Fundamental Analysis Basics
Fifty Second session of Forex Training
Welcome back to Forex professional training in financial markets.
In this session we will discuss Fundamental Analysis Basics and Risk seeking or Risk aversion.
Fundamental analysis
Fundamental analysis is a widespread method traders exploit before placing an order.
It is derived from an abrupt or present news from credible sources.
Fundamental analysis is based on the level of importance and consequence of news on market trend.
Due to news inconsistency, Fundamental analysis is quit complicated, namely, an event or news may have various reasoning and consequences in different regions.
As a result of news inconsistency, traders should not place an order only based on Fundamental analysis.
For instance, after Liquefied Petroleum Gas (LPG) reached $15, it has dropped around $3 because of several new pits investigations.
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Based on Geopolitical, political, social and economic conditions of a country, news may have different influence on the financial market of the given country.
Unlike technical analysis, Fundamental analysis does not have a defined and distinctive procedure.
For example, Head and Shoulders pattern provides certain amount of TP price by its H amount, while Fundamental analysis represents various conditions on a certain price.
Most of the traders prefer to use only Technical analysis, however, Fundamental analysis has major effects on financial markets.
Those traders who combine both Technical and Fundamental analysis can obtain rich knowledge of market trends.
It is strongly recommended that traders peruse the analysis of news rather than news itself.
The numbers and information inside news may have different effect from what it represents.
Trader should read the analysis of a certain news from credible websites or reliable proficient, consequently after 3 or 4 years they can develop their ability of news analysis.
Even experienced traders may misinterpret news.
When a trader wants to develop his/her ability on a symbol, then he/she should utterly analyse and study all aspects of that symbol such as political, economic, social and geopolitical situations of the countries that represent that symbol.
For instance, Euro is the currency used in most of the European countries, thus trader should check the political, economic and social conditions of those countries to develop his/her knowledge over that Euro currency.
Trader should consider calendared news and events alongside normal daily news.
Sometimes daily news may have more considerable influence on a market price rather than a calendared news or an event.
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There are some mandatory subjects that traders must fully understand.
- Is a more powerful currency more beneficial rather than a weaker currency?
Those countries with a weaker currency may have a higher rate of exporting goods and a lower rate of importing materials, due to lower manufacturing expenses.
Tourism trips to these countries have a higher rate as a result of cheaper services.
Since a job or a business needs less capital, you will find a higher volume of foreign investments.
Thus,a weaker currency has more advantages rather than a more powerful currency.
For example, Germany prefers to maintain the European unity as well as weaker Euro currencies comparing with other major currencies to increase its exporting rate.
If Euro currency project fails, then the Dutch currency, Mark, would increase considerably which will result in a lower rate of exporting goods in addition to a lower rate of tourism travel.
China requires to keep its currency as low as possible to maintain or increase its exporting rate, too.
If Yuan becomes more powerful, there would be a budget shortage considering a high population rate.
- Does Inflation have any advantages on a financial market?
When there is an economic progress and development, there would inevitably be some inflation due to a higher rate of asking against bidding.
As long as asking is higher than the bidding, the amount of liquidity would increase.
Financial and economic development is also the consequence of liquidity.
Although liquidity is mandatory for a progressive economic,liquidity must be kept lower than a certain rate.
Risk Seeking
Economic growth and unemployment rate develop risk seeking condition, thus, people will withdraw their capital and funds from banks to invest in a certain market or business.
Central bank should raise the interest to keep inflation in a rational amount. The rate of interest changes whenever inflation varies.
In this condition there is an increment in price of Gold, Commodities, Stocks and currencies with higher interest such as AUD and NZD.
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Risk Aversion
In a downturn condition, most of the people deposit their fund and capital in banks to receive interest since they cannot derive from any profit from their business.
Due to a high volume of liquidity in a financial market, banks reduce their interest rate to make people invest in their own business.
In this condition there is an increment in currencies with the lower interest such as USD and GBP.
For example, AUDUSD trend would proceed towards the bottom as interest in New Zealand decreases.
Gold, Commodity and Stocks may decline to a lower price. Gold decreased from $1900 to $1200 due to a financial collapse.
Gold has an upward trend in a Risk Seeking condition, however, its price falls in Risk Aversion situation due to an unfavourable market condition, especially in India and China.
That concludes this session, until next time and another session take care.