Learn fundamental analysis 1

Started a series of publications on fundamental analysis of the international currency market and the analysis of the influence on the market news of economic factors, which are also often referred to as FA (which, apparently, not quite true).

FA, why we need it?

Most novice traders begin to comprehend trading in FOREX to study textbooks on technical analysis, which is now freely available there is great variety. Later in the application of learned knowledge in practice, is gradually drawn up its own trading system (a set of technical rules, to be more precise), which for some time to run in demo account, gradually modified. The first exit on the real usually ends in failure, and the cycle begins anew.

Ultimately, a sufficiently mature and competent technical system. It is characterized by explicit separation of 2 components: the rules for determining the trend (direction of their trade) and the rules of entry and exit (manimenedzhment not touch because it has no connection with the subject of discussion in this article).

Here for the first time in the course of the story is worth mentioning FA. Failure to trade fundamental analysis is due primarily to persistent belief that the FA may be the main tool of analysis for the holders of huge commercial deposits, which can afford to open a position for several weeks, months or even years, setting the goal of dozens of "figures".

In addition to online forums on trading, you can read many assertions that successful trade can be dispensed only by technical analysis, plus a good MM. Perhaps that is indeed the case. Rules of entry and exit, which are mainly linked to the levels (lines) of support / resistance, are unlikely to be able to formulate, based on the FA. But with the rules for determining the trend all the more complicated.

It is believed that the positive outcome of trade in the more dependent on the timely release of the position than on the correct input. This is hard to disagree. However, it is the correct definition of the basic direction of trade (the trend, although there are successful kontrtrendovye system) allows the trading system, stable positive expectation. And indeed, if at some time interval (week, month, year) trend line is defined correctly and the system assumes the opening positions only on the trend, even if not the most optimal choice of points of entry and exit of your trading results during this time period with are likely to be positive.

In determining the trend of the use of FA (as well as news and analysis of economic factors) may be very useful, because understanding of the fundamental factors and the relationship between economic processes more objectively than the simple analysis of the schedule. In addition, understanding the causes and motives for changes in exchange rates adds psychological confidence in the trading process that really is important (as is well known psychologists call a decisive factor in the failure of the market).

The study of FA activity is not less serious than the study of one or manimenedzhmenta. Very often in the analysis can be found roughly the phrase "the dollar will rise as analysts concerned about the rising U.S. budget deficit." Adoption quite categorical and at the same time undefended. FA just helps to understand and establish such a causal relationship.

However, in order to enforce a particular method of analysis of the market they need to be sufficiently master. But there are a number of objective reasons that hinder the success of the study of fundamental analysis (which also explains the commitment of many traders exclusively TA). First, it should be noted almost complete lack of Russian-language literature on the subject (only the textbook, which comes to mind - this book Lihovidova). Secondly, it is not so easy to find necessary for the analysis of statistics (as the history of quotations for the TA is available almost everywhere).

So as a basic textbook on the FA can recommend a book on macroeconomics, and as material for analysis - U.S. macroeconomic statdannye.

Factors affecting change in exchange rates

To start with the basic factors affecting the change in exchange rates, and more detail on each of them in subsequent publications.

Exchange rates of all developed countries today are floating, ie, changing the exchange rate of a currency is formed under the influence of supply and demand for this currency. Moreover, the size of supply and demand can be attributed to a need for oposredovanii international economic processes (international trade, capital flows, foreign exchange regulation by governments, etc.) and purely speculative factors. The daily volume of trading on the FOREX for a variety of information sources ranging from 1 to 3 trillion. U.S. dollars, the share of speculative trading is not easy to define, but for a variety of information sources, it ranges from 10% to 80%.

Specify that all text is meant the nominal exchange rate, ie, the ratio in which the exchange of national currencies of two countries. Those quotations, which we see on the screens of our trading terminals, and there is a nominal exchange rates.

So, the exchange rates depend on supply and demand in the relevant currency, as demand and supply in turn altered by the action of a variety of factors, which are manifested in the form of price changes in international transactions and on domestic markets, changes in international flows of goods and services and international capital flows.

More focus on international flows of goods, services and capital.

The flow of goods and services
Exports - goods and services produced domestically and sold abroad.
Imports - goods and services to foreign companies sold in the domestic market.
Net exports is calculated as the difference between the value of exports and the value of imports. This indicator is published as a trade balance.

On the performance of exports, imports and net exports affect the following factors.
. The prevailing consumer preferences in relation to domestic and imported goods.
. Prices for goods at home and abroad.
. Exchange rates.
. The cost of transporting goods from one country to another.
. Foreign policy of the state.

Capital flows

The key concept here - that the net foreign investment. They are defined as the difference between the value of foreign assets acquired by residents, and the value of domestic assets purchased by foreigners (under the ownership of assets should be understood as giving the opportunity to receive income in the future - stocks, bonds, currency, etc.).

Factors affecting the value of net foreign investment.
. The real interest rate on foreign assets (the real interest rate - is the nominal rate less the inflation).
. The real interest rate on domestic assets.
. Economic and political risks of the acquisition of foreign assets.
. Public policy for private investors.

In the next issue of the Journal, we will analyze how these factors interact, leading to changes in exchange rates in the medium and long term by building a simple economic model based on international flows of goods, services and capital.

Andrew Khamidullin
abuser1977@mail.ru