In my next few articles, I will focus on a method of trading that unfortunately, very few traders understand and use to their advantage. What I’m talking about is “Fundamental Analysis.”
Certainly, the vast majority of retail traders rely solely on “Technical Analysis” in making their decisions and believe it is superior in every way to Fundamental Analysis.
However, by the end of this series of articles, I hope to have opened your eyes to the power of using Fundamental Analysis to achieve your goal of becoming a consistently profitable trader.
So, let’s begin with a few basics.
When used in the equities market, Fundamental Analysis is used to measure the value of a company in order to determine whether its stock should be bought or sold.
Similarly, in Forex, traders will use Fundamental Analysis to evaluate the value of currencies and their countries.
Primarily, a Forex fundamental trader will use various economic announcements, news reports, economic data, and political events to determine the overall value of investing in a currency.
Of course, the value of a currency changes over time due to a variety of factors, including the growth and financial strength of its economy.
Now, before I get into explaining how I use Fundamental Analysis in my own trading, I want to discuss three myths that cause people to shy away from using this powerful method.
Myth #1 – Technical Analysis Is The Easiest and Quickest Way To Trading Profits
Over the many years I’ve been involved with Forex trading, as a professional funds manager and a private trader, I have seen that almost all retail traders are overly-focused on using Technical Analysis. In fact, many of them believe that using Technical Analysis is the “smartest” way to trade.
But, this is just a myth. At its core, traders who only focus on using Technical Analysis believe that it can “predict” the next move. But that’s like believing that driving while looking in the rear-view mirror is a powerful way of driving. That just doesn’t make sense.
When we drive, we do much better when we focus on what is in front of us. We look at the road and note the signs. It’s the same way with Fundamental Analysis. We look forward, we pay attention to the signs, and ultimately, we know where we’re going.
#2 Myth – Fundamental Trading Is Hard
When I talk to traders about the power of using Fundamental Analysis in their trading, they often express their concern that fundamental trading is hard. They think it’s complicated, and because they don’t have an extensive education in economics, Fundamental Analysis just isn’t practical for them to try. After all, how could they know how to review all the details of the economic projections for each country?
But again, thinking that Fundamental Trading is hard is just a myth, because you don’t have to do all of that. In fact, shortly, I will show you just how simple Fundamental Analysis can be. I’ll even show you how it can be easier than Technical Analysis. So please, don’t worry about it being too complicated.
#3 Myth – Fundamental News Releases Are Already Priced Into The Market
Another myth I often hear is by the time an economic report is released, it’s already priced into the market. Similarly, traders who trade these news releases often believe that the initial quick move is all there is and after that, there’s no more opportunity to profit.
But that’s not the case at all. Sure, there are speculative traders who try to make a quick profit on the initial short-term move.
However, in the long-term, there are institutional investors and other long-term traders who will gradually move their money from lower-yield to higher-yield countries.
And of course, this puts further upward pressure on the value of the currency. This process takes weeks, months, even years, depending on the number and frequency of interest rate hikes.
So, the bottom line is, it’s impossible for all the impact of a financial news report to be instantly priced into a market.
In the next article of this series, I will show you how I use Fundamental Analysis in my own trading. I want to show you how simple the process is, and how little you really need to track to make extremely profitable trades.
It’s really just a matter of learning to understand the role of a central bank and what they watch to achieve their goal of keeping the economy stable.
It basically comes down to a short list of economic indicators coupled with a few simple tools.
Until then, good trading!
Dustin
hello Dustin its great i feel lucky thismorning that i botehred to open your email asi am abrand new newbie learning fast an di have always believed that fundamental analysis is teh most logical! i aprecaite how good your logic and professioanl training is an di will be looking out for your commenst daily mnay thanks MY current email will expire so please now onwards use [removed for privacy] my old one is [removed for privacy] thanks again! regds Frank
Will do Frank.
Great Blog Post….. anxiously awaiting your next few Posts. Always willing to learn what is in the Minds of Other Traders. Thanks.
A good article how to respond short term and long term is the issue, I look forward to the next article.
Yes have been studying technical analysis both for Forex and equity trading. Fundamental analysis sounded too complex even though I have an economics degree. So look forward to your next article. I haven’t started trading yet because I don’t feel I know enough to try it out yet. Cheers
Paul
Hello Paul, thanks for your comment. I think you will like what I am going to share with you over the coming days. It really simplifies the entire concept of fundamental trading.
Hi Dustin.
Thank u for sharing. Appreciate , will be waiting for your email. Thank u again
Regards
Vincent
Thanks for the post, I have the same agreement on what you’ve said. looking forward to the remaining articles…
I agree with you fully. However whether do we get those information and how do we analyse the information also play a very important part in the trading. I hope you could enlighten on these points.
Thank you
Whilst trading fundamental announcements regularly (I only trade a few high impact ones per month) this form of trading can be frustrating as sometimes the market does not move in the direction it should with the announcement – therefore causing traders confusion frustration and ultimately the belief that this type of trading does not work.
The fact is you can interpret the market with these announcements but you cannot always see the underlying overall direction the countries currency in question will go – I am not inciting conspiracy theories here but it is well documented that several countries manipulate the movement of their currency.
Many times you later find out that a total out of the blue different movement that you had expected resulted in an off the cuff comment by some countries politician
This is where I feel can be frustrating but there again you have that in technical analysis as well – many a time I have seen currencies blast through a strong resistance level so it happens in both types of trading.
Also I am a believer that the fundamental announcements will fulfill technical set ups quicker so working hand in hand with both technical and fundamental trading can be very profitable.
All in all it adds to the mystique that trading these markets offer us that keeps us coming back to fuel our competitive juices to beat the markets.
That being said I look forward to your other articles in the future
Regards
Ashley
Hi Dustin
Thanks for the blog,before now i use to avoid fundamentals because of the volatility and i lost quite alot in NFP.Am ready to go all the way with you to learn this method
Tanx
Andy
I am interested to see the same time I am a sceptic
Thanks for this information Justin. I hope to learn and eventually find the success that has always avoided me. Regards Michael
An excellent article on fundamental. Looking forward to your next blog with more details.
Interesting to see which of your product promotions these articles are a prelude to.
Hello Jonathan, I don’t have a long term fundamental product. Ill see if I can dig one up though 🙂
Every guru tells you to stay out of the market around fundamental events. I would love to see your info regarding this matter. I am interested in the way things play out an hour and onwards after the major fundamental event. Thanks for the info given.
Regards.
Johann
Looking forward to the next article. I know fundamental is judging the financial strength of a company or country. I could never understand how to read the data clearly and come to a clear decision to make the trade or not..
many thanks Dustin,good stuff
Thanks I would like to learn more as had not much luck on the fundamentals side of fx
chris
i tried to trade the fundamentals but the broker wasn’t able to keep up with the quick movements in the stock market. Out of 5 trades in one week, all of which should have made a profit, only one came in because it was moving slowly.
I searched a few forums and found that this is usually the case. And just when i thought i’d cracked it!..lol
Was using ECN account. Any thoughts or suggestions Dustin?
Cheers
This type of trading is not like spike trading which I believe is what you are referring to. This is more about a long term view of fundamentals which negates the issue with fast moving markets.
Proof read your article.
Hello Tom, can you let me know what issue you see. I had my editor look at it again and run it through 3 QA software’s and all we found was a missing space in one of the last sentences. Thanks
After stressful days and nights in many moons with a technical trading and money lost and found so many times, I now like a fundamental trading. It has so many of the relax atmosphere days. A wonderful great thing for many of us.
Hello Dustin
Thanks for the introduction to the Fundamental Analysis way of Trading. Yes I had look at Jarrett’s materials and was excited about it, and looking forward to the one.
Cheers John
After many attempts to use EAs uncessfully (already 18 month), you opened my eyes with Fundamentals. I will focus on it now on as the Institutions I guess, although you don’t talk too-much about them even if they really are the force pushing the market up and down.
Thanks a lot ,
Good day,
My name is Nikita Khodakivsky and I am the project manager in MaxiMarkets FX Company. I would like to reach a contact manager to receive your economic calendar demo version and a price offer. Please contact me as soon as possible through my mail or in Skype: maximarkets.nikitakh.
Nikitakh,
I just spoke with Dustin and this is not a service that we provide.
Thank you,
Ross