Importance of Fundamental Analysis in Forex

Importance of Fundamental Analysis in Forex

Submitted by adil on Fri, 03/01/2013 - 06:03

Analyzing what you do or are about to do is always important. Making an analysis of a situation or deed gives you the ability to tell what you did wrongly or did in the right way. Through analysis you can also pick out your weak points and your strengths which you can use to your advantage in your undertakings.

Forex fundamental�analysis gives you an insight of what you are trading in, and the economic trends. The aim of performing this type of analysis is to provide an understanding of how the economic and political factors in a country affect the price of a currency.

This type of analysis in Forex trading is very effective in revealing opportunities for potential profits using economic and political indicators. Fundamental analysis allows traders to avoid potentially bad investments. This is the kind of analysis that you use to judge your trades and investments. Like other investment markets whose movement is influenced by mass psychology, fundamental analysis will help you operate within the market with a higher level of confidence.

Some of the issues that you must look out for in your fundamental analysis include:

• Interest rates
• balance of trade
• employment rate
• and Gross Domestic Product (GDP).

Speeches made by statesmen and politicians that feature economic numbers are also good indicators. Generally big political and economic events have a bearing on the Forex market and should be closely monitored. The price of a currency including the dollar is influenced by the politics of the day. Similarly a speech by the chairman of a country’s central bank is worth listening to. �

As a trader, a Forex economic calendar should be your best ally. The calendar will give you all the upcoming economic news at your fingertips. Look out for several things in the calendar including the timing of the news, the data, the differences between the forecasted numbers and the actual numbers and their impact on the market.�