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FUNDAMENTAL ANALYSIS
We are frequently asked whether it is necessary to have an understanding of fundamental analysis and although it is a very important topic, it is a subject widely misunderstood by many traders. To use the Stealth Forex Trading System, it is not necessary for you to study market fundamental information at all. However, if you want to really sharpen your game, at least a basic understanding of fundamental analysis will help you. If you intend to add fundamental analysis to your forex trading strategy you will need to be aware of what actually drives the forex market - interest rate differentials, political stability, gdp, balance of payments, inflation etc. Then you will need to understand that as each piece of fundamental information changes the market will react to that change. Where many traders make a mistake with trying to understand the fundamental information is that they look too closely at the information itself, when what they should be trying to gauge is how the market will react to this change. This is market sentiment.
Let us take a hypothetical case. Let’s say that in the past, each time the FOMC has announced a rate increase of 0. 25bps the dollar has strengthened immediately after that news release. So why is it that this time when they announce a 0.25bps increase, the dollar takes a sharp decline. It is because the market had believed, for whatever reason, that the FOMC would raise rates this time by 0.50bps and so the 0.25bps is a disappointment to the market and as a result the dollar gets sold off. That is why it is so important to understand the fundamentals but to pay even more attention to market sentiment. I am not an advocate of making trading decisions based on fundamental analysis, as I prefer to system trade, but a good grounding in fundamental analysis will help you to assess which strategy to use and more importantly, it will help to give you a better understanding of when NOT TO TRADE.
There are a vast amount of books, newsletters and websites dedicated to the study of fundamental analysis. I recommend that you make a search of them and do some studying, but here are two sources to start you off.
http://www.actionforex.com/contentcategory/forex_fundamental_analysis_reports/
http://www.investopedia.com/articles/trading/04/031704.asp
We also recommend that you read the John Mauldin weekly letter. Click Here To Read Now. I hope that you find this information of help. |
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