When numbers decide: why we love fundamental analysis

When numbers decide: why we love fundamental analysis

When numbers decide: why we love fundamental analysis

Most traders ignore fundamental analysis, considering it too complex and inefficient. However, by doing as they do, you are simply voluntarily reducing the number of your profitable trades, leaving your Forex profits to someone else.

In this article, I will tell you how to increase your Deposit using fundamental analysis, even for those who do not understand it at all. Those who do not understand the world political and economic situation. Those who have just come to trading.

I want to debunk the popular myth that fundamental analysis is the lot of analysts and trading gurus. Fundamental analysis cannot be ignored, justifying it with a lazy "I don't understand anything about it anyway". Not to pay attention to fundamental analysis is like going to sea on a sailboat to catch the wind and raise the sails. Agree, a stupid decision. If You don't want to make such mistakes in your trading, watch this webinar!
There are some traders who are convinced that fundamental analysis does not work. Or they perceive it only as trading on the news. In my opinion, this is primarily the opinion of lazy traders. After all, if we assume that it still works, then we will have to delve into all this business to understand all these figures-it's easier to give up on it. On the other hand, this is what people say who have not yet fully understood the probabilistic nature of trading. They believe that if fundamental analysis works, it should always work. And any exception, any currency that has fallen despite its good performance, is considered as proof of the futility of this type of analysis.

Perhaps most traders are misled by the very concept of "fundamental". The Foundation is the most important part of any building, which is why we associate this word with something strong, reliable, something to rely on. However, you should not rely on fundamental analysis alone, otherwise your assumptions will not always come true. I can say with confidence that there is not a single analysis or approach on the market that works 100% of the time. Therefore, it should be applied in parallel with other types of analysis, such as technical analysis, volume analysis, and analysis of option activity for the instrument that the trader is trading.

Does fundamental analysis work? This question is not entirely correct. It is more Correct to ask "is fundamental analysis useful?» Of course, useful. Attention to fundamental indicators significantly increases the number of profitable trades. Personally, in my trading practice, I use fundamental indicators as additional information that helps me better understand the priority direction in the currency pair. In fact, my approach is that I look at the numbers and try to understand how they will affect the current monetary policy of the Central Bank (CB). This approach makes it more likely to determine the reversal points in the trend, as well as the priority direction.

Now let's learn more about how fundamental analysis works and what you should pay attention to first. As I said, I look at all indicators through the prism of possible actions of the Central Bank. The fact is that the Central Bank is the largest player in the foreign exchange market, it has a printing press and a lot of other levers of influence on the value of the currency. Therefore, first of all, it is important to understand what goals it pursues.

In simple terms, the main task of the Central Bank is to ensure that, through monetary policy, it provides the necessary level of employment, inflation, and GDP growth. It is important to understand that the Central Bank is not a speculator, and the value of the currency for it is just a tool with which it achieves its goals.

So, we have three key indicators:

Unemployment rate
Inflation
GDP

Remember the chain of three TS: "Central Bank – goals – price". The price is affected by goals. At the beginning of each year, any Central Bank sets its own goals for each of these indicators, that is, it says what it wants to see the level of unemployment, inflation, and so on. If these indicators exceed the target levels during the year, the Central Bank applies its leverage, increasing or decreasing the value of the national currency.

Now let's use the example of the UK to analyze this type of analysis in trade.

The Bank of England's inflation target is 2%. This means that the Bank of England wants to see inflation in annual terms at the level of two percent. If inflation exceeds these indicators, the Central Bank begins to tighten policy, that is, to make money less accessible in order to contain their depreciation, thereby strengthening the national currency.

After the results of the referendum on Britain's exit from the EU, we could see a steady downtrend in the GBP/USD pair. And if you just look at those analysis on March 14, everything foreshadowed the continuation of this downward trend. Many traders I know who only trade on the basis of technical analysis sold the pound on this day, expecting a further decline. However, it was on this day that data on inflation began to be released, which indicated that its level only according to preliminary data will be 2.3% in annual terms.
This meant that the British Central Bank could change its approach from soft to more rigid in order to contain inflation, which would lead to a strengthening of the pound. Thanks to this data, I realized that a change in the global priority direction for the pound was being formed, waited for my additional filters (technique and volume) to confirm my idea, and took a position in Buy. As you can see, I was absolutely right.
On his special course "Sniper. Maximum" I pay special attention to the topic of fundamental analysis and its practical application in the market. This information helps my students of any level of training to find entry points in the very beginning of the trend and determine with better accuracy the places where the priority direction changes.

Let me give you an example of a student from my previous group. He had some problems finding the point where the trend changes its direction, because he used only technical analysis and determined the trend either by eye or using different technical indicators. This led to the fact that the trend change was determined after the fact, and this very often lost money in such transactions. But after we added fundamental analysis to his trading strategy, he was able to find places where the trend changes not after the fact, but at the very beginning. As a result, he managed to take the current uptrend for GBP/USD right at the start of its formation.
To date, the price from its entry point has passed 900 points.

The next example of using fundamental analysis in my trading is the USD/JPY and EUR/JPY trades.

The Central Bank of Japan adheres to an ultra-soft monetary policy, since the Japanese economy has not recently shown the necessary growth rates. To correct this situation and stimulate economic growth, the Japanese Central Bank has not tightened monetary policy for several years. But, unfortunately, this decision did not give effect for a long time. And on March 12, the head of the Central Bank of Japan said that, according to the latest data, such a policy has led to the necessary results. This meant that the Japanese Central Bank will conduct monetary policy a little tougher than before (thereby affecting the strengthening of the national currency).
Trading is a game of probabilities, and fundamental analysis is a necessary component that increases the probability of a positive outcome in your trades. The more trade guidelines you have, the clearer, more correct, and more profitable your path, your trade, will be.

As you can see, fundamental analysis is a necessary thing for every trader who wants to earn more on Forex.

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