This common question has a unique answer this time.
In this article, I’ll uncover the truth about fundamental analysis in the Forex market and explain how to use it effectively. I’m sure that even some professional traders may not fully understand this and might apply it unconsciously.
What is True Fundamental Analysis?
When we carefully examine a currency pair, we realize that fundamental analysis isn’t just about financial reports and important news. It’s also about understanding how news impacts the market. But if you think I’m only talking about the importance of news, you’re mistaken.
I’m referring to the natural movements of a currency pair. Each currency pair’s movement style reveals the type of traders in that country’s market (only discussing national currency pairs here, not global pairs like XAUUSD).
For example, GBPUSD has larger movements compared to EURUSD, even though both currencies are in Europe. But what does this have to do with fundamental analysis?
Imagine both EURUSD and GBPUSD in the same economic news situation. Inflation is bad in both regions and at the same rate. Which one will move more? Yes, GBPUSD.
Ignoring this difference can lead us to choose poor profit-taking points. So, we need realistic expectations of what fundamental analysis can achieve.
Here’s the Secret!
Fundamental analysis alone cannot help you; it’s actually the movement expectations from the analysis that help make profitable trades. In reality, fundamental analysis is not a golden key to profitable trades—it carries similar risks as technical analysis.
Experienced traders have seen many times how news can go against expectations, surprising everyone. Reasons can vary, including elections and political changes.
For example, as the U.S. elections approach, financial reports have suddenly shifted from a crisis tone to an overly optimistic one. This is likely a publicity move, and we don’t complain! But with careful analysis, we understand what’s coming in the fundamentals.
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