ACTUAL FOREX TRADING
Learn Fundamental Analysis for Forex Trading
Newer traders, especially those who want to trade "pure price action" or use technical analysis, often ignore fundamental analysis.
The truth is that traders who use fundamental analysis combined with technical analysis often have a higher win rate and better overall trading results. Most professional traders approach the markets using this winning combination.
All Forex traders should use some fundamental analysis in their trading, even for just risk management purposes.
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Let me teach you the basics of fundamental analysis. I even have links to my Free Forex Fundamental Analysis Course.
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Jump to:
Fundamental Analysis for Beginners​
"Combining fundamental and technical analysis is the ultimate way to profit from the markets. Most traders don't want to accept this truth; they only want to use technical analysis. This is usually because of the work involved in learning and following market fundamentals - it either scares them or just seems like too much effort"
Forex Fundamental Analysis for Beginners
​First, if you don't fancy reading this post, you can jump straight to my Learn Forex Fundamental Analysis video here.
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Technical analysis requires skill, while fundamental analysis requires intelligence. That doesn't mean that fundamental analysis is more complex than technical analysis; it just means they are different.
A combination of simple technical and fundamental analysis can be a fantastic recipe for success. Let me teach you how...
What is fundamental analysis?
​Fundamental analysis is the process of reviewing economic data, potential economic hazards, and growth to predict future market direction.
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In Forex, fundamental analysis is simply the interpretation of interest rates, such as a country's current interest rate and whether the rate is likely to change.
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Most economic figures used in the Forex markets are simply used to help predict whether a central bank will likely raise, pause, or cut interest rates.
Which economic figures are analysed by Forex traders?
​The most commonly tracked economic figures move the markets the most, i.e. the economic figures with the most significant influence on interest rates.
The economic figures that impact the markets most are usually inflation rates, unemployment rates, GDP figures, PMI figures, retail sales figures, payroll and job figures, and trade balance figures.
Can politics move the Forex markets?
​Yes. The main political events that can move the currency markets are war or the increased risk of war, peace agreements, a collapse of Government, elections, referendums, trade disputes and trade agreements, changes in any major government's economic policy, a government's response to pandemics, and much more.
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Financial markets don't like uncertainty, as this increases risk. Money flees from risk, so any economic or political event that increases or reduces risk can move the markets.
In Forex, what role do central banks play?
​A central bank's primary responsibility is to keep inflation healthy, usually around 2%.
Central banks raise and cut interest rates to manipulate a country's inflation. Decreasing rates can increase inflation and stimulate economic growth, while rising rates can decrease inflation and reduce economic growth.
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As a rule of thumb, interest rate hikes generally strengthen a currency, while interest rate cuts typically weaken a currency.
Learn HOW to use Forex fundamental analysis by watching the video below:
Why use Fundamental Analysis?
​As a Forex trader, there are many reasons why you should use fundamental analysis. These include:
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Additional Trading Opportunities. Understanding Forex fundamentals can create additional trading opportunities. These are opportunities which technical analysis will not signal, or will signal too late. ​
The best traders use fundamental analysis to determine trend direction and technical analysis to determine entry and exit points, or to confirm their fundamental market bias.
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Professionalism. Real traders understand the why and how of the market. They seek to understand the beat of the market and what drives prices. They use logic and reason behind their trades.
​This is only possible if a trader uses fundamental analysis as part of their daily trading.
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A Higher Win-Rate. Economic news will always triumph over price action, technical levels, and indicators. If you can learn to understand and trade the news, you can significantly reduce your amount of losing trades. After all, a strategy based on just technical analysis is a game of chance. A strategy based on fundamental analysis is a game of reason.
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Risk Management. Economic news brings market direction and volatility. Knowing which events impact the Forex markets - and when they impact - can reduce your exposure to spread widening, slippage and unwanted losing trades.
"Learning fundamental analysis is much easier than you may think... Just listen to Bloomberg and other financial channels. At first, you will understand very little. As the weeks and months pass, you will understand more and more. There are also books and online content that can help"
Which Economic Figures should you use for Forex Fundamental Analysis?
Interest Rates
​Interest rates are the driving force of the market. If interest rates go up, a currency should strengthen. If interest rates go down, a currency should weaken.
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Tracking and forecasting interest rates is the most effective way to predict future price direction and is paramount for any Forex fundamental analysis.
Inflation Rates
​Inflation rates are generally the most significant influence on whether rates will hike, pause, or be cut. Tracking inflation rates is an effective way to forecast interest rates.
Other Economic Data
​Other economic figures worth tracking are unemployment rates, PMI figures, retail sales, trade balance, GDP growth, and current account deficits. All these figures give insight into how an economy is performing, which impacts currency movement.
Tools that I use for Fundamental Analysis
​Bloomberg TV is free on YouTube and is often available as a channel on your home TV.
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It is an excellent resource for gaining trading ideas based on fundamental analysis, breaking news, and learning trading lingo.
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Trading Economics is a fantastic website that shows historical economic figures and provides commentary on central bank speeches.
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Economic calendars forecast upcoming news events that could impact the Forex markets. They usually identify events as high, medium and low impact, which can be great for risk management.