There are two main approaches when it comes to predicting price movements and determining forex trading opportunities. First is the technical analysis that tries to predict the direction a price is making based on historical price data and statistics.
Then, the other main approach is performing fundamental analysis, wherein as the name states, is based on economic fundamentals of a given asset, sector, or economy into account to identify if it is currently traded higher or lower than the actual fair price – thinking that eventually, the price will reflect the information.
To explain further, the main goal is establishing, based on publicly available data – whether the asset becomes undervalued, overvalued, or priced correctly.
One more way of seeing it includes understanding that the supply and demand drive the forex market. Also, the fundamental approach aims to understand the factors that affect supply and demand for profit-making purposes.
Fundamental trading has been a very famous method. However, people often linked it to buy-and-hold strategies instead of short-term trading. Some of the greatest investors – like Warren Buffet and Benjamin Graham – typically invest based on fundamentals.
How Traders Move
Most of the time, stock traders base their fundamental assessments on the firm’s financial statements they are valuing. And this enables them to identify if it is appropriate to sell or to buy a specific stock.
Aside from that, there is also a chance to adopt this approach when analyzing the currency markets. Similar to the financial statements of a company that they use to determine if its stocks are trading higher or lower compared to the fair price, economic indices – the ones that help in measuring the economic performance – can assist in identifying whether a currency is overpriced or not, or foresee which direction the markets might take after its publication or even during the longer run.
There are several factors to consider before starting to explore this approach. One of these is that some of the relevant economic indices impact a currency’s performance compared to others. So, it indicates that the publication of particular indices or figures is more prone to having a more massive influence in the markets than the publication of other relevant detail or event.
Then, the markets typically move on expectations for the future. Thus, experts and analysts’ criteria and expectations about any economic figure or event might become relevant before and after the information is announced or the event happened.
With that, an interested trader in adopting this approach must focus not just on the figures and events, but to the analysts’ forecast. And this is because the expectations given could affect the market’s reaction in a significant way.
Forex Economic Calendar
It isn’t easy to keep track of all the important information about currency while engaged in currency trading. The required information can be accessed easily from a lot of news outlets. Still, it is more convenient to have access to automatic updates, and many forex brokers and news sites give access to one.
The perfect economic calendar must provide real-time information linked to the most popular currencies. Also, it must give the trader information about any upcoming relevant events that might affect the markets, the analysts’ expectations, previous numbers, and even the level of impact of the information reported.
People can customize most economic calendars and only show information that a trader thinks is relevant. For instance, if a trader wants to trade the EUR/JPY pair, the trader can filter the calendar to show information about the Euro and the Japanese yen only.
With the data given by the economic calendar, investors can identify if a currency has strong or weak fundamentals. As a result, it would help them decide on buying, selling, or holding the currency.
Another method of using an economic calendar and relying on your fundamental assessments is basing the strategies on a third party’s perspective. Several news sites, trading platforms, and brokers give their fundamental estimates to their clients. So, learning to read the fundamental analysis in forex and relying on their insights might be viable.