 |
|
Take a quick tour of Interbankgroup.com's features and learn how
Interbankgroup.com
can help you trade with success.
 |
|
|
|
|
Introduction to Fundamental Analysis
Fundamental analysis refers to the study of the core underlying
elements that influence the economy of a particular entity.
It is a method of study that attempts to predict price
action and market trends by analyzing economic indicators,
government policy and societal factors (to name just a
few elements) within a business cycle framework. If you
think of the financial markets as a big clock, the fundamentals
are the gears and springs that move the hands around the
face. Anyone walking down the street can look at this
clock and tell you what time it is now, but the fundamentalist
can tell you how it came to be this time and more importantly,
what time (or more precisely, what price) it will be in
the future.
There is a tendency to pigeonhole traders into two distinct
schools of market analysis - fundamental and technical.
Indeed, the first question posed to you after you tell
someone that you are a trader is generally "Are you
a technician or a fundamentalist?" The reality is
that it has become increasingly difficult to be a purist
of either persuasion. Fundamentalists need to keep an
eye on the various signals derived from the price action
on charts, while few technicians can afford to completely
ignore impending economic data, critical political decisions
or the myriad of societal issues that influence prices.
Bearing in mind that the financial underpinnings of any
country, trading bloc or multinational industry takes
into account many factors, including social, political
and economic influences, staying on top of an extremely
fluid fundamental picture can be challenging. At the same
time, you'll find that your knowledge and understanding
of a dynamic global market will increase immeasurably
as you delve further and further into the complexities
and subtleties of the fundamentals of the markets.
Fundamental analysis is a very effective way to forecast
economic conditions, but not necessarily exact market
prices. For example, when analyzing an economist's forecast
of the upcoming GDP or employment report, you begin to
get a fairly clear picture of the general health of the
economy and the forces at work behind it. However, you'll
need to come up with a precise method as to how best to
translate this information into entry and exit points
for a particular trading strategy.
A trader who studies the markets using fundamental analysis
will generally create models to formulate a trading strategy.
These models typically utilize a host of empirical data
and attempt to forecast market behavior and estimate future
values or prices by using past values of core economic
indicators. This information is then used to derive specific
trades that best exploit this information.
Forecasting models are as numerous and varied as the traders
and market buffs that create them. Two people can look
at the exact same data and come up with two completely
different conclusions about how the market will be influenced
by it. Therefore is it important that before casting yourself
into a particular mold regarding any aspect of market
analysis, you study the fundamentals and see how they
best fit your trading style and expectations.
Don't succumb to 'paralysis by analysis.' Given the multitude
of factors that fall under the heading of "The Fundamentals,"
there is a distinct danger of information overload. Sometimes
traders fall into this trap and are unable to pull the
trigger on a trade. This is one of the reasons why many
traders turn to technical analysis. To some, technical
analysis is seen as a way to transform all of the fundamental
factors that influence the markets into one simple tool,
prices. However, trading a particular market without knowing
a great deal about the exact nature of its underlying
elements is like fishing without bait. You might get lucky
and snare a few on occasion but it's not the best approach
over the long haul.
For forex traders, the fundamentals are everything that
makes a country tick. From interest rates and central
bank policy to natural disasters, the fundamentals are
a dynamic mix of distinct plans, erratic behaviors and
unforeseen events. Therefore, it is best to get a handle
on the most influential contributors to this diverse mix
than it is to formulate a comprehensive list of all "The
Fundamentals." |
|
 |
|
|
 |
| Unfamiliar with forex trading? Visit InterBank
Group's Learning Center
for a wealth of information about the forex market. |
 |
Basics
Great if you're new to the foreign exchange
market. |
 |
Pro
A look at sophisticated forex trading strategies and
methods. |
|
|
 |
|
| |
|
 |
|
