Introduction to fundamental analysis
What is fundamental analysis?
Fundamental analysis is the analysis of the current core elements that affect an economic entity, such as stocks or foreign exchange. To predict the price trend of a business sector by analyzing economic indicators, official policies, social or other factors.
If you think of the market as a huge clock, the fundamentals are the gears and springs that provide power. Everyone can say what time it is, but only by knowing the fundamentals can we know the reason behind the clock (or price) running.
Fundamentals? Or technical?
There seems to be a tendency to simply divide traders into two categories: fundamental and technical. In fact, most wise traders tend to combine the two, rather than just use one side of it.
Fundamental analysts need to pay close attention to the technical signals on the charts, and technical analysts should not underestimate the key economic data, important political decisions or major social events that affect the exchange rate.
Forecasting the economic situation with the model
Fundamental analysis is very effective in predicting the economic situation, but it can't help you predict the exchange rate accurately. Analyzing GDP or employment data can help you get a general idea of a country's economic situation and the reasons behind it, but you still need to translate it into specific import and export transaction prices in some way.
The bridge between fundamental data and trading strategy comes from trading model. These models use current or historical empirical data to predict future exchange rate development and translate them into specific trading strategies.
Prevention of "gain and loss"
Prediction model is a combination of sensibility and rationality. Because of its many ways, traders may be at a loss when learning and using it. It's hard to say when you can confidently confirm the timing of your order.
As a result, many traders turn to technical analysis at this time to verify their forecasts and observe the entry signals in terms of price patterns.
Let's look at the fundamental factors first
Fundamentals cover all the elements that drive a country's economy and currency changes. From interest rates, central bank policies to natural disasters, the fundamentals are a series of unique dynamic combinations of plans, abnormal behaviors and unknown events.
Therefore, not every change can cause the fluctuation of a country's currency. It is suggested that you should start with the main contradictions, first focus on the decisive factors, and do not grasp them at all. Instead of focusing on all the fundamental data, we recommend that you first capture the most influential elements in the fundamental mix.