Conducting fundamental analysis in Forex trading is easy. All you have to do is watch the news really, however, how you carry out your fundamental analysis will depend on your Forex trading strategy.
If you have a long-term Forex trading strategy, for example if you are a carry trader, you will want to try and predict the futures of the economies of the currencies you are trading. However, if you are more of a short-term Forex trader, for example you might use a short-term news trading strategy, you will want to focus more on individual news releases.
Whatever your currency trading strategy is, in order to conduct fundamental analysis, you need to focus on the main indicators in fundamental analysis, which are: interest rates, gross domestic product (GDP), trade balances, rate of employment and rate of inflation.
You need to consider all of the above indicators, if you want to conduct good and profitable fundamental analysis. You might even want to consider focusing on one single indicator in particular. For example, if you are a short-term news trader who trades the United States dollar, you might focus on the rate of employment in the US. In this case, you would most likely focus on the NFP (nonfarm payroll), which is also known as “the job report”. This news release is published every month, which presents a good monthly opportunity to profit.
There are endless opportunities though, when it comes to fundamental analysis. Whether you use a short-term Forex trading strategy or a long-term one, you can make use of fundamental analysis in Forex trading and deduce lots of profits.
It doesn’t have to be difficult, but do try to diversify your sources of information and ensure that your information sources aren’t biased etc. In order to think like the Forex market, you need to expose yourself to the same information that all the other traders and investors in the market for currencies are exposed to. Remember, Forex trading is about mass psychology and what others think about the futures of currencies.
There are exceptions for those who do use news trading strategies, however, you should try to incorporate technical analysis into your currency trading career too. If you avoid conducting technical analysis, you won’t be doing yourself a favor. Again, technical analysis isn’t difficult to carry out, as long as you understand the basics. By incorporating both types of analysis into your Forex trading, you will stand a far greater chance of succeeding in the market for currencies, because you won’t be trading half-blind.
In conclusion, it is easy to conduct fundamental analysis really. All you have to do is beware of the main fundamental indicators, know what news releases and key economic data you need to look out for and make rational judgements. You should remember though, that there is a sense of urgency when trading news in the short run, that longer-term Forex traders don’t really experience. This is because the traders and investors in the Forex market, tend to react to news releases and key economic data very quickly, so if you want to be a profitable fundamental currency trader, you need to be able to act quickly and be instinctual. Of course if you use a longer-term Forex trading strategy though, you won’t have to be quite so efficient with your judgements.