Fundamental analysis of the currency for many people is the bread and butter of successful forex trading. There is no doubt that there is a lot of truth in the statement that the currency markets are primarily driven by changes underlying the economies of the world. That is why so many professional traders ensure that their information is based on the best and latest information available. The question of whether someone needs to be an expert in fundamental analysis in order to be a highly profitable home forex trader is debatable.
So what is fundamental analysis? In its simplest form is a review of all the real economic data, political decision, national and international events that have the possibility of impacting on the perceived collective awareness of the forex market that in turn will potentially drive currency movements.
It is vital to understand the enormous volume of information that comprises fundamental data. Many of the financial institutions have departments dealing with analysis, teams of strategists and economists who do their best to try to foresee market movements. And the frightening thing is that with the availability of information over the internet, every home trader also has access to that information. The sheer volume of information for many traders is overwhelming.
When I first started to look at forex trading as part of my part-time home business, I bought into the statement that I needed to understand how the markets work, the impact of all the various drivers. I could see that the task was enormous and i likened it to standing on a station platform, stretching our your hand and grabbing onto a high-speed train. The consequences can be disastrous!
So then I thought, well if the object of my analysis is large how do I tackle? As someone once said, how do you eat an elephant? The answer is one bite at a time. Now that is all well and good, until I realised that the currency market is more like the size of a prehistoric 100 ton huge dinosaur than an elephant. I have by profession been very open to the concept of analysing information prior to decision-making. Unfortunately with the scale of information, I quickly became a victim of "analysis paralysis."
If you are starting in forex trading, have your normal 9 to five job the time available to you is very limited. I found that by the time I factored in the time travelling to and from work that only left me three hours a day during the week for my research and analysis. I quickly came to the conclusion that despite some of the advice given, for me and many others another approach had to be taken.
Thank goodness for the internet. There are a number of sites now providing free information on the times of all the key economic announcements across the world. Some provide basic data i.e. interest rate announcement in the US at 9am Eastern Time. Others will provide details of past announcements and their impact on a currency as well as a forecast for what the announcement maybe.
The home forex trader will need to gain is an understanding of the impact an announcement may have on the market. If there is one thing a market does not like, it is unexpected announcements. Very often markets will move in anticipation of an announcement, If the announcement is not in line with the anticipated result the market will move.
I personally do not see the possibility of a home forex trader being able to compete with the financial institutions. However, that is not as bad as it seems. I would suggest that a trader needs to understand that when these announcements are made, that they have a potential to move. How much is not something that can be ascertained, so why be concerned about it?
Fundamental analysis therefore is an important tool to have in ones armoury, however, those running a home forex business, do not need to become an expert in this area. For me personally, the day when I learnt that there are alternative ways of being highly successful as a forex trader without being an expert in fundamental analysis, I felt an enormous weight lift of my shoulders.
Kaz Kowalski has been highly successful as a project management consultant working on a number of high profile projects in blue chip companies across a variety of industries including Banking, Information Technology and Telecommunications. He has utilised his analytical ability to review and determine the profitability and effectiveness of different home business opportunities in building viable and profitable business models. As a result of his analysis, he has concluded that a Home Forex Business has significant advantages over the majority of other home business opportunities.
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