As we noted before in this course in forex trading, fundamental analysis offers the best guidance for determining price trends. To give a simple example, in a stable economic environment, with good economic growth, and healthy employment statistics, central banks are almost certain to respond to high inflation with interest rate increases, to which the markets will usually react by buying and favoring the currency of the nation in question. And as central banks seek credibility in their actions, and are not very likely to zigzag with their rate decisions, the trader can anticipate the beginning of a long term trend through his analysis of the central bank’s policies and goals, and by following his analysis, he can realize profits.
Of course, there’s a lot more to be said about this subject, but the basic principles are simple. The attention span of the market is not long enough to fully evaluate the significance of fundamental developments, and economies absorb changes to fundamental values slowly and gradually. There’s ample time for the trader to profit from such changes, once he’s aware of them, even if he catches the trend after it’s fully underway.
- Fundamental analysis is the best method for determining overall price trends.
- Forex traders use fundamental analysis to anticipate long term price trends.
- Markets tend to react slowly to changes in economic data, giving traders plenty of time to profit.
- The Power of Fundamental Analysis
- What is Fundamental Analysis?
- How to Use Fundamental Analysis in Forex Trading.
More Free Forex Lessons
subscribe to get a FREE BONUS LESSON, plus course updates, trade ideas and market news - straight to your inbox
Forextraders' Broker of the Month
BlackBull Markets is a reliable and well-respected trading platform that provides its customers with high-quality access to a wide range of asset groups. The broker is headquartered in New Zealand which explains why it has flown under the radar for a few years but it is a great broker that is now building a global following. The BlackBull Markets site is intuitive and easy to use, making it an ideal choice for beginners.