Introduction fundamental analysis

Fundamental analysis means that a forex trader speculates on the development of the prices as a result of economic, social and political topics. However fundamental analysis is a profession of its own and in my opinion it is consequently not suitable for novice traders.

If you have to believe some websites, the employment of fundamental analysis should be quite simple. Nevertheless I feel an overwhelming urge coming up to warn you beforehand, because the truth is that there are only few subjects in the field of trading, on which you’ll be able to gather quite some knowledge without really be able to achieve more profits. Actually the opposite is far more the case.

That’s why I have decided not to spend an extensive series of articles on this subject as fundamental analysis is not a necessary condition for being able to work with the OFS Trading System. Apart from that I would almost literally be copying the contents of the course which as far as I’m concerned turned out to be a real eye-opener in the field of fundamental analysis. Therefore I refer you to the Icarus course if you really should want the best there is with regard to getting to know all the ins and outs of fundamental analysis.

Without fundamental news the price is not going to move

Fundamental analysisAlthough I haven’t the intention to consider fundamental analysis at length, there still are a number of issues concerning fundamental analysis which are important enough to pay attention to. One of these issues is to be aware of the fact that fundamental news sees to it that the price of a currency pair starts and keeps moving. Imagine that there would be no news, no expectations, no bits of luck and no setbacks whatsoever. Would the forex market be in motion under such circumstances? The answer is negative, the market would be completely motionless!

The price of a currency pair doesn’t represent the current value

Another fact which should be also very important to realize is that the price of a currency pair actually isn’t the real price! In other words: the current price of a currency pair doesn’t represent the actual relation between the different economies. The current price is a combination between the expected price in the future, an estimated value based on the view of the market and the results of events from the past, the present and in the future! Actually the forex market is continuously trying to find a balance between all these variables.

Professional fundamental analysts know how to estimate all the news in the economic, political and social field on their proper value. Moreover fundamental analysts know how to incorporate and use all this information BEFORE it becomes visible by means of a rise or drop of the price of a currency pair.

The pitfalls of fundamental analysis

As I already indicated, I personally think that fundamental analysis isn’t suitable for novice traders, because there are simply too many pitfalls involved. Unless you are a born economist, this isn’t a simple matter. This way beginners among other things often make a mistake by reacting on news, whereas the effect of this news has often already been incorporated in the price.

A well-known example of such a pitfall occurs when for instance the ECB (European Central Bank) is announcing a rise in interest rates. A rise in interest rates normally speaking will cause a price increase and as soon as the news of this increase is released to the outside world, many traders will promptly react on this development. However there is a fair chance that this news has already been integrated in the price for some time whereas the beginning forex trader is reading it for the very first time. Fundamental analysts have already been collecting several signals a lot sooner for example as a result of having overheard pronouncements of ECB employees or they were logically able to foresee a rise in interest rates by means of interpreting economic statistics in the right way.

Gain more in-depth knowledge about fundamental analysis in the right way

Although it may seem that I’m a bit skeptical in relation to fundamental analysis, this isn’t the case at all. I think that it certainly is worthwhile to gain more in-depth knowledge about this matter, because you’ll get more self-confidence and you could be able to gain a higher win ratio, but you’ll have to deal with it in the proper manner!

Reading the standard articles about fundamental analysis could provide you with a thorough basic knowledge, but as long as you don’t know the correlations between several kinds of markets, news publications and economies, you still cannot achieve anything at all applying this knowledge. Apart from that you’ll have to know how to estimate the value of all the fundamental news and you’ll also have to take the market sentiment into account. It should be evident that apart from the needed knowledge this also requires a necessary part of experience.

Icarus ProjectI recently followed the Icarus course myself and I experienced that during this course fundamental analysis was considered at length. Although I had been reading quite a lot about fundamental analysis, this course turned out to be a real eye-opener for me. However there is a price tag attached to this course and my advice to you is not to start it before you’re feeling at ease in the field of technical analysis and the basics of the market sentiment.

Conclusion:

In case of the OFS Trading System in principle we don’t use fundamental analysis. On the other hand important news publications are seriously taken into account, with the restriction that you’d better not open a position in case of which there is a fair chance that your position will be stopped out caused by the volatility of a news publication.

If you’re already familiar with the foundation of the OFS Trading System, one of the first next steps should be attaining more in-depth knowledge about the market sentiment. Compared with fundamental analysis determining the market sentiment is a lot easier. In the next article I’ll consequently consider the market sentiment at some more length. In case you want to attain more in-depth knowledge about fundamental analysis, I’ll gladly refer you to the Icarus course.

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