Currency trading transactions and stocks can not be separated from our expertise in analyzing the fundamental condition of a country. It is a series of observations called fundamental analysis. Not only trading in currencies, stock trading is also familiar with fundamental analysis. This article will explore the definition of fundamental analysis in general that can be applied to understand forex trading and stock trading.
In trading generally known two methods of analysis, namely Fundamental Analysis and Technical Analysis. Understanding Fundamental analysis is an observation of the fundamental condition of a country, company, and other things that affect the value of a currency or stock, directly or indirectly. While technical analysis is an analysis that measures the history of prices in the past with certain mathematical formulas.
For the Hang Seng stock index, for example, the economic and political conditions of Hong Kong and China will be analyzed. While to know the fundamentals of US Dollar, it is necessary to examine the ins and outs of the economy and politics of the United States. In conclusion, fundamental analysis is important to determine the direction of movement of currency or stock index.
Understanding Fundamental Analysis
Definition: Fundamental Analysis is an analysis based on global and regional economic, political and security situations and conditions that differ depending on the country of origin of the stock exchange index, the issuer of shares, or the country in which the currency is traded.
Principle: Fundamental analysis is an art to take into account the importance of information obtained from the political or economic development of a country. Whether the information will be a factor that will affect the exchange rate fluctuations of a currency or not. The following are the fundamental principles of analysis:
1. Chain Reaction:
The greater the impact of information, the effect will be in the forex and the stock index.
2. Distance Information:
The closer an information to a stock index, the greater the influence of that information. For example, information coming from within Indonesia will have a big impact on JCI scores compared to information from abroad.
3. News Sources:
The more official and popular the news source, the more powerful it will affect the value of a stock index.
4. Type of News:
Economic news is stronger in its influence on the stock index of a country than any other news, such as politics, social or cultural.
Procedure: Any information about the economy or politics of a country can be used as a tool to predict the movement of a stock index or currency. Therefore, fundamental analysis is closely related to news or news. In essence, the information and data will affect the demand and supply forex or stock index of a country.
Methods: In performing fundamental analysis methods, the willingness to update or follow the economic news release of a country is required. Media information is also diverse, can be through official news releases in news sites trusted; through statistical centers of a particular country or ministry depending on the data. How to know the release schedule? You can see it through Forex Calendar available in FF,investing,and other forum.
The nature of Fundamental News can be grouped into 2, namely:
1. Bullish News.
Bullish comes from the word ‘bull’ (bull). Such traits describe the market price movement as if it would be down but would actually rise (similar to the gallant’s bullion movement ie, gore then thrown up). Maknawi, meaning this news will tend to encourage the price increase of an asset, be it currency, index, and stock.
2. Bearish News.
Bearish comes from the word ‘bear’ (bear). The trait describes the market price movement that looks as if it will rise but the price will actually fall (similar to the bear movement gripping its prey, ie lifting and slamming).
The example of a bearish news from the media is when reportedly there is a decrease in consumer inflation (CPI). News about weak inflation could cause a weaker currency.
However, it should be noted here that fundamental analysis requires carefulness in identifying a story. Although in the example it is mentioned, the effect on the field will not always be certain, because so many variables take place at the same time.
- Advantages of fundamental analysis are as follows:
Can set prices globally.
In certain cases, fundamental analysis is effective for short term trading.
Fundamental conditions are the determinants of long-term price trends.
The weakness of Fundamental Analysis is as follows:
Can not determine position quickly.
Takes a lot of time.
Subjective, too many assumptions and sources are used.
Despite these weaknesses and advantages, every trader needs to understand fundamental analysis, so as not to buy wrong assets whose fundamental value is too bad or too expensive. Fundamental analysis is also required by traders who are looking for low-priced assets to be sold at high prices.