This article looks at the trading you can do with fundamental analysis of forex news.
When you trade on the forex market you are able to analyse what is going on in two different ways. The first way is through technical analysis and the second is through fundamental analysis. Most traders will look at technical analysis, but you should also consider how you can trade on fundamental analysis. It is important that you know what fundamental analysis entails and how you can trade with it using long and short-term strategies.
What is Fundamental Analysis?
Fundamental analysis is using forex news to determine what is going to happen on the forex market. The way this works is through the fact that forex news is one of the main drivers of the forex market. There are many types of forex news from economic reports to political news. It is important that you understand how this news affects the market.
The Effect of Forex News on the Market
When forex news is released there will be a reaction on the forex market. The direction of the reaction could be upward, downward or sideways. You have to determine what the movement is through analysing what the news is about and what the content is. With any news release you should consider how the information affects the view investors have of the country. The best way to do this is to consider whether or not you would put your money in the country after the news you are reading. If the answer is no then the release may have a downward reaction.
Of course, it is not always this simple and you have to think about the other factors of the market. There are times when the market should react in one way and it does not. You should consider what everyone is expecting the new to say. If the results are what everyone expected then the market is likely to not move very much.
Long-Term Trading with Fundamentals
Most traders feel that fundamental trading is only for long-term strategies. The reason for this is that fundamental reactions can last a long time and this can only be capitalised on by long-term traders. When you are looking at long-term trading with fundamentals you have to consider which way the market will turn. A lot of long-term traders are trading on trend which is a one directional movement. These traders use fundamental analysis to determine which way the trend is going to go.
Short-Term Trading with Fundamentals
Short-term traders often do not even consider the use of fundamental analysis. It is important that you do because you could be making a lot of profit off all news releases. Long-term traders generally wait for the high impact news releases. However, short-term traders can make a profit of low and medium impact releases. While these releases do not cause the same long-term trends they can cause a short trend. This short trend is often long enough for a short-term trader to make a profit.
One strategy that you can use with fundamentals in the short-term is scalping. There are a number of fundamental scalpers who wait for news releases and then trade on the short trends that they create. This offers more opportunities to trade and more opportunities to make a small profit.