Fundamental Analysis

In online trading we should estimate short opportunities of the price movement and decide to trade online. Using the technical analysis we can see the signals showing a possible price direction after reaching any important levels – strength or indicator levels. But technical analysis does not guarantee a foreseen movement after the price has broken one of the levels. So the fundamental analysis helps us to understand where the price will move after reaching a key level.

The Fundamental analysis is an estimation of a current economic situation in the company (for stock trading) or country (for currency trading) using statistical data. Simply said when economic indicators of the country and income of the company grow the currency and stocks become more attractive for investors as their prices increase too. So we see the following regularity: the country’s economy grows => the currency rate grows; the company’s income grows => its stock rate grows too. So any improvement causes the asset growth and any drop causes a reverse effect. Except the economic factors affecting the country’s economy there are political factors having either positive or negative effect. For example, the radical government takes power and quarrels with the whole world reducing the confidence to the country and increasing risks of the international companies.

These companies start closing their projects and it leads to the economic decline reducing the tax revenue to the government budget and increasing unemployment. All these events cause a panic among investors who start to buy foreign currency trying to save their money. Such actions lead to reduction of the national currency rate. Also the aggressive politics of the government affects the national companies cooperating with foreigners reducing their stock rates. If you understand this logic you can foresee the further price movement in the world markets.

We can estimate the current economic situation of the country according to macroeconomic performance in the different economic sectors. These sectors are:

1) Public sector - a budget, interstate payment balance and GDP;

2) Financial sector - a basic rate of Central Bank and finance volumes;

3) Industry – a production output and labor efficiency;

4) Employment – unemployment rates, number of workplaces, salaries;

5) Inflation;

6) Trade – retail and wholesale sales;

7) Efficiency and consumer confidence

All these indexes are calculated by State Statistics Services and published on their official websites. Besides many information agencies and financial companies put these data in one table and publish on their websites simplifying the investors’ life. Such table is called the economic calendar. In the economic calendar everyone can see the rates to be published at any date important for investors or traders or find the average forecasted rate given by some analytical agencies. It looks as follows:

29.04.2015 11 Am EST USA GDP in the first quarter 0,1% -> 0,2% -> __

Where 29.04.2015 11 Am EST is the date and local time of publication (time zone can usually be your local);

USA is the country of the index to be published;

0,1% is the change of USA GDP in previous quarter (4th quarter of 2014);

0,2% is the expected rate in the first quarter of 2015;

__ is an actual GDP index in the first quarter of 2015 to be specified after it appears on the official website.

How does the economic calendar help us? There is a trading rule in Forex: “Buy the rumour sell the fact”. All the market majors trade under this rule. The idea of this rule is when the market expects good rates for any country and a positive influence on its economy all participants try to buy its currency at a lower price before their expectations are confirmed. As you know the key factor of a trader’s profit is a formula: “Buy low and sell higher” and as the price can continue growing all traders try to buy at a lower price in advance. The same situation with our news about USA GDP: the analytics are waiting for its index growth and if GDP grows the economy grows too so if you invest to it you can make a profit. Everyone will buy US dollar and if the demand rate increases the good price increases as well.

As the players with deposits having no influence on the market we can use these expectations and trade online for eur/usd before the news are published. While we are waiting for the news we are making a profit. And it is not important if the analytical expectations are satisfied or not because we will gain a profit before actual index publication.

Using the fundamental and technical analyses together we can easy foresee the price movement for the nearest 1-2 hours between the key levels we found. In case that we're trading for a short time period we will be able to open many deals during some hours and have a good profit!