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HOW TO USE FUNDAMENTAL ANALYSIS WHEN TRADING THE FINANCIAL MARKETS

By Your Trading Mentor,

Trading Angel

WHAT IS FUNDAMENTAL ANALYSIS?

Fundamental analysis is a method of analysing the forex market by examining economic, financial, and other qualitative and quantitative factors that may affect the supply and demand of a currency. The goal of fundamental analysis is to identify the underlying factors that may cause a currency to appreciate or depreciate in value.

In forex trading, fundamental analysis typically involves analysing economic indicators such as gross domestic product (GDP), inflation, interest rates, and employment data, as well as political and geopolitical factors that may affect the currency markets.

For example, if a country’s GDP growth rate is strong, it may indicate a healthy economy and lead to increased demand for the country’s currency. Similarly, if a country’s central bank raises interest rates, it may attract foreign investors seeking higher returns on their investments, which can increase demand for that country’s currency.

Overall, fundamental analysis can be a useful tool for forex traders to help them make informed trading decisions based on macroeconomic factors and other market drivers.

HOW DO FUNDAMENTAL AND TECHNICAL ANALYSIS COMPARE? 

Fundamental analysis and technical analysis are two different approaches to analysing the forex market and making trading decisions. 

Fundamental analysis involves analysing economic, financial, and political factors that may affect the value of a currency. This includes analysing economic indicators such as GDP, inflation, interest rates, and employment data, as well as geopolitical events that may impact a country’s economy. The idea behind fundamental analysis is to assess the overall health of an economy and make trading decisions based on the expected impact of these factors on the currency in question.

On the other hand, technical analysis involves studying charts and using various technical indicators to identify trends and patterns in price movements. Technical analysts believe that historical price and volume data can reveal trends and patterns that can help predict future price movements. This approach involves the use of chart patterns, trend lines, moving averages, and other technical indicators to identify potential trading opportunities.

Both fundamental and technical analysis have their strengths and weaknesses. Fundamental analysis can provide a broader understanding of the factors driving currency movements, while technical analysis can offer more specific entry and exit points for trades. Ultimately, successful forex traders often use a combination of both approaches to make informed trading decisions.

Using both fundamental analysis and technical analysis in forex trading can provide a more comprehensive view of the market and help traders make more informed trading decisions. 

Fundamental analysis can provide a broader understanding of the factors driving currency movements. It takes into account economic, financial, and political factors that can impact the value of a currency, such as GDP, inflation, interest rates, political stability, and trade policies. By analysing these factors, traders can gain insights into the long-term trends in the market and develop trading strategies that align with the underlying fundamentals of the economy.

However, fundamental analysis alone may not provide a complete picture of the market. It may not account for short-term fluctuations in currency prices, which can be influenced by factors such as technical indicators, market sentiment, and supply and demand. This is where technical analysis comes in.

Technical analysis involves studying charts and using various technical indicators to identify trends and patterns in price movements. It can help traders identify entry and exit points for trades, and also help them anticipate potential price movements. Technical analysis can be particularly useful in volatile markets, where short-term fluctuations are common.

By combining both fundamental and technical analysis, traders can gain a more well-rounded view of the market and develop trading strategies that take into account both long-term trends and short-term fluctuations. This can help traders make more informed trading decisions and manage their risk more effectively.

When trading the financial markets, there are several key pieces of fundamental analysis that traders should be aware of:

1. Economic indicators: Economic indicators are statistics released by government agencies and other organisations that provide information on a country’s economic performance. Some of the most important economic indicators for traders include Gross Domestic Product (GDP), inflation, interest rates, employment data, and retail sales. These indicators can provide insights into a country’s economic health and help traders anticipate potential market movements.

2. Central bank policies: Central banks play a significant role in the financial markets, as they are responsible for setting monetary policies and interest rates. The decisions made by central banks can have a significant impact on currency values, as well as other financial instruments such as stocks and bonds. Traders should monitor the statements and actions of central banks to gain insight into their policies and anticipate potential market movements.

3. Geopolitical events: Geopolitical events, such as wars, elections, and natural disasters, can have a significant impact on the financial markets. These events can create uncertainty and volatility in the markets, which can lead to sudden price movements. Traders should stay informed about geopolitical events and their potential impact on the markets.

4. Market sentiment: Market sentiment refers to the overall attitude of traders and investors towards a particular market or asset. Positive market sentiment can lead to rising prices, while negative market sentiment can lead to falling prices. Traders can gauge market sentiment by monitoring news headlines, social media, and other sources of information.

By staying informed about these key pieces of fundamental analysis, traders can gain insights into the underlying factors driving market movements and make more informed trading decisions.

Forex traders can find details on economic news releases from a variety of sources, including:

1. Economic calendars: There are many websites that provide economic calendars, which list the dates and times of upcoming economic news releases. These calendars often include details on the expected outcome of each release, as well as the previous release and its impact on the market. Some popular economic calendar websites include Forex Factory, DailyFX, and Investing.com.

2. News websites: Forex traders can also find details on economic news releases from news websites such as Reuters, Bloomberg, and CNBC. These websites often provide in-depth analysis of economic data and their potential impact on the markets.

3. Central bank websites: Central banks often publish their monetary policy statements, which provide insights into their policies and outlook on the economy. Traders can find these statements on central bank websites, such as the Federal Reserve, European Central Bank, and Bank of Japan.

4. Government websites: Government agencies, such as the Bureau of Labor Statistics in the United States, often release important economic data. Traders can find these releases on government websites, along with detailed reports and analysis.

5. Social media: Social media platforms, such as Twitter, can also provide real-time updates and analysis on economic news releases. Traders can follow news outlets, analysts, and other traders on social media to stay informed about the latest developments in the markets.

By using these sources, forex traders can stay informed about economic news releases and their potential impact on the markets, allowing them to make more informed trading decisions.

Until next time, Happy Trading!

Love from, Your Trading Mentor,

Trading Angel x 

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WHAT IS NFP AND SHOULD YOU BE TRADING IT? 

By Your Trading Coach

Trading Angel 

NFP USED TO SCARE ME 

When I first started trading forex macroeconomics scared me, mainly because I didn’t understand it and it seemed to create all sorts of chaos on the charts. My technical analysis was on point but if I ever placed a trade which was text book technical analysis and then it unexplainably got stopped out on a spike I would just say ‘some big new must have happened, that was unlucky’. While I was correct that some big news often did happen, it probably wasn’t unlucky as we are actually told in advance when they are being released (more or less, sometimes they are a surprise). When I first started trading forex I was told about NFP and I was told don’t trade it. It causes a lot of volatility, spiking and strange reactions in the markets. This is all true. But one of the wonderful things about NFP is it happens once a month at the same time each month so we get plenty of warning. However as I had already dismissed it as something I wasn’t going to bother trading or understanding because it was too difficult and wasn’t worth it I often ended up completely forgetting when it was taking place and still letting it cause problems for me If I left trades open beforehand. 

OK, I GET YOU WERE SCARED OF IT BUT WHAT IS IT

So the short version of the long story is that NFP stands for Non-Farm Payroll and is big economical data which comes out on the first Friday of every month (usually). This month, March 2024, it’s one of the few occasions it’s on the second Friday of the month. If you are in the UK like I am it will be released at 13:30 in the afternoon. As the name suggests it’s to do with payroll in America which ISN’T farm related. Which means, most payroll. The numbers when released show us how many jobs have been added or removed in the US over the past month. High numbers are generally good for the US dollar as its showing a healthy economy where people are in work and low numbers suggest a weakening US economy and can therefore can be seen as bad for the US dollar. While this might sound super easy to trade, just buy USD pairs when the numbers are high and sell when the numbers are low, there are actually some nuances which make it slightly less straightforward. What we get on our economical calendar is the previous number, and the consensus for what is expected to be announced on NFP. If, for example, the consensus shows we are expecting the numbers to be high and when they are released they are high, but not as high as expected but still higher than previous – this could be interpreted as bad news, or just confused news. You might see on a 5M chart a whipsaw of bull and bear candles trying to make sense of whether this is actually good news for the US economy or bad news. And that is why it’s not easy to trade NFP. 

I’VE HAD A CHANGE OF HEART 

Having said all of this I’ve actually recently become a little bit obsessed with NFP and all other forms of macroeconomic data. Having realised that my technical analysis was on point but my macroeconomics could do with some TLC I decided to book myself in for classes with my very own trading mentor. An expert in macroeconomics called Patrick Reid who works for a company called Adamis Principle. I could not recommend the mentor programme enough for those who need a bit of help with their fundamental analysis. Having a better understanding of financial news and economic data and how it moves the markets in the short term, long term and semi long term, I have now made friends with NFP. I stand by the fact that it can be difficult to trade on the day when the news is immediately released but paying attention to the numbers which come out and how this affects sentiment on the US dollar over the following weeks is incredible valuable. These sorts of big economic data releases can often be the thing which reverses trends and causes the markets to move in another direction, so paying attention to what comes out on NFP day, even if you don’t trade the day itself, can be really helpful for the following weeks. 

FINANCIAL MARKETS HAVE A HOLISTIC RELATIONSHIP 

And while NFP is referring to economical data in America and predominantly affects the USD pairs, the global financial markets have a sort of holistic relationship with each other and you’ll often notice that big news for one market can often have a big impact on other markets aswell. For example, often indices like SPX and NASDAQ can move in the opposite direction to the USD and XAUUSD or Gold can often move in the opposite direction to the USD. European stock markets like DAX or FTSE can then follow the lead of the American index funds and often move in a similar direction. And often AUD can move in the same direction as XAUUSD which means it will be moving in the opposite direction to the USD. I know there is a lot of information here but my point is basically to not leave any trade open during NFP thinking it won’t be affected just because its not USD! 

I’d love to hear if you trade NFP or how you use the information or even if you found this information helpful

Happy Trading,

Love From, Your Trading Coach

Read More

WHAT IS NFP AND SHOULD YOU BE TRADING IT? 

By Your Trading Mentor

Trading Angel 

NFP USED TO SCARE ME 

When I first started trading forex macroeconomics scared me, mainly because I didn’t understand it and it seemed to create all sorts of chaos on the charts. My technical analysis was on point but if I ever placed a trade which was text book technical analysis and then it unexplainably got stopped out on a spike I would just say ‘some big new must have happened, that was unlucky’. While I was correct that some big news often did happen, it probably wasn’t unlucky as we are actually told in advance when they are being released (more or less, sometimes they are a surprise). When I first started trading forex I was told about NFP and I was told don’t trade it. It causes a lot of volatility, spiking and strange reactions in the markets. This is all true. But one of the wonderful things about NFP is it happens once a month at the same time each month so we get plenty of warning. However as I had already dismissed it as something I wasn’t going to bother trading or understanding because it was too difficult and wasn’t worth it I often ended up completely forgetting when it was taking place and still letting it cause problems for me If I left trades open beforehand. 

OK, I GET YOU WERE SCARED OF IT BUT WHAT IS IT

So the short version of the long story is that NFP stands for Non-Farm Payroll and is big economical data which comes out on the first Friday of every month (usually). This month, March 2023, it’s one of the few occasions it’s on the second Friday of the month. If you are in the UK like I am it will be released at 13:30 in the afternoon. As the name suggests it’s to do with payroll in America which ISN’T farm related. Which means, most payroll. The numbers when released show us how many jobs have been added or removed in the US over the past month. High numbers are generally good for the US dollar as its showing a healthy economy where people are in work and low numbers suggest a weakening US economy and can therefore can be seen as bad for the US dollar. While this might sound super easy to trade, just buy USD pairs when the numbers are high and sell when the numbers are low, there are actually some nuances which make it slightly less straightforward. What we get on our economical calendar is the previous number, and the consensus for what is expected to be announced on NFP. If, for example, the consensus shows we are expecting the numbers to be high and when they are released they are high, but not as high as expected but still higher than previous – this could be interpreted as bad news, or just confused news. You might see on a 5M chart a whipsaw of bull and bear candles trying to make sense of whether this is actually good news for the US economy or bad news. And that is why it’s not easy to trade NFP. 

I’VE HAD A CHANGE OF HEART 

Having said all of this I’ve actually recently become a little bit obsessed with NFP and all other forms of macroeconomic data. Having realised that my technical analysis was on point but my macroeconomics could do with some TLC I decided to book myself in for classes with my very own trading mentor. An expert in macroeconomics called Patrick Reid who works for a company called Adamis Principle. I could not recommend the mentor programme enough for those who need a bit of help with their fundamental analysis. Having a better understanding of financial news and economic data and how it moves the markets in the short term, long term and semi long term, I have now made friends with NFP. I stand by the fact that it can be difficult to trade on the day when the news is immediately released but paying attention to the numbers which come out and how this affects sentiment on the US dollar over the following weeks is incredible valuable. These sorts of big economic data releases can often be the thing which reverses trends and causes the markets to move in another direction, so paying attention to what comes out on NFP day, even if you don’t trade the day itself, can be really helpful for the following weeks. 

FINANCIAL MARKETS HAVE A HOLISTIC RELATIONSHIP 

And while NFP is referring to economical data in America and predominantly affects the USD pairs, the global financial markets have a sort of holistic relationship with each other and you’ll often notice that big news for one market can often have a big impact on other markets aswell. For example, often indices like SPX and NASDAQ can move in the opposite direction to the USD and XAUUSD or Gold can often move in the opposite direction to the USD. European stock markets like DAX or FTSE can then follow the lead of the American index funds and often move in a similar direction. And often AUD can move in the same direction as XAUUSD which means it will be moving in the opposite direction to the USD. I know there is a lot of information here but my point is basically to not leave any trade open during NFP thinking it won’t be affected just because its not USD! 

I’d love to hear if you trade NFP or how you use the information or even if you found this information helpful

Happy Trading,

Love From, Your Trading Mentor 

Read More