Mastering Fundamental Analysis in Trading

Aug 4, 2024

Fundamental Analysis Course Notes

Introduction

  • Course aims: Understand financial jargon and apply it to trading.
  • This course is a continuation of a previous fundamental analysis course.
  • Emphasis on mastering fundamental analysis (FA).

Key Factors in Fundamental Analysis

  • Important currencies and their fundamentals: USD, Euro, Yen.
  • Central Banks and Policies:
    • Monetary Policies
    • Fiscal Policies
  • Key Indicators to Monitor:
    • Interest Rates
    • Inflation
    • Employment

Long-term vs Short-term Trading

  • Think long-term; fundamentals drive prices long-term.
  • Avoid short-term trading methods (e.g., day trading, scalping).

News and Market Sentiment

  • Keep up with financial news (e.g., CNBC, Bloomberg, Financial Times).
  • Use news to gauge overall market sentiment: optimistic vs. pessimistic.

Analyzing Economic Data

  • Three Key Observations:
    1. Absolute Number: Is it positive or negative?
    2. Delta: Understand percentage change.
    3. Trend: Analyze data trends over 6-12 months.
  • Compare current figures with market expectations.

Importance of Sentiment Analysis

  • Understand how sentiment affects currency movements.
  • Key Drivers of Currency Markets:
    • Supply and Demand
    • Economic Indicators
    • Ad Hoc Events (unpredictable events)

Economic Indicators to Track

  • Key Indicators:
    • Employment data
    • Inflation data
    • Trade balance
    • GDP (Gross Domestic Product)
  • Political Events: Can create significant trading opportunities.

Central Banks and Monetary Policy

  • Central Banks: Influence money supply and interest rates.
  • Understand the objectives of central banks: inflation management, currency stability, employment.

Business Cycle

  • Consider the current business cycle stage (expansion, recession, etc.).
  • Different data types are significant at different stages (e.g., inflation vs unemployment).

Trading Strategies Based on Economic Indicators

  • Compile and analyze multiple economic indicators.
  • Look for overall trends rather than isolated data points.

Important Economic Concepts

  • Inflation Types:
    • Headline Inflation
    • Core Inflation
    • Deflation
    • Hyperinflation
  • GDP Types:
    • Nominal GDP
    • Real GDP

Currency-Specific Fundamentals

  • USD:
    • Safe haven currency, significant in global trade.
  • Yen:
    • Export-oriented economy, often used in risk-off trading.
  • Euro:
    • Reserve currency, sensitive to economic data from member states, particularly Germany.

Final Thoughts

  • Practical application of FA requires time and practice.
  • Continuous learning is key to success in trading.
  • Further detailed courses may be provided upon request.