How to use Fundamental Analysis in FX.

7 sept 2022

Fundamental analysis is something that's not overly spoken about when it comes to FX trading. Now, a lot of educators and gurus out there recommend you check the FX calendar and you understand when different news events are due as it is important to be risk off during these times. But very few of them actually speak about how you can utilize different aspects of fundamental analysis to actually gain a confirmation bias in trading.

When I'm trading the one hour or 4 hour charts, I like to have some kind of definition or reason behind what I'm actually investing in. Do not forget, we are buying an asset when we're trading, so you are investing into an asset with an expectation of the value going up or down. Now, while some people play the game of probability based on technical analysis, when I am trading these higher timeframes, I do like to have some reason or at least a good idea on why I want to invest in these certain asset. That is where fundamental analysis comes into it. Fundamental analysis doesn't change very often, it flips and turns once every two to three weeks. However, you do notice a trend after a while of picking what you think is the week and what you think is the strong currencies at the time. Movements on the chart tend end up playing out along those lines, so you can increase your win rate by only taking positions that have the same correlation with your fundamental analysis.

In terms of undergoing fundamental analysis there is a wide range of ways to do it. You can read news and you can get an understanding of what experts are saying about different currencies, what the economic conditions are and even factor into the side of where you are based and understand how the businesses are running in your country. You can be more short term bias and you can have a look at what the news has been forecasted over the next week, which can give you an indication in these different news events whether or not experts are forecasting growth or shrinking. Usually, these forecasts are pretty good.

Once you've read through a number of different articles and you start actually reading what different news means, you will start to generate a bit of a picture on whether or not the economy is going strong, whether the economy is shrinking, or whether we actually just sitting neutral kind of cruising. From here you can determine which pairs you want to be bullish on, which pairs you want to be bearish on, and which pairs you just not really looking to trade over the next week. Then you can dive into your technical analysis on those pairs.

There are multiple benefits to fundamental analysis, not only increasing win rate when you get it right, but also increasing your emotional state while in the trade. I know personally when I'm holding onto trades, if I have that fundamental push behind me as well, I tend to hold on a little bit longer and let profits run as compared to what I do if I'm only using technical analysis.

Using fundamental analysis can bring you an extra edge. It can turn odds into your favor as a trader, don't sleep on it is massively impressive on the results you can generate from using fundamental analysis.