What is the fundamental analysis and its advantages?
What is the fundamental analysis?
When Fundamental analysis is mentioned in Forex it means the use of economic news, economic indicators and meetings, as well as natural events such as earthquakes, volcanoes and political events to assess the currency of a country.
Trading on currencies according to their economic conditions, where speculators are buying the strong against the sale of the weak.
When mentioned in shares, financial statements and earnings information are used to determine the fair value of the share, determine its present value and forecast its future value, as well as other economic factors.
The difference between fundamental analysis and technical analysis:
Technical analysis uses charts to determine the direction of the current stock or currency to trade and identify the areas of sale and purchase to achieve profits. Technical analysis is defined as science and art as it consists of scientific bases based on the study of the price behavior of financial instruments (stock, To predict their future and the art of using technical tools to reach the right expectations.
What types of analysis are used in Forex trading?
Fundamental Analysis Better or Technical Analysis:
A different analysis can't be preferred for each trader who is different from the other trader. He may prefer a fundamental analysis while preferring technical analysis, and we recommend mixing the two types of analysis to trade for maximum profit.
Fundamental Analysis Features:
- The fundamental analysis explains the sudden price movements that occur or is sometimes expected. If an important EU exit occurs, the EUR will be affected and decreased.
- Fundamental analysis gives you the vision of the market and knows why the pair rose, and what events affect it or what times are likely to be unexpected or strange market movement, can't profit from the market does not understand and do not know news.
Even if you use the daily charts or the larger ones, the economic outlook will affect the analysis and can't be neglected, if oil prices fall significantly, so the Canadian dollar may not be able to rise significantly or continue to rise from the base.
- Fundamental analysis makes you aware of the engines of the economy and the factors of strength and weakness, so you can avoid buying in times of weakness or benefit from the sale of currency.
- Fundamental analysis enables you to open fast trading positions on important news, which gives the professionals a large profit, we do not recommend the use of this method because the prices in these times of the news at a very high speed.
- It is clear from the installer that it is the traders' feelings that lead them to make a trading decision. If the news published on a currency or stock is negative, we expect the traders to sell, so we can make the same decision to make profits or at least not to buy because as long as there are sellers the price will fall.
Factors which affect on currencies:
Economic factors: They include a set of economic indicators that we will talk about later.
Major events: wars, terrorist acts and natural events such as volcanoes and severe hurricanes.
Political factors: such as the change of the leader of the state or the election of a parliament, and thus these events usually affect the exchange rate significantly.
Psychological factors: They have a much greater impact on exchange rate changes.
The most important economic indicators affecting the currency valuation:
Interest Rates: Interest rate expectations are the most important factor in assessing the current currency rate and future expectation.
Inflation: Inflation rates are very important in predicting the currency exchange rate.
Unemployment rates: a state report that refers to unemployment rates and subsidy rates granted by governments.
It should be noted that, the policy of the central bank is very influential on the exchange rate and expectations of the future of the currency and there are two types of deflationary monetary policy and there is expansionary monetary policy.