First, let's start by looking at the main differences between technical and fundamental analysis. Technical analysis is the collection of information from trading charts. Fundamental analysis focuses more on what causes the price to move. The market does not always take into account fundamental factors, sometimes technical factors dominate. Countless variables can be included in the fundamentals, but the ones that matter are those that move the stock and currency markets. An economy that is expected to grow or grow will make the national currency competitive because outside sources will inject capital into the country. In contrast, an economy that could potentially go into recession or deleverage would have a weaker currency, mainly due to job losses and minimal consumer spending.
Sometimes the fear of war can lead to fundamental market movements and investor panic. Market participants are advised to be aware of the fears that have gripped the financial markets at any given time and be aware of how they will affect the forex currency pairs they trade. There are many variables available and they do not rank equally in terms of their impact on future expectations of central bank action. A trader must have an understanding of the market environment in which he trades. This can be determined by getting an idea of whether market participants are risk-tolerant or risk-averse. Stock performance can serve as the best indicator of risk appetite. When the stock market rises, it means that money is flowing into the economy, and when a country's currency falls, it attracts foreign investors to domestic goods.
This may lead to the evaluation of the foreign sector industry. When the currency strengthens, domestic exports become more expensive for foreign buyers, putting pressure on foreign stocks. For a trader to be one step ahead of other traders, he needs to pay attention to the actions of central banks, understand their operations, and how they will affect the currency pairs in the forex market that they trade. Central banks are responsible for the implementation of monetary policy. Monetary policy can either increase or decrease the amount of money circulating in the economy and set the interest rate applied to reserves. The control of central banks has been the center of contention among market participants, although as a trader it is useless to get involved in politics, what matters is what policies they pursue. One of the most important influences on the actions of central banks is economic growth.
Economic growth can be defined as the annual percentage change in gross domestic product. GDP per capita is a measure of gross domestic product divided by the population of that particular country. Economic growth is significant because a sharp increase in GDP per capita can turn a poor nation into a rich one. GDP can be thought of as a country's rate of return. It should not increase with high margins, but small increases compound over time and can be effective. Rapid growth can be a negative factor in terms of sustainability, as it could lead to higher inflation and reduce consumer spending. Currency traders must have a forecast of the sustainability of the growth that the country is likely to experience in the short to medium term so that they can adjust their open positions. Traders need to know the variables that affect the growth of the economy, whether these variables are predicted with certainty or whether there is a potential risk. Now we will look at the factors that affect economic growth.
These factors give us an idea of a country's ability to produce various goods and services. The employment rate will be the main indicator of where the economy is heading. The number of skilled jobs is also an important factor influencing the growth trajectory because countries with highly skilled workers tend to do well because of the high wages earned by skilled workers. Technology is an important factor in determining the likely growth trajectory of an economy. With high-tech equipment in the manufacturing industry, the output will be faster and human delays will be reduced. Commodities can make a huge contribution to economic performance, but it turns out that they are not a very important sector because they can be purchased through trade. One of the significant fundamental forces in the Forex market is the mortgage market.
Mortgages are loans secured by real estate, residential buildings, multi-family income, and commercial real estate. It is the largest credit market in many countries, and in some countries even surpasses the treasury markets in size. The largest component is the residential mortgage segment, which is not surprising given that most households' most valuable asset is their home. Mortgages tend to be instrumented with longer maturities, and the most common loan among people has an original maturity of thirty years. Therefore, knowledge of a country's housing sector can be an indicator of the health of the economy. In the forex markets, there is an increase in the use of advisors or trading robots. Technological advances have increased the efficiency of obtaining information by market participants.
This can be disadvantageous due to the excessive amount of information received via the Internet, which makes the trader's job more difficult than ever before in terms of processing all the data at the same time. Creation of Expert Advisors to help traders collect and translate data. Expert Advisors are supposed to serve as part of a trading system, not to control every trade. They exclude geopolitical events, are unable to create a subjective view of a trading tool, and therefore cannot take into account the influence of human emotions on the price. The advent of robots increases the demand for human traders. Trading robots are programmed to collect data and convert it into a trading signal. Their other disadvantage is that they cannot correct themselves and may repeat the same mistakes many times, unlike a person who can correct his mistakes. They can also supply trading with trading alerts. For example, when the selected pairs reach the 23% level on the Fabionacs pullback, the system will alert the trader. Other bots will copy the trades of high-performing traders, these bots can be very profitable but can be counterproductive when the trader it is copying performs poorly.
The basics of expert advisors are more complex than technical analysis and require a deep understanding to be able to correctly interpret their impact on the market. Sometimes you will find investors buying rumors and selling facts, so a trader needs to know what investors are expecting. There is no perfect formula for trading, but our main goal is not to strive for perfection but to simplify the information provided to us and take a calculated risk.