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Fundamental analysis | Complete and updated guide

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What is the famous  fundamental analysis  and how does it work? In this guide we will discover in detail all the secrets of this discipline applied to the Forex market.

Among the fundamentals of  Online Trading , every investor must know the “fundamental” dynamics of an asset or a market, in order to enter the market with a greater probability of success.

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❓ What is it? Fundamental analysis
🎯 Reference market Forex
🔥 Relevant factors Geopolitical indicators
⭕ Trading methods Macroeconomic news
📚 Where to study? LiquidityX PDF ebook

For years as opposed to technical analysis, the two disciplines can actually be integrated and both provide useful indications for investing.

What is fundamental analysis?

The term Fundamental Analysis refers to a method of evaluating the intrinsic value of an asset, analyzing all the factors that could determine the future price trend.

This methodology is based on the  analysis of external events  and it is necessary to identify the field of application. In fact, the fundamentals in the stock market will be based on balance sheets, quarterly reports and data on the health of a company.

In our specific case, which is the  Forex , the factors to consider are others: GDP, interest rate, unemployment and more.

There are two different approaches to fundamental analysis:

  • Top Down (d and top – down)
  • Bottom Up ( bottom – up)

The Top Down method  starts with a general analysis of the market and then defines a particular asset. On the contrary,  Bottom Up  starts with a specific sector and then defines the market as a whole.

In the Forex market the most widely used approach is the Top Down since the variables that comprise it have a generalized impact on all currencies.

How does fundamental analysis work?

Within the Forex market, the operation of fundamental analysis is based on some very important aspects:

  • Macroeconomic indicators
  • Industry news
  • Geopolitical events

Therefore, it will be necessary to have a portal that acts as a collector of all this news (such as  ForexFactory  ) or simply use the calendar present in the trading platform used.

The  economic calendar  is the basis of fundamental analysis applied to Forex. It contains all the main news of the day, week or month, divided by color:

  • Red (high impact)
  • Orange (medium impact)
  • Yellow (low impact)

We suggest entering the single market following news high impact , since the other two often offer “noise” bad leaked confuse risk.

Fundamental analysis indicators

What are the main indicators of fundamental analysis? Here are all the ones you should consider when investing:

  • Interest rates
  • GDP
  • Retail sales
  • Unemployment rate
  • Price index

Let’s discover its characteristics.

Interest rates

Undoubtedly the main indicator of fundamental analysis is the news on interest rates from  central banks .

Interest rates express the cost of money and therefore indicate the health of a given economy. The correlation with the currency in question is direct.

Example:  a rate hike by the FED will imply a rise in the dollar against other currencies.

GDP

Economic indicator par excellence, GDP expresses the  Gross Domestic Product  and therefore the wealth that a nation produces.

Although many consider it a crude and outdated indicator, it is still one of the main parameters for evaluating the economy of a state.

Again, the  monetary correlation  is straightforward: as GDP increases, so will the underlying currency.

Retail sales

This macroeconomic tool is very useful to understand how many retail sales there have been in a state. The report indicates the  global sales  of all stores included in a diversified sample.

Obviously, it is necessary to adjust this value according to the various seasonal trends, in general it offers a clear view of the economic health of a nation.

Unemployment

Another very useful indicator for fundamental analysis: the unemployment rate.

Among other things, one of the most anticipated data of all is that of the  Non-Agricultural Payroll , which is published on the first Friday of each month. The correlation is inverse: the higher the rate, the weaker the currency in question.

Among the top high-impact news, we suggest considering only the outgoing data related to the US and Europe.

Price index

Known by the acronym for CPI ( Consumer Price Index ), this index is a great thermometer for inflation.

Much feared by central banks, high inflation also indicates increased consumption and thus a strong economy. This data is the most controversial among those present in this list since it must be inserted in a specific context and correlated with other indicators.

However, every time the IPC comes out, there are many fundamental analysis traders waiting for its publication: the  volatility  generated is very high.

How to trade Forex with fundamental analysis

Many investors in the stock market choose to trade only following fundamental, therefore macroeconomic news.

Trading fundamental analysis requires completing 4 steps:

  • Open the economic calendar
  • Set Stop Loss and Take Profit
  • Observe the difference between the expected price and the published price
  • Enter in the market

As a first step, we must open the aforementioned  economic calendar , to see which and how many high-impact news there are during the day, as well as the expected time of publication.

Later, a few minutes before the launch, it will be necessary to enter our platform and establish two  levels of Stop Loss  and two  levels of Take Profit : one pair above the current price and one pair below the current price.

This aspect is crucial: without knowing what the outgoing data will be, it is necessary to set two pending orders (bullish and bearish) to be prepared for both eventualities.

When the data is finally published and is visible in the economic calendar, it will be advisable to check the difference between the  forecast and the real value . This will determine the price trend on the chart!

Here’s an example: the GDP forecast for the United States is + 4%, while the published data stops at + 3%. A positive value, of course, but lower than forecasts. The practical result will be a fall in the dollar.

Finally, with these clear data, it will be advisable to verify if any of the 2  pending orders  has been linked and then proceed with the closing of the other order, to have a single transaction in the market.

Where to trade with fundamental analysis?

To take full advantage of this analysis methodology, it is necessary to have  qualified and regulated brokers.

The problem is not only related to the safety of our funds, but it also acquires practical value: only at the best Forex brokers are there real-time charts and professional trading tools for fundamental analysis.

It is clear that to better manage these operations you need an up-to-date trading calendar, compensated requote times, and the ability to enter pending orders.

What are the best brokers for fundamental analysis trading? Without a doubt eToro and LiquidityX, for the services offered and the quality of the platform.

eToro

The eToro broker  is excellent for investing in Forex, not surprisingly, it is the choice of more than 14 million clients who use it every day for currency trading.

The platform is very practical and intuitive, the spreads are low and there is the possibility of practicing on a free demo account.

The main advantage of eToro lies in the fact that it is a “social platform”: by registering, you become part of a  community  with thousands of other traders. A perfect solution for commenting on fundamental analysis news, making forecasts and exchanging tips.

Without forgetting that through Copy Trading it  will be possible to copy the operations of the best traders, a very successful automatic trading method!

LiquidityX

LiquidityX is a high quality and very popular Forex trading platform on a global scale.

Trade with a  Metatrader  or in a convenient application: ultra-fast execution times and all the main indicators to trade like a pro.

Inside there is also an economic calendar where you can see all the high-impact news.

Another big advantage of LiquidityX? Definitely the trading signals , also very useful for investing based on fundamental analysis.

Here’s an example: Has a high-impact story been published that we forgot to see? No problem, we will receive the notification in real time with information on how and where to invest.

These  signals  are very popular, especially for beginners, and they have no subscription costs: LiquidityX offers them free to its clients.

This is where you can test the signals on a demo account:

Pros and cons of fundamental analysis

This investment methodology certainly has more advantages than disadvantages, here is a clear prospect.

Pros

  • Ability to define whether an asset is overvalued or undervalued
  • Investment decisions based on objective data
  • Ideal for long-term operations

Cons

  • Complexity of some indicators
  • Inability to predict black swans

Although at a general level it is an adequate long-term methodology, the appropriate combination with  technical analysis will  allow us to balance our investment portfolio even in the short term.

Fundamental Analysis Forex PDF

This discipline is really wide and varied, it is not easy to find books or manuals that can offer a global vision of fundamental analysis.

Also, many books focus on the stock market and do little to accommodate Forex.

What solution is there? From Inversiones24 we would like to recommend the liquidityx , perfect for those who are taking their first steps in Forex.

Inside is a clear and precise explanation of fundamental analysis with numerous practical examples, to understand how to optimize your trading strategies.

Before spending money on  expensive books , we simply suggest that you download this great eBook in PDF and then practice with the demo offered by the broker itself.

Here is the link:

Fundamental analysis books

What are the best fundamental analysis books? Here is a review of the most successful editorial proposals:

  • Fundamental Analysis, Complete Guide (Thomas J Taylor)
  • Forex with fundamental analysis (David Carli)
  • Trading techniques on the Stock Market and Forex (Eugenio Milani)

Obviously, when we refer to this type of analysis, actions also come into play. The trading techniques are similar, but there is a lot of difference in the processing phase of the analysis.

While in Forex the main factors are geopolitical events, in stocks the indicators to take into account are balance sheets and aspects such as P / £ or Cash Flow, among others. The difference is substantial, so we suggest you delve into these concepts in the best fundamental analysis books related to the Forex world.

Why trade with Fundamental Analysis?

Taking fundamental analysis into account is a crucial aspect when investing in Forex , as it offers valuable information to understand all the dynamics of the market.

Unlike stocks, the Forex undergoes sudden changes after a high impact news. This is the main reason why it is worth knowing in detail which News is relevant and when it is published.

It follows that investing in this way is much more professional and profitable , with benefits for our investment account. That is why taking into account fundamental analysis in the Forex market is an essential aspect for every trader.

Fundamental Analysis Tutorial

Here is an interesting video tutorial from Zartex that explains step by step how to take the first steps in Forex thanks to the principles of fundamental analysis:

Conclusions

At Inversiones24 we have been in charge of providing an exhaustive description of all the principles that govern fundamental analysis, a very successful methodology in the Forex market.

Knowing the events and dynamics that govern the balance of power between currencies is crucial to a successful investment. That is why studying  fundamental analysis  offers a significant advantage in terms of closed trading at a profit!

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