Learn Currency Trading - Using Fundamental Analysis for Profit

By: Monica Hendrix
Fundamentals move currency prices and this is obvious but if you try and trade the news you will lose it is incredibly difficult to trade news stories and win - but if you know how to use fundamental analysis in your trading correctly, you can make huge profits.

Let's start with a simple equation for market movement.

Forex supply and demand fundamentals + Investor perception = price.

Millions of trades see the facts but they all draw their own conclusions from what they see.

Humans are not logical, they are motivated by the emotions of greed and fear and guessing the impact of the fundamentals is the hard bit.

Consider this rather startling fact:

In the last 100 years the amount of winners in forex trading remains the same about 5% and 95% lose.

This is despite the fact that we have seen huge advances in forecasting, computers are more advanced today than the one that landed man on the moon and we can get the news instantly at the click of a mouse.

It hasn't helped why?

The answer is simple humans determine the price of what something should be.

While prices tend to move in line with the long term fundamentals prices spike away from fair value as greed and fear take hold and volatility takes prices in the opposite direction of the fundamentals a lot of the time.

It's a fact that markets collapse when the fundamentals are most bullish and rally when they are most bearish - this is human psychology at work.

You can still use them to back up your analysis of the long term trends - but you should really use forex charts to look for price spikes away from fair value.

These are easy to see on a chart and then you can time your entry with your trading signal to take advantage of the spike.

It's a fact that throughout history, that strong price spikes are temporary and eventually prices fall back to fair value - ALL you need to do is spot them.

News can also be used to spot contrary trades - if bullish news fails to push a market higher and bearish news fails to push it lower, this is warning you of a price change.

Today, trying to guess the impact of each individual news story is impossible, as the news is discounted instantly and you have no chance of winning.

Forex charts take care of this for you.

All forex technical analysis does is assume that all the fundamentals that are known show up instantly in price action. The technician is only interested in letting the chart tell him where prices are going next, not the reason and the bonus is - the chart shows human psychology to.

If you want to use the news then go ahead - but always use charts to time your entry and look for news stories that don't have the affect most traders thought they would to generate contrary trading signals.

There's an old saying:

"If you can hold your head when everyone else is losing theirs you probably haven't heard the news"

In forex trading you have but you are looking at the news in a different way to the majority and know how to use it to make forex profits.

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