to know everything that is going on with the ECB. You need to know when President Mario Draghi is speaking and what other analysts are saying about what is going on within the Euro Zone. It is incredibly important to know all this.
Position traders need to know more about the fundamentals than anything else. Over the current market sentiment, and even technicals. Why, because it is the fundamentals which that move the market at these longer timeframes.
Then there are Swing Traders
Swing Traders also need to know the fundamentals. But now, due to the timeframes that most swing traders are utilizing such as the daily, 4-hour, and maybe even 1-hour timeframes, they need to also know more about the currency sentiment of the market, and the technicals as well.
Day traders
Day Traders need to also know about the fundamentals but, their concentration is now primarily focused on the market sentiment and technical analysis. But I still say that you need to know the overall fundamentals for overall knowledge of market direction.
You see, the technicals can tell you the past, like is this particular currency pair in a trend or not, But the fundamentals can tell you if that trend is going to continue or is it going to change directions. Technicals can’t give you this.
Then you have Scalpers
Scalpers in my opinion should still know the fundamentals, but honestly, they don’t play any type of role in their trading. They need virtually all technicals and sentiment. Thats it. But I believe that if you are a trader, you need to know the fundamentals. No matter how you trade or what you trade.
How I set everything up.
Now for me, I use two screens for trading. I used to have a ton more but realized that all they did was bloat my ego and distract me. So I cut down to just two.
My left hand screen is where I do all of my technical analysis. All my charts are set up here. I have a very nice 27” 5k display for this. And on my right screen is where I do all of my fundamental and sentiment analysis. This is where I have all my news feeds going. It also is a 27” 5k display.
Now I do have a 42” flatscreen tv as well that I run Bloomberg on, but honestly I almost never watch it. it’s on, but 99% of the time, there is no sound and I am not ever paying attention to it. Only time I really do is when there is something MAJOR going on.
Now the first news feed I pay attention to is a premium feed called Ransquawk. Ransquawk (RS) gives me up to date information on everything going on. I will see something released on Ransquawk sometimes an hour before it is ever released on TV. Usually it leads by at least a couple minutes but I have seen it go even longer.
I like RS because again it leads everything else, but I also like the nice squawkbox it has. So when some important news is being released, you will have an analyst come on and tell you what is happening. This is not like Bloomberg where there is always someone talking. Only when there is news to be said do they say something.
The next tool I use is Twitter. I like Twitter because for one, it’s free. And I get real time information updates. Its a great resource.
And of course I use other resources for news.
But let me first say that “I do not trade the news”!
What I use fundamentals and sentiment for is to help me better identify which trades have a higher probability of success than others. I am not sitting there waiting for FOMC to come out so I can get in the market and profit from that particular news announcement.
I don’t trade that way. And I’m also not saying for you not to trade that way. I know a lot of people make money doing it, it is just not the way I trade.
So let’s do a mock up of a trade here for a second. Lets say that I am interested in taking a trade on the EURUSD. I see a Gartley pattern that looks good. Now most people would take that trade just because it is a pattern. But I don’t.
Most people miss the point of analyzing the pattern. And it is so funny. Everyone talks about analyzing everything like crazy, but when it comes to patterns people will only analyze the ratios that make up the pattern but not the pattern itself. They are missing this step.
So after I find the pattern, I want to see what the fundamentals show. Is the fundamentals and sentiment inline with this pattern? Is the direction I want the price action to go, go in the same direction as the funddies?
That is all I am looking for. Again I am not trading the fundamentals, just using them to help assist me with a trading decision. That’s all.
I always want to know the fundamentals and sentiment. I might go to Bloomberg Currency section on their website and look at recent articles. What I am looking for primarily is
- The particular currencies in question.
- What is the overall direction the currency is moving.
- What is the catalyst that is making the move.
- What the analyst believe will happen with the currency pair. A clear opinion from credible experts.
And I keep all this information in a journal sitting on my desk. And I use this information to help me make my choice to enter or not. It’s that simple.
So that is the basics of how I use fundamentals guys.
Links and Resources Mentioned in this Episode:
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