Learn to Trade Forex – 13. Fundamental Trading Strategies | Swissquote

Fundamental traders attempt to find the
true intrinsic value of whatever they’re trading. Once they spot an opportunity,
some fundamental traders simply open the position, while others use technical
analysis to time the trade. For example, you might look at the traded volume of
the stock or currency pair that you plan to trade. Other traders may have insight
or be creating a trend so checking at two or three week moving average may let
you join a spike. In some cases good or bad news for the stock or currency is
followed by an almost predictable reaction that can be traded. Many systems
exist to weigh and compare potential trades. For example, the Altman z-score
for stocks is the sum of five ratios and is used to gauge a company’s credit risk.
In fundamental currency trading, you compare the fundamentals of the
countries. One style of trading is based on simply comparing the interest rate of
countries. In a carry trade, a trader buys the currency with a higher interest rate
and sells the currency with the lower interest rate. The profit is the
difference between the two interest rates, and sometimes also the
appreciating value of the purchase currency. However if the exchange rate of
the two countries changes, this may negate some of the profit from the
interest rate difference. It is also possible to blend fundamental and
technical trading: for example you might select a number of fundamental
indicators to follow in the economic calendar in your trading platform,
research the market expectations of those numbers and watch how the market
reacts to the announcement and to any revisions to the number. Then, change the
timeframe and see if the reaction of the market is predictable. For example, one or
two minutes after the announcement: this may help you time future trades. Whilst
you look into fundamental indicators you might also look into the various kinds of
risks in the risk management videos.

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