Fundamental analysis based on news relies on economic, political, and global events that can influence market price movements. Here are the steps to effectively apply fundamental analysis based on news:
1. Matching Process
- Economic Calendar: Use an economic calendar to track the schedule of relevant economic news releases. These calendars display the publication times of important economic news from various countries.
- Time Zones: Pay attention to the time zones of the news releases. Economic calendars often use New York time (EST or EDT), which may differ from your local time. Adjust to your local time to ensure you do not miss important news.
- Accuracy and Updates: Ensure that the economic calendar you are using is up-to-date and accurately maintained to avoid outdated or incorrect information.
2. Selection Process
- High Impact News: Focus on news with high impact, usually marked in red or with three stars/bulls on economic calendars. This news can include data such as unemployment rates, inflation rates, interest rate decisions, or GDP data.
- Relevance: Choose news that is relevant to the currency pairs or markets you are trading. For example, news about European Central Bank (ECB) interest rates will have a greater impact on currency pairs involving the Euro.
3. Executing Trades Based on News
- News Release: After the news is released, immediately refresh the economic calendar to see the actual value that has been published.
- Compare with Forecast: Compare the actual results with the forecast or market consensus. Significant differences between the actual value and expectations can cause sharp price movements.
- Validate Values: Ensure the news values have been published and are valid. If there is no actual value or significant delays, it is better to postpone trading until the correct information is available.
- Market Reaction: Observe how the market reacts to the news. Sometimes, the initial market reaction may not align with expectations, so it is crucial to monitor the developing price trend before taking a position.
- Risk Management: Apply good risk management strategies. Major news can cause high volatility, so make sure you use stop-loss orders and appropriate position sizes.
Implementation Example
- Economic Calendar: You notice that the US Non-Farm Payroll (NFP) data will be released at 08:30 EST. Convert this time to your local time and note the release date and time.
- News Selection: NFP data is considered high impact, so you focus your attention on this release.
- Executing Trades: When the NFP data is released, immediately check the actual value and compare it with the forecast. If the result is significantly different from expectations, you might decide to open a position in line with the observed market movement.
Additional Tips
- Preparation: Always conduct analysis before the news is released to understand market expectations and potential impacts.
- Follow-Up: After the news is released, continue to monitor additional news or statements from economic officials that may further influence the market.
- Unexpected News: Prepare a strategy to handle unexpected news or significant events that can dramatically impact the market, such as political crises or natural disasters.
By following these steps and using an informed approach, you can enhance your chances of making better trading decisions based on fundamental analysis and news.
