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Forex Trading: The Importance of Fundamentals



Forex Trading:  The Importance of Fundamentals

Economic releases are one of the key elements that move prices in the forex markets.  Some forex traders might argue that technical analysis is all that you need to successfully learn to trade forex but the reality is that simply chart analysis will leave you vulnerable to major market surprises that could easily be avoided with some understanding of the underlying fundamentals.

Economic and news-based traders would argue that these reports are the most important factors when trading forex, and that these reports must be understood before making any new trades.  Some of the main events to watch are Retail Sales releases, Inflation reports and Interest Rate Decisions.  This is by no means, however, an exhaustive list of the economic news releases that can have an effect on forex trading but these releases are a good place to start when looking for rationale on which to base buy and sell positions.

Watch Your Economic Calendar

All of the major brokers offer free economic calendars that describe all of the critical releases.  This enables you to be prepared for extreme price moves that could be coming in the future.  But even if you are not looking at these schedules in order to place new trades, you should, at the very least, be looking at these schedules as a protective or precautionary measure, as these scheduled times will be the source of extreme price moves and unpredictable market behavior.   

“It is always a good idea to keep informed on the latest news releases and economic data because of this,” said the currency analyst at Teletrade, “even if you are not implementing forex trading strategies that directly use the information as a basis for trades.”  There is a wealth of material that is freely available at most brokers websites and this will allow you to educate yourself on all of the different types of releases and their relationships to specific forex pairs.  It is important to make use of these educational tools.

Remembering the Effect of Global Events

Additionally, it should be remembered that global events are also included in fundamental analysis.  These events can take many different forms and can include things like political elections, natural disasters, or military conflicts.  To be sure, this is not the only list of things that can cause major disruptions in the market or bring drastic fluctuations to forex prices  -- but these events can have a significant impact nonetheless.

There are many traders that will choose to simply focus on the technicals, or chart analysis, for their main forex pairs.  This is a heavily debated issue in the forex trading business, as there are very vehement investors that will agree with one side or the other.  But it is very difficult to argue with the point that even technical traders should have some understanding of the news events that are influencing markets.


The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Forex Markets


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