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Trading Using Fundamental Analysis

Trading Using Fundamental Analysis
June 07
02:27 2011

Using fundamental analysis for trading, generally involves watching the economic data affecting the financial instruments, commodities or currencies that are being traded. Depending on the type of trading vehicle, different sets of data will affect the price.

For example, if the trader is trading stocks, in addition to watching the indicators which will affect the stock market as a whole, individual stocks will have quarterly earnings reports and stockholders meetings. The outcome of these events will affect the price of the stock considerably.

Commodities will typically be affected by the levels of supply and demand, which may in turn be directly influenced by the news. Furthermore, the prices of commodities like crude oil and gold can be directly affected by wars and other geopolitical tensions.

Other types of commodities, such as agricultural commodities like wheat and rice can be directly affected by weather conditions and other factors that can cause prices to increase or decrease. Crop reports and other such economic releases directly affect the price at which these commodities trade.

Currencies and the foreign exchange market closely watch a number of economic releases in both countries of any currency pair. Nevertheless, these basic fundamental economic indicators generally affect all markets.

Macroeconomic Fundamental Data

The general economy is closely watched in all markets by the major players. The health of major economies — especially the U.S. economy — affects all trading, whether in commodities, stocks or currencies.

Below is a list of key economic data released periodically in most major economies that affect the prices of currencies, commodities and stocks.

  • GDP or Gross Domestic Product – the sum of all goods and services produced in a country.
  • Employment Numbers – the health of an economy depends in large part on the percentage of people employed.
  • Industrial Production – an important indicator for any developed nation.
  • Trade Balance – the difference between the amount that a country imports and how much a country exports.
  • Consumer Price Index – indicates the inflationary tendencies in an economy.
  • Retail Sales – the amount of goods sold on a retail level and also a good indicator of inflation.

Other Important Economic Data

In addition to the above economic releases, other important fundamental data is closely watched by traders to determine price movements in their respective trading instruments. These fundamental indicators generally affect currencies, stocks and bonds, precious metals and other commodities:

  • Interest Rates – the rate of interest affects financing of leveraged positions, as well as the price of storing commodities for future delivery. Interest rates make up a key component for trading in bonds and other interest rate sensitive instruments.
  • Supply and Demand – directly affects the prices of most commodities and is a closely watched by many traders.
  • Political Trends – politics play a major role in the pricing of certain commodities and stock market issues.
  • Geopolitical Events – geopolitical events can affect the prices of everything from oil to stocks, currencies, gold and food prices.
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