Fundamental Analysis is a broad term that describes trading action based solely on global aspects that affect the supply and demand of currencies, commodities and stocks. Many traders use both fundamental and technical methods to determine when and where to make trades, but they also tend to prefer one over the other. If you only want to use fundamental analysis, there are several resources to base your opinion on.
Central banks are probably one of the most volatile sources for fundamental trade. The list of actions they can take is vast; They can raise or lower interest rates (even into negative territory), keep them the same, suggest that their stance will change soon, implement unconventional policies, intervene for themselves or others, or even revalue their currencies. Fundamental analysis of central banks is often a process of reviewing the statements and speeches of central bankers while trying to think like them to predict their next move.
Trading economic releases can be a very uncertain and unpredictable challenge. Many of the biggest minds at major investment banks around the world have a hard time predicting exactly what an economic exit will be ultimately. They have models that take into account many different aspects but can still be embarrassingly inaccurate in their predictions; This is why the markets move so violently after important economic statements. Many traders tend to act with the “consensus” of these experts, and often markets will move in the direction of the consensus forecast prior to release.
If consensus cannot predict the final outcome, the market will often move in the direction of the actual outcome – that is, if it was better than consensus, a positive reaction will occur and vice versa, for an outcome less than consensus. The trick to trading the basic aspect of economic releases is determining when you want to commit. Are you trading before or after the figure is announced? Both have advantages and disadvantages. If you trade long before the market is released, you can try to take advantage of the flow towards consensus expectation, but other fundamental events in the world can affect the market more than consensus reading.
Some countries in the world do not get along very well with each other or with the global community, and sometimes conflicts or wars can occur. These tensions or conflicts can have a negative impact on tradable goods by changing supply or even demand for certain products. For example, escalating conflict in the Middle East could strain oil supplies, causing prices to rise. Conversely, since supply is not threatened, a relative calm in that part of the world could lower the price of oil. Being able to accurately predict how these events will turn out can be a way to get ahead in the market with your fundamental perspective.
With regard to weather, seasonality affects trade. For example, at the end of the calendar year, many investors will sell stocks that have fallen during the year to claim a capital loss on their taxes. Sometimes it's helpful to exit positions before the year-end sales start. On the other side of this equation, investors often return to stocks in January, a phenomenon called the "January Effect." The end of a month can be quite hectic, and businesses selling products in multiple countries want to offset their currency protections, a practice called "Month End Rebalancing."
Some key factors are longer lasting while others are more pressing, but trading them can be both difficult and rewarding for those with the gut fortitude.
Also, the key factors listed above are only the beginning of a much longer list as new fundamental trading methods are created every day. So keep your eyes open for new situations emerging and maybe you can basically be ahead of the curve.
