How to trade on fundamentals

Overview

Fundamental is one, if not the most important feature of market analysis. It allows a trader to forecast the market by following economic and financial news across the globe, thus giving them the overall sentiment of their trading asset's price. It might be also considered to be the easiest way to trade the financial markets on a binary options platform.

What are fundamentals?

Fundamentals might be defined as the economic data releases which are published across the globe by various economies. These data are calculated by economists from their respective countries in order to assess the country's performance. They tend to assess the economy throughout various data and are done on a weekly, monthly, quarterly or yearly basis. Do not be scared when you hear words such as: CPI, GDP, Tankan Index, ZEW and others. Those words might be the key to your success in trading binary options.

How to trade on fundamentals

Fundamental analysis might be in some way the easiest market forecasting method in the world. Traders tend to forecast the news and economic releases across the globe in order to determine the direction of their preferred asset on a trading platform. Positive or negative data being published in an economy might have serious benefits or consequences on the country's Currency, Indices, Stocks and Commodities. To be more explicit, let us take an example.

USA as we all know is the world's second leading economy now after being dethroned by China in 2014. The U.S is one of the widely known countries in the world to have powerful fundamentals which affects all its assets. One example of a fundamental which has the highest influence on US' asset is called the Non-Farm Payroll data (NFP). This fundamentals is released during the first Friday of each month and it calculates the amount of paid workers in the economy excluding, famers, governmental employees, nonprofit organizations workers and household job holders.

Therefore, an increase in this specific data's release will highly affect the USD on the chart. If the NFP data proves to be positive, the USD might rocket against other currencies on the chart. Therefore, if you are a USDJPY trader, you might speculate that this pair will rise following the positive NFP data, as the USD is the base currency for this pair, therefore leading it. The same goes for a negative NFP data, whereby the USDJPY will tend to fall.

However, if you consider trading a pair where the USD is the “quoted” currency, for example GBPUSD, this might be inversely related. Therefore, a rise in the USD will cause the pair to fall and a fall in the greenback will have a positive or no effect on the chart.

Trading on Speeches

Speeches are the most important fundamentals in the market and highly influence assets across the world. Speeches are done mostly by Bank Governors, Presidents, Prime Minister, and Officials etc… Those people have a consequent power on the currency and other assets in their respective countries. Most of speeches tend to dictate the past, actual and future possible performance of an economy. A hawkish speech is a positive speech given by the representative, which might push the economy's asset up on charts. A dovish speech on the opposite indicates a negative speech over the economy's performance, which might affect assets on the chart. To be more explicit, let us take a simple example:

If Mario Draghi, the president of the European Central Bank, gives a hawkish speech over the economy, whereby he states that employment might reach highs for the economic year's next quarter, might push the Euro's sentiment up on the chart, thus pushing the EURUSD to the bulls. On the other hand, a dovish speech from ECB's president might push the EUR down on the charts.

Tricky Fundamentals

Fundamentals might be very tricky to trade on at times, as not all fundamentals affect assets in a country. For example, a website that might help you determine if a fundamental will have high influences on economies is www.investing.com. This website's economic calendar happens to have a volatility indicator, which helps you to determine volatility of assets if the data is published.

You must be able to learn the different fundamentals name in order to start trading on fundamentals. For example, many traders tend to trade wrongly on simple fundamentals such as Jobless Rate. When unemployment rate goes up, some novice traders tend to think that this is a good sign for an economy as the data is going up. However, jobless rate means the unemployment rate in a country, therefore, the higher the figure is, the worse it is!

Example of Fundamentals

Warren Tancredi By: Warren Tancredi
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