Forex

Fundamental analysts predict price movements on the basis of supply
and demand. In stocks, they study supply and demand for company
products. In futures they research supply and demand for commodities.
Has a company announced a new technological breakthrough? An
expansion abroad? A new strategic partnership? A new chief executive?
Anything that happens to the business can influence the supply of its
products and their costs. Almost everything that happens in society can
influence the demand.
Fundamental analysis is hard because the importance of different
factors changes with the passage of time. For example, during an economic
expansion, fundamental analysts are likely to focus on growth
rates, but during a recession, on the safety of dividends. A dividend
may seem like a quaint relic in a go-go bull market, but when the chips
are down the ultimate test of a stock is how much income it generates.
A fundamental analyst must keep an eye on the crowd, as it shifts its
attention from market share to technological innovation to whatever
else preoccupies it at the moment. Fundamental analysts study values,
but the relationship between values and prices is not direct. It’s that
mile-long rubber band all over again.
The job of a fundamental analyst in the futures markets isn’t much
easier. How do you read the actions of the Federal Reserve, with its
great power over interest rates and the economy? How do you analyze
weather reports during the critical growing seasons in the grain
markets? How do you estimate carryover stocks and weather prospects
in the Southern versus the Northern Hemispheres which are six
months apart in their weather cycles? You can spend a lifetime learning
the fundamentals, or you can look for capable people who sell
their research.
Fundamental analysis is much more narrow than technical. A moving
average works similarly in soybeans and IBM, on weekly, daily,
and intraday charts. MACD-Histogram flashes similar messages in
Treasury bonds and Intel. Should we forget about the fundamentals
and concentrate on technicals? Many traders take the path of least
resistance, but I think this is a mistake.
Fundamental factors are very important to a long-term trader who
wants to ride major trends for several months or years. If the fundamentals
are bullish, we should favor the long side of the market, and if bearish, the short side. Fundamental analysis is less relevant to a
short-term trader or a day-trader.
You do not have to become an expert in the fundamental analysis
of every stock and commodity. There are very intelligent people who
specialize in that, and they publish their research. Many of them also
bang their heads against the walls, unable to understand why, if they
know so much about their markets, they cannot make money trading.
If we can take our ideas from fundamental analysts but filter them
through technical screens, we’ll be miles of head of those who analyze
only fundamentals or technicals. Bullish fundamentals must be confirmed
by rising technical indicators; otherwise they are suspect.
Bearish fundamentals must be confirmed by falling technical indicators.
When fundamentals and technicals are in gear, a savvy trader can have
a field day