Usually when people talk about fundamental analysis the next topic you might hear about is technical analysis. But I have realised a lot of traders mix things up when it comes to news trading and fundamental analysis. Most traders confuse the two to be the same thing. They consider news trading to be a subset of fundamental analysis. You might get away with this disorientation. Now let’s clear the bewilderment.
What is News Trading
News trading is a technique to trade currencies and equities on the financial markets. Basically, it involves when something unusual happens; when an event that doesn’t happen everyday occurs.
When events that concern finances are announced out of the blue, there’s a news release that presents an opportunity to make or lose money. A good, recent example is Brexit that occurred somewhere in June 2016. Brexit is not an everyday event. In fact it’s happened just once. It caused the GBPUSD pair to fall to a record low. Those who sold GPB-XXX pair (like me) made a lot of profits. I made about $30,000 on a $5,000 account on this day alone. This is what news trading is all about and it’s very different from what many people mistakenly see as or as part of fundamental analysis.
Elon Musk musk tweeted about a new product line and Tesla’s shares jumped 4%, that’s about $1 billion of Tesla’s market capitalisation. Again, this is not your average event of the day. Investors would “trade the news” right after seeing this tweet.
In essence news trading is taking advantage (or trying to) of random events that move markets to place trades and make money. The events that are announced are not based on previous figures and is something traders don’t expect. Fundamental analysis on the other hand, is different.
What is Fundamental Analysis
Fundamental analysis involves factors that affect the economy of a particular country or a business’s financial statements. Such factors may include interest rates, production, earnings, employment, GDP, housing, management, manufacturing, political and economic reports. These factors are usually data that are documented and mostly have some kind of historical statistics.
Data in fundamentals have previous data that you can look back on to make a comparison to track whether the economy is doing well or falling short. This is what sets fundamental analysis apart from news trading.
Fundamental analysis in itself is a broad topic which I may look to talk about in subsequent posts.
Some events that we can consider as fundamentals are stuff such as the NFP, GDP estimates and monthly budget statements of states. In short, almost any event you can find on an economic calendar can be considered as a fundamental factor in forex trading.
Confusing news trading and fundamental analysis hopefully is a thing of the past and I hope you’ll now be able to focus exactly on one thing depending on your goals to achieve the success that you deserve.
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