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Fundamental Analysis

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. However technical analysis doesn't guarantee a foreseen movement after the price has broken one of the levels. So the fundamental analysis helps us understand where the price will move after reaching a key level.

The fundamental analysis is an estimation of the current economic situation in the company (for stock trading) or country (for currency trading) using statistical data. Simply put, when the country's economic indicators and the company's income 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 for the economic factors affecting the country’s economy, political factors have either a positive or a negative effect. For example, the radical government takes power and clashes with the whole world reducing the trust of the country and increasing risks for international companies. These companies start closing their projects, which leads to the economic decline reducing the tax revenue to the government budget and increasing unemployment.

All these events cause panic among investors who start buying foreign currency in an attempt to save their money. These actions lead to a drop of the national currency rate. Also, the government's aggressive politics affect the national companies that work with international markets reducing their stock rates. If you understand this logic you can foresee further price movements in the international markets.

We can estimate the current economic situation of the country according to macroeconomic performance in 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 have this data on their websites making the life of investors easier. It's called the economic calendar and covers key economic events, announcements, and news that affect the financial market.

How does the economic calendar help us? There is a rule in trading: "Buy the rumor, sell the fact". All the market majors trade under this rule. The idea 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 the "Buy low and sell higher" formula, and as the price continues to grow, all traders try to buy at a lower price in advance. 

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

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