In order to optimize your trading profits, expert consensus advises that the best way to achieve this objective is to devise a trading strategy. Many traders utilize fundamental analysis to help them perform this task. This type of analysis attempts to predict the future price movements of assets, i.e. stocks, commodities, currency pairs and indices, by studying the political, environmental, and economic developments that will influence their basic supply and demand.
As such, you will need to learn how to identify and then evaluate the background of all relevant attributes as well as the release of important news and data in order to assess their impacts on your assets of interest. For instance, your studies may include political developments, new economic policies, economic growth forecasts, inflation and interest rate changes, etc. You will also need to track the relevant statements and data provided in speeches made by prominent economists and politicians.
In particular, you should focus on all important announcements relating to the USA economy and politics because they can have the most influential impact on asset values. For example, you will discover that speeches made by the Chairman of the USA Federal Reserve Bank and the US Secretary of Treasury can create dramatic price movements.
You no doubt know that the value of an asset will appreciate in response to good news whilst it will decline in the case of adverse developments. Consequently, you will need to study a wide range of information pertaining to the health of relevant attributes in order to predict their effect on the value of the associated asset. Depending on your choice, you may, for example, need to analyze government policies and future plans as well as track important economic indicators such as international trade, CPI, durable goods orders, gross domestic product (GDP), PPI, PMI, and industrial production, etc.
After you have examined all the necessary data, you will then need to develop a model that will help you determine their effects on the present and future values of the applicable asset. If you can achieve these objectives, you will subsequently be in a strong position to evaluate whether your asset will appreciate in value or not. Consequently, if you plan to utilize fundamental analysis then you will need to focus on assessing how all important political and economic developments will influence the price movements of those assets of interest.
You will also need to acquire an intimate feel and understanding of fundamental analysis in order to deploy it well. Many experts advise that you can achieve this objective by combining this study with that of technical analysis to some degree or other in order to help you create a trading strategy.
One of the most dynamic features of fundamental analysis, which is capable of influencing many assets concurrently, is the release of important global economic data that is capable of generating significant price movements. Prime examples of these events, which are classified by experts as essential monitoring, are the USA non-farm payroll, national interest rate changes, US unemployment claims, and the US trade balance, etc.
Such publications can generate rapid price surges or spikes, which is especially so if the data released pertains to the USA economy. You must also realize that substantially large price movements are produced if the released figures differ substantially from market expectations. In contrast, if the published values match those predicted by prominent market analysts, then the resultant influence tends to be muted.
Consequently, if you can learn to accurately forecast the reactions generated by key economic data releases, then you will certainly improve your ability to trade successfully. However, you must understand that this task is not so easy to accomplish consistently until you have mastered the concepts of fundamental analysis.
This is because the price movements of an asset are influenced by a huge number of trading participants, all of whom possess their own agenda and objectives. This attribute of fundamental analysis surfaces especially during the publication of economic data that is classified as of high importance. However, a thorough understanding of fundamental analysis is capable of providing you with the necessary insights to formulate profitable solutions.