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Fundamental Analysis (Part 1)

Release Time:2022-06-12 Topic:Fundamental analysis of individual stocks Reading:80 Navigation:Stock Liao information > Comprehensive > Fundamental Analysis (Part 1) phone-reading

When you hear people refer to fundamentals, they are actually talking about the economic fundamentals of the country where the currency is located. Economic fundamentals cover a vast amount of information, including economic, political and environmental reports, data, announcements or events. A credit downgrade can also be seen as fundamental data, and Pipcrawler did a good job turning this news into a trade to profit from EUR/USD shorts. Fundamental analysis is the study of the use of these factors to predict future price movements of a currency.

This is the study of economic and financial conditions in the world and around us, it tends to focus on how macroeconomic factors (e.g. economic growth, inflation, unemployment) Affect the markets in which we trade.


What is Fundamental Analysis

Fundamental data in many forms

Fundamental data comes in many different forms. It could show up as a report from the Federal Reserve on existing home sales in the US, or it could be the possibility that European banks will change their monetary policy.

Releasing these data to the public often changes the economic landscape (and better way of thinking about the economic environment), thereby eliciting responses from investors and speculators. Even in some cases, specific reports have not been published, but expectations for such reports are part of the fundamentals.

A few hours or even days before the actual rate statement Expectations will have an impact on prices. In fact, the pair can sometimes move by 100 pips before major economic news is released, and some aggressive traders may be able to profit from it.

This is why many global currency traders often trade before certain economic data is released just take action. Typically, economic indicators make up a large portion of the data used in fundamental analysis. Just as a fire alarm goes off when smoke is detected or heat is sensed, economic indicators can provide insight into a country's economy.

While the specific value of an economic indicator is important, the market has expectations and forecasts are equally important. Understand the relationship between actual data and expectations, which can affect the market differently. These factors need to be taken into account when deciding on a trade.

It's not that complicated, and you don't need to dig too deep to get it understand. It is recommended to pay attention to the economic data and events on Jinshi. Fundamental analysis is a great tool for anticipating the future state of the economy, but less so for predicting the direction of currency prices. There are many analyses of this typeA grey area because basic information in the form of reports, economic data or monetary policy is more obscure than actual technical indicators. Analyzing economic reports and fundamental data typically goes something like this:

“A rise in interest rates by this percentage could lead to a rise in the euro.”


"The dollar should fall within the range of indicator values."

"Consumer confidence has fallen 2% since the last report."

What to do once you know the fundamentals

Markets tend to react based on people's subjective perceptions. These views can be based on their thoughts on economic reports or on their assessment of current market conditions. Many people have different feelings and thoughts. You might be thinking, "Gosh, there's a lot of uncertainty in fundamental analysis!" You're right, it's impossible to know 100% where a currency pair is going due to some new fundamental data. This is not to say that fundamental analysis should be abandoned. Due to the sheer volume of fundamental data available, it is difficult for most people to put all this data together.

They are aware of specific reports but cannot incorporate them into broader economic conditions . This requires longer time and a deeper understanding of the data. Furthermore, since most fundamental data is for one currency only, fundamental data for the other currency in the pair is also required, which must then be compared to obtain a more accurate judgment.

As we mentioned at the outset, it is about combining strong currencies with weak Currency pairing. Based on the above, you may still be thinking "Do I need to use fundamental analysis to be a successful global currency trader?" Technical analysis seems to be the go-to choice for short-term global currency traders, focusing primarily on price action. Intermediate and mid-to-long-term traders, as well as some long-term traders, also need to pay attention to fundamental analysis as it helps with currency valuation.

Sometimes it is necessary to use both fundamental and technical analysis. Technology-focused strategies break down when key fundamental events occur. On the other hand, pure fundamental analysis misses short-term opportunities presented by patterns and technical levels. A combination of technical and fundamental analysis covers all angles. You need to keep an eye on the release of economic data and reports, as well as events, but you can also use a variety of technical tools and patterns that market participants follow.


Applications of Fundamental Analysis

Application of Fundamental Analysis in Securities Investment

1) Economic Analysis

Economic analysis mainly discusses the impact of various economic indicators and economic policies on securities prices. Economic indicators are divided into three categories: leading indicators that precede changes in securities prices, such as interest rate levels, prices of major means of production, etc.; indicators that are consistent with changes in securities prices, such as GDP, social commodity sales, etc.; lagging indicators lagging indicators of changes in security prices, such as unemployment, inventories, etc. In addition to economic indicators, the main economic policies are: monetary policy, fiscal policy, industry policy and so on.

2) Industry Analysis

It mainly analyzes the impact of different market types, different life cycles and industry performance on securities prices to which the industry belongs. Industry analysis is a meso-level analysis between economic analysis and company analysis. Differences in performance are both important and necessary to help identify investment opportunities.

3) Company Analysis

Company analysis is the focus of fundamental analysis, and no matter what kind of analysis report, it must ultimately be implemented on the stock trends of specific listed companies. Without a comprehensive, objective, and accurate analysis of a company's conditions, it is difficult to correctly predict the direction of its stock.

Application of Fundamental Analysis in Futures Market p>

1) Requirements analysis

The demand in the commodity market refers to the quantity of commodities that buyers are willing and able to buy at a certain time, place and price. Factors that affect demand include: commodity prices, consumer income, consumer preferences, changes in the price of related commodities, and the impact of consumer expectations. It usually consists of three parts: domestic consumption, export and ending balance.

2) Supply analysis

Supply refers to the quantity of goods or services that producers are willing and able to provide at various possible prices within a certain period of time. The factors that affect supply are: commodity price, production cost, production technology level, price level of related commodities, and producers' expectations for the future. It is mainly composed of initial inventory, current output and current import.

3) Economic fluctuation cycle p>

The economic cycle generally consists of four stages: crisis, depression, recovery, and boom. Throughout the evolution of the economic cycle, price fluctuations slightly lag behind economic fluctuations. Generally, economic prosperity and depression can be judged by indicators such as economic growth rate and gross national product of various countries, and inflation can be judged by the level of money supply and various price indices. Unemployment rates, exchange rates, etc. also need attention.

4) Financial and monetary factors

The fluctuation of interest rates or exchange rates of major international currencies such as US dollar, Japanese yen, and Euro has a very obvious restrictive effect on the futures market price.

5) Political and policy factors

Political factors mainly refer to the international and domestic political situation, the outbreak of international political events and the resulting changes in the pattern of international relations, the international The establishment of trade organizations and the conclusion of related commodity agreements, various policies and measures adopted by the government for economic intervention.  Policies include: agricultural policy, trade policy, food policy, reserve policy, including international economic and trade organizations and their agreements.

Fundamental Analysis in Global Currency

1) Pay attention to the economic situation

It is said that the economic base affects the In the superstructure, the economic situation can reflect the economic situation of a country, and the economic situation of a country also reflects the enthusiasm of investment, thereby showing the market value of its currency and the flow of international funds. The economic form directly reflects the country's economic indicators. Generally speaking, the economic situation can be viewed in terms of its macroeconomic conditions, interest rate levels, inflation and so on. After all, the market exchange rate follows the country's economic situation.

The second is the situation of the world economy, such as oil prices, stock markets, bonds, Gold, commodity markets, real estate and more. It is no exaggeration to say that the level of economic development and economic prosperity of a country directly affects whether investors consider doing a fundamental analysis of the global currency market. The simplest thing is that we all know the Fed's recent policy of raising interest rates and cutting taxes, which has long been a hot topic in global currency reports, and will inevitably attract many investors to pay too much attention to the market.

2) Check related political and news factors


The emergence of political factors is often sudden, coming and going quickly, without warning and unpredictable , so it is extremely destructive to the foreign exchange market, causing the global currency exchange rate to fluctuate in a short period of time. Therefore, as a global currency investor, not only must pay attention to the changes in the economy of various countries, but also must constantly understand and analyze the changes in the world political pattern and the dynamics of regional hotspot issues, and respond quickly to relevant information, otherwise it is easy to cause losses. Changes in the political situation generally include political conflicts, military conflicts, elections and regime changes, etc. These political factors sometimes have a great impact on global currencies, and will also directly affect investors' judgments on the fundamental analysis of global currency transactions.

Previous reports pointed out that political factors are mostly policies generated in the era of national background Uncertainties, thereby increasing the probability of extreme political policy events. There are also heightened geopolitical risks. Then there is the aggravation of internal conflicts in some developed countries, from economic problems to political problems. The famous one is the impact of the 819 incident in the Soviet Union on the global currency market in 1991. Short-term emergencies will cause the spot price of the global currency to deviate significantly from its long-term equilibrium price.

3) Do not believe in market psychology

It is generally believed that when sudden events occur, the fluctuation of global currency prices is completely determined by the psychological factors of market participants affordability of the event. That is, we try to say not to blindly follow the trend. The undisputed fact is that human factors have an impact on exchange rates, sometimes even more so than economic factors.

Therefore economists, financiers, analysts, traders and investors People often make comments and forecasts based on what happens in the world every day, and express their views on the exchange rate trend. Usually the psychology of the market is based on changes in market conditions. When investors are investing, they must be comprehensive in order to improve the accuracy of analyzing the market and improve the efficiency of investment. Therefore, I would like to remind investors not to believe in market psychology.

4 ) Speculative transactions and emergencies should not be viewed one-sidedly Market Impact

General speculative transactions and unexpected events often have a huge impact on the market. The occurrence of major emergencies will have a sudden impact on the psychology of the global currency market, driving the market to fluctuate violently. A famous historical case is the "9.11" incident in the United States. After the collapse of the World Trade Center in New York, the world was shocked and the dollar was sold across the board. these emergenciesThe panic selling caused by the incident was the dominant factor in the market at that time, and the above economic and political factors were ignored by the market.

Of course those who unilaterally think that global currency investment has no major content and do not need relevant preparations , as long as you wait for the sudden occurrence, you can enter the market and buy and sell. This is a wrong view, and the main reason for the formation of this view is because of a one-sided view of the impact of emergencies on the market. The economy and politics are always the main players. These sudden events will only affect the global currency for a short period of time. After the time limit has passed, the market will usually be supported by government departments.

For more original content and learning materials, please refer to the official account [Alpha Proprietary Trading Room]~

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Label group:[fundamentals] [currency] [economy] [economics] [fundamental analysis] [currency market] [Commodity Currency

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