One of the ways that you can trade on the forex market is through fundamental trends. It is important that you know about fundamental trends and how you can profit from them. You need to know what causes these fundamental trends and how you can identify them. You should also consider the different ways that you can trade on the trends.
What are Fundamental Trends?
Before you can look at forex trading on fundamental trends you need to know what a fundamental trend is. A fundamental trend is a trend in the price movements of a currency pair which is started due to a fundamental release. There are many different types of fundamental releases that can cause a trend and you should know what they are. To keep track of fundamentals you can use a forex calendar that tells you about the different releases and when they are coming.
The differences between technical trends and fundamental trends are that you know the cause of the trend with fundamental ones. With technical trends you may not know what the cause is so you cannot anticipate them.
Fundamentals that Cause Forex Trading Trends
When you look at fundamental trends you need to know about the fundamentals that cause the trends. The truth is that any fundamental event could cause a trend in the market. However, the longevity of the trend will vary and there are times when trends are not created. The fundamentals that are most likely to cause a trend are the high impact fundamentals.
High impact fundamentals are generally the ones that affect the economy of a country. While many traders assume that all fundamentals do this high impact fundamentals can change the stability and workings of the economy. Some of the high impact fundamentals that you should look at are the interest rates, the GDP, inflations and the employment figures of the country.
Identifying the Trends
If you are going to trade on these trends you have to know how to identify the trend. The first step you have to take is looking at what release is coming up. If you are looking at a high impact release then the trend should last longer than a low impact release. Once you know which release you are looking at you have to consider what the market sentiment is and what people are expecting the release to say.
This is important because if the release confirms the expectation then there may not be a trend. You also have to look at the context of the release. Knowing how the market reacted previously does not actually help you. While this information allows you to have a general idea about where the market may go you have to consider what the market conditions are now.
Proactive or Reactive Forex Trading
There are two ways that you can trade on fundamental trends and they are reactively and proactively. When you trade reactively you will wait for the trend to materialise and determine the directional movement. When you trade proactively you will open your trade before the trend materialises. Proactive trading is much riskier than reactive trading.