How To Get Started With Fundamental Analysis

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In this video, we will explain what fundamental analysis is and how you can start to get to grips with it in your trading. We will also include a step by step guide that will help you begin to interpret news and analysis into clear trading opportunities.

To illustrate how fundamental analysis applies to the trading routine of most professionals, we can use the example of driving a car. 80% of driving is done by looking through the windows and reading the signs to tell us where we are heading and how to drive. 20% is about using the mirrors at important times to avoid accidents. Imagine the result if you tried to drive your car using the rear view mirrors 100% of the time. This is effectively what you are doing when trying to trade solely off a price chart.

In the world of retail trading education there are many myths concerning fundamental analysis and the trading of news. For example, many people feel that fundamental analysis is complicated or reserved only for those who have specialist degrees in finance. Other people believe that trading around news events is highly unpredictable and dangerous. And some people are told that all information is perfectly priced into the markets at any given time. These are all retail trading myths and one of the best ways to see how this is the case is to simply watch the price of major currencies as a major economic event is released.

You will often notice that the price moves almost instantly in reaction. These moves are the direct result of professional traders waiting for these releases and taking action immediately. They do not hide or avoid these events, in fact they are often the highlight of the week for most professional trading floors. If this is how professional traders operate, then it gives us a clue to the importance of fundamental news and analysis.

So how can you begin conducting some basic fundamental analysis now and what do you need to be watching out for?

When trading currencies, everything revolves around the central bank of the relative country. A central bank is responsible for the economic stability of each nation. Famous examples of central banks that you may have heard of include the Bank of England and the Federal Reserve in the United States. Each central bank has a mandate. This is just a selection of targets for the overall economy. These targets generally revolve around how many people are employed, how fast the economy is growing and how quickly prices are rising for normal everyday people doing their shopping.

To help them make sure that the economy is working in a way that will keep to their targets, they monitor the economic data that is released on a regular basis and then try and use that data to spot trends in the economy. When they see a trend forming that they don't like the look of, they will use some of the special tools at their disposal to fix it. The process of the central bank is fairly simple: They set their targets. They monitor the economic data. They implement their tools when they see the need to. So how does this help you as a trader? It is the use of those tools that causes currency prices to move.

The most common tool used by central banks around the world is that of interest rate adjustments. Once way in which they can adjust interest rates to improve the economy is when people start saving their money instead of spending it. When this happens the economy starts to slow as fewer people are buying and selling. As the economy slows down more people stop spending and it gets harder and harder to make money. The worry of not being able to make money then leads more people to cautiously save the money they do have, thus growing the problem. To nip this in the bud quickly, the central bank will lower its interest rate. This is the rate used by all commercial banks as a guide from which to pay its savers and charge is borrowers. By suddenly having a lower rate, it makes saving money much less attractive because people get no reward. It also encourages people to take more risk and borrow money which they then use to buy houses or start up new businesses. This gets the money flowing and people become confident that they will be able to make money again. This confidence leads to further spending which gets the overall economy back on track. Each time the bank implements their tools in this way it has a powerful effect on the value of their currency.

This is where understanding and trading the fundamentals will make you money.

Видео How To Get Started With Fundamental Analysis канала Financial Source