Fundamental Analysis

Fundamental Analysis


basic assumptions

Fundamental analysis has two main assumptions:

  • Long-term time frames We use fundamental analysis to assess long-term trends. consider Like a ship in motion, there is usually a long process of preparing a ship to change direction for an extended period, After she used to sail in one direction.
  • Currency trading is a relationship between one currency country and the other currency country (which is the currency pair). Economic data, whether negative or positive for a country, has a different effect on the currency of another country. constituent of the pair. Simply put a coin that is seemingly weak, but it will show greater strength when compared to a weaker one. Of which.

Essential Analytics

  • An advertisement or statement about the health of a country's economy can excite market participants. special in In this era, all news is at the tips of our fingers, and as soon as news is spread, huge amounts of money are transferred. From one asset to another in a jiffy. The smart trader needs to beware of the type of events that can. When will these events occur, and of course, he must prepare himself, and how will he react to them.
  • Fundamental analysis can be linked with technical analysis so that the trader can clarify not only when and why it will happen. Not only does it make huge price movements, but also arrives at what price will enter or exit the market (up to on technical analysis).

Economic Indicators

There are a number of different indicators provided by the government or academic institutes, and these indicators help you in assessing the health of the country's economy. The reports of these institutions are issued either: weekly, monthly, or quarterly. You will be presented with data points indicating the health of the economy, followed by every person in any investment or financial market.

In all, economic indicators can be divided into:

Dependent indicators
It is issued after the beginning of the market movement in a certain direction. These indicators prove the validity of the changes that occurred in the economy.

Leading Indicators
It precedes the changes that occur in the economy. These indicators are used to predict what will happen next.

Key Economic Indicators

Interest rates
Interest rates can have huge effects on the flow of capital into and out of a country's currency. Maybe you are a mods Interest is the most important data to remember.

In general, the high-interest rates charged by a country attract foreign investment, as these investors seek to get a higher interest on their capital. This results in an increase in the demand for the state's currency, and the continuation of the High ratings. Conversely, if interest rates were low, this would cause the country's currency to depreciate, as Investors are looking for better interest rates on their capital.

Employment status/unemployment rate
The unemployment rate is the percentage of the labor force that is unemployed but is looking for a job and has a desire to work. High unemployment rates indicate the weakness of the labor market in the country.


non-farm payroll

Non-farm salaries measure the number of employees in the last month who were not employed in agricultural work. Reporting Important. and specializes Non-farm payroll is the first Friday of every month in the United States, usually an event The numbers inside the report are divided into wages by hourly, numbers about the increase or decrease in the number of jobs in a particular sector, And of course, there are revisions to the numbers that were released in last month's report.

GDP

This is the most general measure of economic activity, and one of the most important indicators of the health of the country's economy. Changes appear in The percentage of GDP, and the growth rate of the economy as a whole.

trade balance

It is the difference between exports and imports (exports minus imports). This is the largest component of the budget State payments. Export data give us an indication of the country's growth. Whereas, imports indicate the rate of domestic demand.

Consumer Price Index

This indicator measures the changes in the prices of goods and services. The indicator measures the change in prices for the consumer. It is an essential component for eliciting changes in purchasing trends and the country's inflation rate.

Producer Price Index

This indicator measures the average change in the selling price of goods and services for local producers, and it is a measure of the cost of the industry. the goods. The indicator measures the change in prices for a product.

retail sales

This is a measure of retail sales over a specified period of time.

PMI

It is a measure of the health of the industrial sector economy.


Beginnings of building houses

A measure of the number of home building projects during a specified period of time.

industrial production

A measure of the production of industrial activities. It gives us good evidence of the strength of the manufacturing sector.

Consumer confidence

It is a measure of the confidence given by the consumer to economic activity. It is one of the leading indicators because it predicts consumer spending, It is one of the most important pillars of total economic activity.

Applications

Although as a trader you need to understand every little detail in economic indicators reports. but it's beside It is important for you to know the relationship of these indicators to the country's economy. For example, you should know any indicator It is used to measure the country's economic growth rate, and any indicator that measures its inflation rate.

The importance of this is due to the difference in what economic indicators measure. In general, financial markets tend to have More responsiveness to a small number of indicators, while others are ignored, and those indicators can be insignificant its importance change according to the political and economic conditions during a certain period. For example, during times of expansion
Economic, markets are more sensitive to changes in interest rates in a specific country than to
About unemployment figures.

Expect the unexpected

Economic data matters not from what it measures, but from whether or not those numbers are in range.
Market expectations during that time. If the report gave a different picture from what economists and participants in the market (the “prediction” that you see in our Economic Calendar), this results in a market surprise, and prices become More volatility, opening up potential deals, while the market adjusts itself to the continuation of new data.

And we say a word of caution, the trader should not be too anxious to act when any economic statement is issued. It follows market expectations because when the market moves on the impact of unexpected data, it quickly reverts back to its previous state. on the flow of information. This is commonly caused by data that are subject to a monthly review, such as the unemployment rate, and a report on Non-agricultural salaries.

data points

Despite the academic economist’s evaluation of the comprehensive data for the numbers that are issued in the economic report, it does not care Traders know all that data, but they care about the headline numbers (such as unemployment up to 9.8%, and salaries at 9.8%). The non-agricultural sector is at 216 000 (these numbers help them in making an informed trading decision. You will see that you move The price moves from one direction to the next in a dramatic way, as there is a lot of money that is expected to be transferred or fixed from one asset to another. Depending on the data points.


Economic Indicators and Trading

  • Make sure to always have an economic diary close to you, to keep you informed of the most important economic announcements.
  • He identified the most sensitive economic indicators during that period and remembered that this would change over the course of the year. time.
  • Prepare for a sharp market swing, either by staying on the sidelines and waiting for the calm to come or by staying strategic. Stop-loss orders are placed to sustain any breakout, and/or to limit potential losses.

Note
The self-conscious traders are immersed in following the economic news, believing that they are able to make a quick profit. Because the market is going through sharp price movements, but they will soon find themselves with any money in their accounts. Trading based on news is characterized by a high level of risk, so if you are not trading on a small amount of Your money In such circumstances, it is wise to wait until after they expire (or possibly wait for the beginning of a trend new) to enter the market. This is dangerous, re-read the note if you want to keep your account.



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