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Fundamental Analysis is simply the process of identifying and understanding the ''"factual reasons"'' why the market is moving in the direction that it is currently moving within the overall trend. This is in contrast to simply identifying that a trend or price move has already happened.  Identifying that a market has already had a price move is the job of [[Technical Analysis]] which is all backward-looking.  Understanding why a particular currency or market is moving is the job of fundamental analysis which is forward-looking and allows you to use this information to try and predict where prices might go in the near future.
Fundamental Analysis is simply the [[Developing_your_Trading_Process | process]] of identifying and understanding the ''"factual reasons"'' why the market is moving in the direction that it is currently moving within the overall trend. This is in contrast to simply identifying that a trend or [[Price_Action_Analysis | price move]] has already happened.  Identifying that a market has already had a [[Price_Action_Analysis | price move]] is the job of [[Technical Analysis]] which is all backward-looking.  Understanding why a particular [[currency]] or market is moving is the job of fundamental analysis which is forward-looking and allows you to use this information to try and predict where [[Price_Action_Analysis | prices]] might go in the near future.


Fundamental Analysis is an extremely underserved subject when it comes to retail traders and how they obtain their trading knowledge. In this Wiki we will explore all the various aspects of fundamental analysis and how you can apply that to your own trading for improved performance.  
Fundamental Analysis is an extremely underserved subject when it comes to retail traders and how they obtain their [[trading]] [[Trading_Routine#Knowledge_Phase | knowledge]]. In this Wiki, we will explore all the various aspects of fundamental analysis and how you can apply that to your own [[trading]] for improved performance.  


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This Wiki is a part of our [[Essential Forex Trading Guide]]. Be sure to check that out [[Essential_Forex_Trading_Guide | HERE]].


='''Introduction to Fundamental Analysis'''=


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=='''Introduction'''==


Fundamental Analysis goes far beyond a simple [[Technical Analysis]] approach which is what the typical retail trader will use to make their trading decisions.  Understanding Fundamental Analysis will give you more conviction because you can have confidence that ''you are trading the real reasons why the market is moving'' rather than simply guessing by using some variation of chart pattern or indicator to make your trading decisions. 
='''Introduction to Fundamental Analysis'''=
 
When we understand the exact reason why something is happening we suddenly have much more confidence in our trading.  If we can interpret what the market is ''thinking'' then we have the potential to predict which way the market will move next.  In other words, if we know what the market is thinking and what it might do next then we can make precise trading decisions in line with the market's intentions.  Doing this will do wonders to help you with your objective of making a profit from your trading.  We simply trade in line with why the market is doing what it is doing. 
 
For example, if there are very good reasons for the market to be scared and go into risk-off mode then prices will likely fall in risk-on assets.  Knowing this, traders can take action to profit from this information.  Conversely, if there is a reason for the market to be confident and chase after profits then the market will likely rally in risk-on assets.  Having this information offers a huge potential to improve your trading performance and certainly puts you well ahead of the typical retail trader. 
 
We will learn much more about how we can profit from knowing the fundamentals later but for now, it’s important that you understand and have a healthy respect for fundamentals and just how much more powerful they can be to your overall performance. 
 
If we look at the chart below, we can see the EURUSD moved in a volatile upward direction after European Central Bank head Mario Draghi’s comments vowing to do whatever it takes to preserve the single currency.  However, the institutional players in the markets started to see deflationary pressure in the EUROZONE and realized this would force the European Central Bank to take action to maintain its price stability and policy mandates. This coupled with an improving US economy indicated to professional traders that the interest rate differentials, or relative yield curves on US and ECB debt, would widen and thus put downward pressure on the Euro relative to the US Dollar.  You can see that the EURUSD fell quite steeply and there were a lot of profitable trading opportunities for months for anyone who knew how to take advantage of this information. 
 
https://i.imgur.com/f0mnkDL.jpg
 
Don’t worry if you don’t quite understand all this jargon just yet.  In the upcoming sections, you will gain a clear understanding of all of this and much more.  This is just one example to start our understanding.
 
 
===Fundamental Analysis and Real Life Scenarios===
 
Fundamental Analysis absolutely does not require a doctorate in economics, a university degree, or anything other than basic human intelligence and a desire to learn a new subject.  And just so that you know we are not lying to you we will use some real-world examples to demonstrate why fundamentals are not something to shy away from. 
 
So you’re a smart person and you have done some really cool things in your life, right?  You have probably accumulated a ton of knowledge on a variety of different subjects over the years, right?  We are willing to bet that you have actually gotten pretty good at certain things that you once had no idea how to do before, right? 
 
Ok, so let’s say that you are a carpenter by trade.  The first day that you started learning about the subject of carpentry you were probably pretty clumsy with the tools and unsure if you were doing things properly.  However, over time and lots of practice with your tools and measurements, you increased your skills in carpentry and eventually, your high level of skills demanded a much higher hourly wage than when you first started out.
 
Or let’s say that you’re an accountant.  It probably took you a lot of time to study and learn everything you needed to know in order to become an accountant.  You probably obtained a college or university degree that took 3 or 4 years to get.  Once you had all the knowledge down then you had to go out and practice what you learned from your schooling in the real world.  It was tough at first but I bet you can now do things with no effort at all that you previously fumbled over and struggled to do. 
 
Or maybe you’re a bodybuilder.  When you first started out you might have been skinny but after many gruelling hours in the gym, you eventually packed on a bunch of muscle.  The first time you hit the bench press it was a struggle to pump 50 pounds but after time and practice, you can now easily lift 5 times that.  Do you see the common theme in these examples?
 
Whether you are using numbers and spreadsheets, your body to lift heavy weights, or the finesse you now have as a master carpenter, the process you went through to become great is exactly the same thing; ''you learn the basics, you put in a lot of time and practice, and then you became really good at what you do.'' It doesn’t matter what subject you are talking about, the process of learning and executing your knowledge of the fundamentals is the exact same as anything else you want to become great at in life. 
 
A basic understanding of fundamentals is all you need to get started and be pretty competent at the same time.  If you stick to it you will naturally learn more and more elements and refine your knowledge and understanding along the way.  That is how all learning works.  You start out by learning some basic knowledge and then go out and practice it until you become competent. 
 
Learning about the fundamentals is pretty much following the same process that you have been doing in all areas of your life for your entire life. The more time you spend with the market using your knowledge of the fundamentals the better off and more profitable you will become in your trading. 
 
 
===A Trader's Personal Story on Fundamentals===
 
It seems fitting at this point for me to interject a personal story about how one professional trader came to understand the power of fundamentals for the first time.  We will keep this trader nameless for the sake of not creating any bias but he was once a fairly well-known fundamental and sentiment day trader on the internet whereas now he prefers to be behind the scenes and do his own thing.
 
Here is his story in his own words:
 
Many moons ago I was working with a start-up Forex brokerage in my home city of Toronto.  We were a boutique firm that catered to high-net-worth clients.  I was the port of call for these wealthy traders.  I came to the firm as a former big-shot equities trader that these high-net-worth clients could talk to and have some comfort knowing that they weren’t talking to some dollar phone monkey.  Basically, I was a friendly, successful, and highly knowledgeable trader tasked to provide a high level of service that these very wealthy clients expected. 
 
I can remember having many long and detailed conversations with these traders and it always blew my mind how similar their trading strategies were.  100% of them were pure technical traders.  I was coming from being a statistical arbitrage and market inefficiency trader so technical analysis was something that I had never really used before because it just wouldn’t work with what I was doing at the equities prop firm. 
 
Some of the systems I was told about were ridiculously complicated and others were as simple as a moving average cross-over system but the key takeaway here is that they were all pure technical analysis trading methodologies.  Many of these traders talked a lot about how it was their poor trading psychology was what was holding them back.  A small amount of these wealthy traders talked about having some risk management procedures as well.  But, I never once heard any of these people talk about fundamental or sentiment based strategies.  To be honest, I did not even know what the fundamentals were at that point because no one had ever talked to me about them. 
 
For the most part, all of these clients were wealthy and had been quite successful in business and in life outside of trading.  But, all of them wanted to add more money to their bottom line through trading in the exciting world of [[Forex]]. 
 
We had client accounts with as much as 10 million dollars in them.  However, the one thing that I can truthfully say is that 100% of our clients lost money.  Literally 100%, that’s not a joke; we did not have one single profitable client.  From time to time a client would go on a tare make a few bucks but they would quickly give it back.  This was a time when I saw the most insane destruction of money I had ever seen in my life.  I saw clients lose millions, sometimes in just a few days, it was absolutely incredible.  Some of these clients would lose more money in a week than I had made in my life up to that point. 
 
So there were three major things in common with this group of traders: 
 
# They were all wealthy successful people outside of trading.
# They all used technical analysis exclusively for their trading.
# They all lost money.
 
Don’t you find that fascinating?  I know I sure did.  I went from being a hot shot successful arbitrage and inefficiency trader to working with an upscale Forex broker where all its clients lost money using various technical analysis systems.  If I’m honest I really didn’t know much about technical analysis other than what I had read in a few books.  At that point, I had never once put technical analysis into practical application with real dollars in the real markets because my style was all built around arbitrage and inefficiencies in the US equity markets.  I certainly had no knowledge of the fundamentals either. 
 
As a side note, after about 4 years of trading the US equities market as an arbitrage and inefficiency trader, the US markets started to get more and more efficient making it increasingly difficult for me to make as much money as I was used to making.  This is why I got involved with the start-up Forex brokerage.  It was time to start exploring this hot new Forex market that everyone was talking about and I figured why not do it on the institutional level….You know, get a paycheck and learn a ton.  This is a route I highly recommend for people who need a paycheck and want to learn how to trade Forex in their spare time. 
 
All right, back to my story.  After about six months of watching these traders lose incredible amounts of money, I was dead set on creating a trading methodology that would do the exact opposite of what our clients were doing.  I knew all these guys were doing was trading some technical system so it was obvious that I didn’t want to build a trading system around technical analysis too.  After all, these traders were incredibly successful outside of trading so it was reasonable of me to assume that they were not raging lunatics but rather that the systems they were using to trade was what were actually flawed instead. 
 
I didn’t know it right away when I set out on my journey to figure out a great [[Forex]] trading methodology that was the exact opposite of technical analysis is actually fundamental analysis.  If technical analysis is black then fundamental analysis is white.  In trading terms, they are the opposite of each other.  It took me many months of struggle but I did finally figure out how to apply fundamental analysis in a way that I could day trade the Forex market.
 
 
=='''Objections to Fundamental Analysis'''==
 
===Objection #1===
 
'''Objection #1:''' Applying the fundamentals is unnecessary because you only need to look at the charts.
 
The first objection people have with fundamentals is that you only need to look at the charts and that applying fundamentals are too complicated and unnecessary process. 
 
This is not correct for several reasons.  In later sections you will hear me refer to technical analysis as being like driving a car but only using the rear view mirror to navigate your journey.  It will work sometimes, such as on a really long and straight road, but overall you will have a lot of accidents and it would be ridiculous to try and drive a car like this. 
 
https://i.imgur.com/GHPzAOp.jpg
 
 
Looking at this chart is confusing yet many traders think that they can use all kinds of indicators to predict future price movements.  Indicators, such as the Stochastic, have nothing to do with why price is moving; it merely tells you that price has done something and shows you this information in a visual way.
 
Another logical point to consider is that professional institutional level traders use tools such as the Bloomberg terminal and Reuters Ikon.  These are very famous information gathering terminals that you might have heard of before.  They are built specifically to get news and information to traders as fast as possible.  The cost of a Bloomberg terminal is about $2,000 USD per month and comes with a two year contract.  So in order to have access to a Bloomberg terminal you basically need to spend $50,000 right off the bat. 
 
Why would these fundamental tools be so expensive if big funds and professional traders made their money staring at price charts and indicators which can be found for free literally anywhere?  Really try and think about that for a minute.  Is it actually possible that the road to riches is floating around for free for everyone to take advantage of?  It simply doesn’t add up that fundamentals are unnecessary when so many professional traders and money management firms are paying such high prices to get this type of information as fast as possible. 
 
Obviously fundamentals help them make smart trading decisions which are why they are willing to pay a lot of money for that information.  I’ve never heard of a money management firm paying $2,000 per month for technical indicator tools and I would be surprised if any of them did.   
 
 
===Objection #2===
 
'''Objection # 2:'''  Fundamentals are too difficult unless you have a high-level university degree.
 
The next objection that people have, particularly retail traders, is that fundamental trading is hard or too difficult to understand unless you have trained at an institutional fund or have some fancy genius level degree.  Again, by the end of this program on fundamentals I will show you that fundamentals are actually simpler than technicals if you know what to focus on and what to look for. 
 
It is true that fundamental analysis can get complicated if you let it but we will not be looking deep into corporate earnings and debt sheets to find the information we need to make a good trading decision.  Rather, we have tools that do the heavy lifting for us so that we only need to focus on what is important to the market right now in this moment.  We then simply look to trade in in line with what the market thinks is important.  I mean, why would we want to trade contrary to what the market is telling us is important?  They market is king and we need to trade in line with the king. 
 
Researching the fundamentals can be broken down into a simple step by step process that will literally only take you a few minutes each day.  It certainly takes much less time than staring at price charts all day waiting for some sort of signal for you to be able to place a trade.  In a later section I will show how to do your daily research like a pro. 
 
 
===Objection #3===
 
'''Objection # 3:'''  All news is priced into the markets.
 
Another related objection is that all past, present, and future news is priced into the market at any given time.  This is related because understanding the news is a big part of how we trade fundamentals. 
 
Many so called experts teach a method called efficient market hypothesis or EMH for short.  EMH states that all available information is priced into the market making any moves in the market totally random and therefore impossible to make consistent profits. 
 
In a short demonstration I will show why this is complete nonsense and that anyone who perpetuates the myth of EMH has probably never tried to trade and certainly has never traded successfully.  EMH is an academic study that has no real application to the real markets.  So if you are unfortunate enough to come across one of these naysayers don’t get discouraged.  You can make your stake in the Forex markets but you need focus on the correct things which is what this training is all about. 
 
The example that we will use is of the Bank of Japan’s quantitative easing program which was launched in April 2013 represented at point 1.  When this program was made public we found out that it essentially involved the unlimited printing of Japanese Yen in order to devalue the currency and encourage inflation, spending, and growth in the Japanese economy.  Of course, according to the basic laws of supply and demand, when there is an oversupply of something the price will fall and the same is true with currency. 
 
https://i.imgur.com/c4Ro6v0.jpg
 
 
This is a weekly chart of the USDJPY currency pair.  Since JPY is the second part of the pair the USD is going up against the JPY.  Stated another way, the Yen is going down against the USD.  You will notice that the USDJPY was rallying long before the QE program was made official because the market was taking clues from the BOJ for months before the announcement actually happened and attempted to price in QE. 
 
This is a great time to point out that when the market expects something to happen it will attempt to price it into the market in order to make some nice profits.  This is another way that we can follow along with the market and make some nice pips as well. 
 
In this scenario BOJ simply printed more money quicker than the natural rate of demand could absorb.  When the program was launched there was a very high expectation from some well-respected currency analysts that the value of the Japanese Yen would fall over the following months. 
 
The overall expectation was that the pressure of this QE program would eventually lead to the currency depreciating against the USD and rally the USDJPY pair up to 110.00.  If the USD goes up against the JPY then this means that the JPY is actually falling. 
 
This is a very well documented event but when the program was launched the price did not move up to 110.00 for over a year.  It took about 15 months for that piece of news to get fully priced into the market.  This allowed traders plenty of opportunity to get in and take advantage of this move without worrying about missing out the second the news was announced.  Under EMH this kind of event is impossible, which as we have proven, is obviously completely wrong.
 
At point 2 the USDJPY rallied on the back of speculation that the BOJ would have to add to their QE program if they were to meet their inflation target of 2%.  This is because inflation barely moved up from the first QE efforts and the market felt that the BOJ would need to step it up to get the job done.  This was the market attempting to price in the QE2 program. 
 
On October 31, 2014 the Bank of Japan announced the expansion of its Quantitative Easing program.  However, as you can see from the 1,000+ pip rally after the second QE program was announced that there was plenty of time to get in and make a nice profit from this second piece of news. 
 
This demonstrates that the market will always attempt to price in the news.  However, it’s not able to fully price in or even understand the longer term effects of this news on the currency valuation.  This is not a unique event in the Forex market. 
 
It is true that the USDJPY did rally for weeks in anticipation of the QE program being launched but by no means was the move even close to being priced into the market.  Nor were these expectations priced into the market instantaneously as EMH would have you believe.  When QE was launched the price was around 96.000 and eventually the rally gassed out around 126.000.  That’s about a 3,000 pip rally over 2.5 years that you could have been trading on the long side.  That’s right; you could have had an easy trade idea for 2.5 years if you just embraced learning and applying the fundamentals. 
 
There are countless more examples, even on short term day trading time frames, of times when the news is not fully priced into the market.  This gives us a chance to see what is going on and get in to take advantage of some nice price moves.  The truth lies somewhere in between the market attempting to price in the news and then reacting to the news itself which are all things that will be taught in due time in this training. 
 
The previous objections tend to be the most common reservations that people have when approaching fundamentals.  There is really no reason to be concerned with these because what I am about to show you next will allow you to see for yourself how simple and how powerful the fundamentals really are.
 
Let’s now take a look at some information that will give you a nice introduction on how to trade the fundamentals starting with Central Banks.
 
 
=='''Institutional vs. Retail Traders'''==
 
Before we have a deeper look at fundamental analysis I feel it’s important to point out the major differences between institutional traders from retail traders.
 
Ok, so there is a pretty big difference in the way that a retail trader approaches the Forex market from how a professional institutional trader will go about navigating the financial markets.  What I mean by retail trader is a person who typically trades from their home like you and I.  An institutional trader would be someone who works at a hedge fund or an investment bank, think corporate here. 
 
In this section I will talk about the two different types of traders, what their differences are, and why you might want to consider trading and approaching the market like one over the other.
 
 
===What is a Retail Trader?===
 
The chances are that if you bought this course then you are probably a retail trader.  Or maybe you are looking to become a trader and are you are doing a little bit of research before you dive in head first.  This is by design because I created this course specifically for the retail market.  It would be a great compliment if institutional traders joined as well because there is definitely a ton of useful information in this training but my goal was always intended to help retail and home traders gain a glimpse into how the large funds and investment houses trade the Forex market.  My hope is that everyone who takes part in this training finds something of value that will add meaningful and measurable results to their trading performance.  And if you learn this material and then put it into practical application it will be pretty hard to fail. 
 
Retail traders are typically normal everyday people who have jobs outside of the FX space.  Sometimes they are small business owners but are looking for a way to make a little extra money in their spare time.  For many retail traders it is their goal is to become a full time trader to enjoy the freedom and flexibility that comes along with a trader’s lifestyle. 
 
As far as the lifestyle goes you do need to be trading at certain times of the day to be a part of the best trading opportunities but you certainly can be anywhere in the world as long as you have a trading platform, laptop, and a stable internet connection.
 
Retail traders usually get their trading education by searching the internet for the latest and greatest system.  These systems are selling them the dream of making millions for a small one-time fee or maybe even a monthly subscription.  Because retail traders mostly finds their trading education online it’s almost inevitable that they start their career by utilizing some sort of technical analysis system that uses past price behaviour, indicators, or patterns to attempt to predict future price action.  This is because the internet is flush full of gimmicky trading systems that promise the world and are all based on technical analysis. 
 
If you do a quick Google search to find Forex trading education you will find all kinds of systems, gurus, algorithms, and indicators all promising that you will make boat loads of money with very little effort.  Even if you do a search for hard copy books you will no doubt find almost all of them focus on some form of technical analysis.  It all seems to be the same thing packaged up with different catchy names to get you to buy.  The same goes for weekend seminars and webinars; they are almost all focussing on the same technical analysis stuff over and over with the only difference being how it’s being packaged and sold. 
 
If this is not the first Forex training and education you have purchased then I’m willing to bet that you can already tell that this is different and unique from the rest of the stuff that is out there.  Some of these products can cost many thousands of dollars, which is fine because I have personally invested over $100,000 of my own money on education products over the years.  The problem that I have is that these other education courses are almost all missing the stuff that you actually need to succeed.  You only get a one sided education in technical analysis when what you really need is training in the 5 key areas that this training is all about. 
 
The scary reality is that the people selling these systems have likely never made any money as a trader.  It’s very sad but it is probable that these gurus have only made money from selling you their trading related products.  This is not the case with this training. 
 
This is not to say that technical analysis products are the only subject out there related to trading.  There absolutely are lots of great websites and books that focus on some of the other stuff that you need to know such as trading psychology or risk management.  However, this seems to be in the minority and can be difficult to find high quality content.  It’s almost impossible to find any information about trading fundamentals and sentiment that is geared to the retail market.  If you do find any fundamental information it’s likely that it is an academic study with no real practical application to day trading the Forex market.  It’s also very difficult to get all the information you need to know in order to become successful all in one place. 
 
The good news for you is that this training will cover everything you need to know in order to become a successful Forex trader.  This is why I think this training is so special.  I will literally cover everything you need to know to get yourself educated to the point of a true professional.  Then the rest is up to you to go practice what you have learned. 
 
I want to let you in on the secret that the marketing guys don’t know or have been hiding from you.  I’m pretty sure it’s because they don’t know.  Trading is a skill where you need to learn many moving parts.  It’s not enough to say that you are a pro when it comes to knowing everything about technical analysis because everyone knows technical analysis these days.  That’s great if you are a walking encyclopedia of technical analysis but you are only proficient in one of the 5 subjects you need to be in order to become truly successful as a Forex trader. 
 
Ready for the secret?  You need to become proficient with:
 
# Fundamental Analysis.
# Sentiment Analysis.
# Risk Management.
# Trading Psychology.
# Lastly and least important……Technical Analysis.
 
 
The first 4 are the most important and should make up 95% of your trading while technical analysis only being of value as a timing tool for entry and exits.  This is how the majority of institutional traders approach trading. 
 
What I find really interesting is that retail traders typically use 95% technical analysis in their trading with a tiny bit of risk management and probably little to no proper trading psychology.  Certainly almost no retail traders are using fundamentals and sentiment analysis which are the actual reasons that prices move in the Forex market.  I can say with the utmost conviction that prices do not move because of technical analysis or moving lines on a price chart.  And I think that most people will agree with me if they are using any form of logic. 
 
Do you think that maybe there is something to the scary statistic that 95% of retail traders fail and lose money overall?  That is an incredibly sad statistic and I would say from my experience with being on the brokerage side and training hundreds of traders that it’s probably a very conservative percentage.  At the same time these money losing retail traders are using 95% technical analysis to guide their trading decision!!!  Really think about that for a moment and let it sink in.  95% of retail traders fail and lose money over the long while at the same time 95% of retail traders use technical analysis exclusively to make their trading decision.  Isn’t that an amazing thought?  95% of retail traders lose money and the same 95% of retail traders use technical analysis systems to trade the market.  This is about the time that you should have a light bulb go off in your head.  If you didn’t just have an aha moment please read that paragraph again or go back and re-watch this video.  The failure statistics of retail traders directly match up with the percentage of retail traders that use technical analysis.  I don’t know about you but I find that fascinating and it gives me a lot of confidence in my fundamental and sentiment approach to the Forex market. 
 
What it all boils down to is that the main focus of retail traders is typically some sort of system that is based on 100% technical analysis.  It could be a manual trading strategy or it could be some kind of algorithmic strategy but it’s definitely technical in nature. 
 
 
===What is an Institutional Trader?===
 
An institutional trader is pretty much the exact opposite of a retail trader.  An institutional trader is a trader that works for some kind of financial institution such as hedge funds, banks, investment banks, prop houses, pension funds, or any other type of money management firm.  Said another way, these are corporate traders not at home traders as in the case of retail traders. 
 
These traders will typically get an economics, math, MBA, or finance degree from a college or university before getting a job as a junior trader at a financial institution.  Over time, as they gain more experience, they will learn how the largest traders in the world manage huge sums of money on behalf of the bank or their clients.
 
The institutional trader will typically start their career as a junior analyst and work their way up over the years to become a senior fund manager with billions under management.  This process will typically take many years, if not decades, to be able to get to the point where the trader is competent enough to manage huge sums of money and pull an above average return when compared to traditional asset classes such as stocks and bonds.
 
Their main focus is on the fundamental situation of economies.  Much of their attention will be paid to the central banks of each major nation that they monitor and the economic statistics coming out of their respective countries.  They also pay strong attention to the current market sentiment, have a lot of strong risk management skills, keep a solid trading psychology, and might use a tiny sliver of technical analysis thrown into the mix to help time an entry.
 
These players make up the largest portion of the trading volume making them the most influential traders over price movements in the Forex market.  They have access to virtually unlimited amounts of capital in some situations. 
 
Because these traders have access to so much money it highlights why we as retail traders should want to know how institutional traders think and trade.  Doing this will offer us opportunities to jump in on their trades and let them move the market with their huge buying and selling pressure.  This gives us a free ride along the way.  Just imagine if you knew what information the largest institutional traders in the world were watching and how they might look to trade that information.  You could literally just join them when the trade happens.  Again, this is what this training is all about.  I know I keep speaking about all the great things you’re going to learn and I do this because I want you to keep up your motivation while you learn some of the information that may not be super sexy or exciting. 
 
There are many institutional traders that are execution only traders which means that they are taking orders from their clients rather than making them a profit.  This is not the kind of institutional trader that I am referring to.  I am talking about the ones managing the world’s money and owning the markets like bosses.  We are only concerned with knowing what the real traders are thinking and how they intend to make a profit. 
 
 
===What is the difference between Institutional and Retail Traders?===
 
The major difference is in how an institutional trader approaches the Forex market when compared to how a retail trader approaches the Forex market.  The differences will become more apparent by drawing some comparisons. 
 
The retail trader usually starts, and inevitably ends their trading career, by utilizing some sort of technical analysis system that uses past price behaviour, patterns, or indicators that attempt to predict future price action.  This is in direct contrast to institutional traders whom will almost never look at any sort of technical indicators or patterns to help give them an edge in their trading.
 
Professional traders focus on fundamentals and sentiment with strong attention paid to managing risks and keeping a proper trading psychology.  Retail traders focus on technical systems, price patterns, and indicators while typically lacking sound risk management and good trading psychology.  The only reference a retail trader typically makes about trading psychology is to blame their bad psychology as the reason they can’t make a profit.  It’s a very typical thing for retail traders to blame the market for their losses rather than owning those losses.  A lot of people have a hard time considering that they are the one that is actually wrong because it’s just easier to blame the broker or the market. 
 
Institutional traders massively focus on risk management and rarely use leverage.  If they do use leverage they are very careful about not risking more on that particular trade than they would if they had not used any leverage at all.  Retail traders look for Forex brokers that offer 200x, 500x, or even 1000x leveraged trading accounts.  The idea the retail trader gets in their head is that if they really leverage up their trades they can turn something like $500 into $100,000 very quickly.  While this is possible it is doubtful that this new retail trader has the necessary skill and training to pull that off.  They typically leverage up without considering that they might just lose their $500 a lot faster which is usually the case. 
 
Retail traders are typically far too undercapitalized to make enough money to support their basic needs.  This is what causes them to take excessive risk using way too much leverage.  This kind of behaviour inevitably leads to poor trading psychology and bad habits that become insanely difficult to break.  They miss the point that trading consistently in a professional manner while developing a proper track record is more important than making money.  You can’t trade with money you are scared to lose and expect to make millions.  That kind of pressure is too much for most people.  Institutional traders are typically well backed with capital and receive more capital as they continue to show consistency and improve their track record. 
 
Institutional traders pay top dollar for the fastest news feeds and audio squawk services available on the market.  Examples of these are the two most well-known; Bloomberg and Reuters Ikon.  They do this in order get market moving news and information faster than their competition.  Retail traders typically avoid news events and pay very little attention to economic data releases because their trading patterns and technical systems fail during these times.  This is ashamed because it has been my experience that some of the best trading opportunities happen right around these news events.  But, you obviously need to know how to trade them. 
 
Institutional traders focus heavily on developing and maintaining a healthy trading psychology that keeps them razor focussed on the things that matter the most to their trading in real time.  Retail traders focus on systems that attempt to remove trading psychology and hopefully have a win rate of 100%. 
 
Are you starting to see the differences between a typical retail trader and the institutional players?  For the most part they do pretty much the opposite of each other.  And you also have to consider who actually makes money.  I can tell you from experience on both sides that retail traders are overall net negative compared to institutional traders. 
 
 
===Why should you learn the Institutional Way of Trading?===
 
Institutional traders are the masters of the universe when it comes to the Forex markets.  They are responsible for the vast majority of price movements in the markets because they simply have control over the most money going into and out of the Forex market.  As a retail trader we want to know what institutional traders are focussing on so that we can take advantage of the price swings they cause with their huge buy and sell orders.  As a retail trader you never want to be on the wrong side of the flow of institutional money because you will simply get run over.  You would be foolish to think that you have a chance when a bus is barrelling at you 100 miles per hour.  It’s best to step aside or get behind the bus and enjoy piggy backing while it clears the road for you.
 
This brings up an interesting observation that I have seen countless times watching new and experienced retail traders alike for over a decade.  It’s absolutely crazy how often retail traders are on the wrong side of the fundamentals and sentiment.  Like I’m talking almost all the time.  This is because most indicators and technical systems use past price information and try to predict future price direction with no regard for the actual reasons WHY the price is moving the way it is. 
 
What I have noticed is that most of these indicators will tell you to buy when price is “oversold”.  But what does oversold actually mean?  If there is a fundamentally bearish reason for the price to be going down then buying just because the indicator is saying price is oversold makes absolutely no sense and puts you are on the wrong side of the heavy institutional selling.  Your indicator is too dumb to know when the bottom is in.  You’re probably going to get run over and you almost certainly do not have the skill to call the end of a fundamental move if you are using technical indicators.  This is exactly why most retail traders are perpetually on the wrong side of the market.  They are constantly buying at the times when the big boys and girls are selling.  You simply are going to lose against the big guys most of the time.  Sure you might get lucky from time to time and bank a few pips on some scalp trades against the fundamental move but over the long run being on the wrong side of the fundamentals and sentiment will keep your trading account in the red. 
 
Let me give you an example of a good friend of mine that highlights this kind of behaviour.  He also happens to be an extremely successful business person.  My buddy will ping me from time to time telling me about some amazing scalp trade that he just banked 4 or 5 pips on.  Apparently I missed the greatest move ever. 
 
First off, I could not care less about 4 or 5 pips.  I regularly bank trades in excess of 50 to 100 pips or more as day trades.  My personal record is over 1,000 pips on GBPJPY short trade during Brexit that lasted a couple hours.  I was doing this while all the technical traders were sitting on the sidelines watching the massive price moves and shaking in their boots.  Yes it takes guts to trade an event like Brexit but you need to be there for the best opportunities because they can sometime make your month. 
 
Back to my friend and his scalp trades.  The conversation inevitably goes something like this:
 
Friend:  I just banked 5 pips on a EURUSD trade, it was sweet pipskies. 
Me:  let me guess, you went long right? (Usually I also put in that emoji that slaps itself in the face).
Friend:  sure did!  There was a textbook cup and handle on the 1 minute chart.  Hit my take profit to the tick!
Me:  and now it’s 50 pips lower, you’re lucky you got out when you did or you would have gotten killed.  You realize that the European Central Bank just announced a massive quantitative easing program today and that the price is going down in a straight line right?  (Insert the emoji that smashes its head off a brick wall).
Friend:  yeah I heard something about that.
Me:  so why would you take on so much risk and step in front of the falling knife like that?  This thing will probably be down 1000 pips by the end of the month! 
Friend:  I don’t understand that fundamental stuff you’re always talking about.
Me:  you should take the time to learn.  I’ve been in and out of the EURUSD short today twice and booked a total of 180 pips with almost no drawdowns and no risk.
Friend:  seems like too much work.  I’ll stick with my cup and handle trades, they are easy money.  Beers next week?


This kind of conversation happens all the time.  What he is really saying is that price has gone down too much and that it can’t go down anymore.  He is absolutely on the wrong side of the market every single time he makes a trade which makes the risk that he takes 100X greater than any trade I take.  This is because I know the reasons the market is moving and let the big boys do all the hard work for me.  I can also say when these tiny 5 pip scalp trades go wrong he will hold them for hundreds of pips offside.  At the time of this writing he is currently holding a GBPUSD trade long from 1.4400 and thanks to Brexit the price is currently sitting at 1.2400.  It doesn’t make a lot of sense to book 5 pip profits and hold trades 2000 pips offside but sadly a lot of people will do just that.  You would need to make 400 profitable 5 pip trades to pay for that 1 2000 pip loss.  That’s the same thing as saying you are going to be correct 99.95% of time.  You can’t possibly think that you will be a great trader taking on lopsided risks such as these examples can you? 


It may seem like I’m making fun of my friend but I’m not.  He is a great person and definitely not the only person who thinks and trades like that.  I have seen so many people trade this way in the Forex market.  Fortunately for him he has deep pockets and can hold positions 2000 pips offside.  But his account is down huge overall and he has had to deposit more money on several occasions to support his margin requirements with the broker. 
=='''[[The Basics of Fundamental Analysis]]'''==


For most people that kind of trading would have wiped out their trading account a long time ago.  I really think it makes the case to learn the fundamentals.  Also learning to trade for such tiny amount of pips is probably a flawed idea because risk and reward just doesn’t add up with this idea.  There are plenty of decent moves with lots pips to be had every day you just have to learn to sit in a trade and let it develop.
Fundamental Analysis goes far beyond a simple [[Technical Analysis]] approach which is what the typical retail trader will use to make their [[trading]] decisions.  Understanding Fundamental Analysis will give you more conviction because you can have confidence that ''you are [[trading]] the real reasons why the market is moving'' rather than simply guessing by using some variation of chart pattern or indicator to make your [[trading]] decisions. In this Wiki, we will explore [[The Basics of Fundamental Analysis]] including:


Understanding how institutional trader’s trade will give you a true understanding of why price has moved the way it has and where it may go in the near future.  This is what our job is as traders, picking where the currency pair will likely go soon and make some pips when it does.  But we do it with the understanding that this is how the overall market is going to trade it based on the fundamentals. 
* [[The_Basics_of_Fundamental_Analysis#The_Basics_of_Fundamental_Analysis | The Basics of Fundamental Analysis]]
* [[The_Basics_of_Fundamental_Analysis#Fundamental_Analysis_and_Real_Life_Scenarios | Fundamental Analysis and Real Life Scenarios]]
* [[The_Basics_of_Fundamental_Analysis#A_Trader's_Personal_Story_on_Fundamentals | A Trader's Personal Story on Fundamentals]]


If you are ever fortunate enough to stand around a water cooler at a hedge fund or an institutional trading floor you will get a dose of reality in what you hear the traders and money managers talking about.  You will NEVER hear these professionals talking about how the MACD is showing positive divergence on the 512 tick chart with a bullish signal from the Ichimoku cloud or some other technical garble like that.  What you would hear will directly contradict the majority of the rubbish courses that you will find all over the internet. 


You will hear conversations about how weak commodity demand from China is causing the Australian dollar to weaken or how one more positive CPI reading and the Federal Reserve will have no choice but to hike their benchmark interest rate at the next FOMC meeting.  You will hear all kinds of banter on how they can position their trades ahead of the next key economic risk event.  I know this is true because I have lived it and worked as an institutional trader in the past and I have deep connections with some really powerful people in the city.
You can access the main Wiki for [[The Basics of Fundamental Analysis]] [[The Basics of Fundamental Analysis | HERE]].


By the time that you are done going through this program you will have a firm grasp of how institutional money managers think about the Forex market and how they trade it profitably.  Try to keep an open mind with the information you are being given.  I know it probably contradicts what you have been taught in the past but trading is a business of constant and never ending improvement so you might as well embrace this new way of thinking and give it a chance. 


If you are not making consistent money from your trading efforts it’s probably because you are focusing on the things that have no real effect on why a currency moves.  Currencies don’t move because some colorful line on a chart says to go long.  Currencies move because of central banks and the actions they take to enact their policy mandates.  Don’t worry if you don’t understand this just yet because getting to grips with this institutional information and trading strategies is exactly what this entire training is all about. 
=='''[[Objections to Fundamental Analysis]]'''==


There are many ''Traders'' that are opposed to the concept of [[Fundamental Analysis]]. There are various reasons for this but what we will do in this Wiki is point out a few of the most popular objections and then provide some context on why they may not be well-founded objections including:


=='''Supply and Demand'''==
* [[Objections_to_Fundamental_Analysis#Objections_to_Fundamental_Analysis | Objections to Fundamental Analysis]]
* [[Objections_to_Fundamental_Analysis#Objection_#1:_Applying_the_Fundamentals_is_Unnecessary_Because_You_Only_Need_to_Look_at_the_Charts | Objection #1: Applying the Fundamentals is Unnecessary Because you Only Need to Look at the Charts]]
* [[Objections_to_Fundamental_Analysis#Objection_#2:_Fundamentals_are_too_Difficult_Unless_you_have_a_High-Level_University_Degree | Objection #2: Fundamentals are too Difficult Unless you have a High-Level University Degree]]
* [[Objections_to_Fundamental_Analysis#Objection_#_3:_All_News_is_Priced_into_the_Markets | Objection # 3: All News is Priced into the Markets]]


When discussing fundamental analysis there are some core principles that we need to be aware of.  Supply and demand is at the heart of fundamental moves in all markets including FX.  Think of buying as demand and selling as supply.


When we have a situation where buyers are more aggressive than sellers this mean prices will likely be bid up and move higher.  When I say bid up what I am referring to is a situation where buyers are more willing to “step up” their buy orders in the hopes of getting a fill on the long side.  Going long is the same thing as buying.  This is what we refer to as demand.  When more people want to buy at the current price this will cause the sellers to raise their offers to accommodate for the higher demand.  Essentially, when we have a high demand situation buyers are more willing to purchase at higher prices and sellers are less willing to sell at lower prices.  Aggressive buyers will simply lift the offers to get long instantly.  The other reason someone would want to lift the offer is to get out of an existing short position immediately.  If there is a very real reason for the market to be aggressively buying then you definitely do not want to be holding a short position against that positive sentiment.
You can access the main Wiki for [[Objections to Fundamental Analysis]] [[Objections to Fundamental Analysis | HERE]].


On the other hand if we have a market where the sellers are more aggressive than the buyers this mean that prices will likely go down.  This is a situation where we have more supply than demand.  Buyers naturally want to buy at lower prices so they will lower their bids to accommodate for this influx of supply.  In this situation sellers will be more willing to step down their offers.  Aggressive sellers will simply take the bids in order to get short immediately.  The other reason someone would want to take the bid would be to get out of their existing long positions.  The concept is the same, you don’t want to be stuck holding a position that is contrary to the current price move and market sentiment because you could wind up taking a much larger loss than you anticipated. 


At any one moment in time the current price is thought to be the equilibrium between the forces of supply and demand.  As new information is absorbed and disseminated into the market buyers and sellers will move price based on what this new information fundamentally means to the value of the asset that they are trading.  This happens on a tick by tick basis every day.  Sentiment can and does change many times throughout a single trading session but to varying degrees.
=='''[[Institutional and Retail Traders]]'''==


There is a big difference in the way that a [[Institutional_and_Retail_Traders#What_is_a_Retail_Trader? | retail trader]] approaches the [[Forex]] or any other financial market from how a professional [[Institutional_and_Retail_Traders | institutional trader]] will go about navigating them.  In the following Wiki, we will explore concepts such as:


=='''Sentiment Analysis'''==
* [[Institutional_and_Retail_Traders#What_is_a_Retail_Trader? | What is a Retail Trader?]]
* [[Institutional_and_Retail_Traders#What_is_an_Institutional_Trader? | What is an Institutional Trader?]]
* [[Institutional_and_Retail_Traders#What_is_the_difference_between_Institutional_and_Retail_Traders? | What is the difference between Institutional and Retail Traders?]]
* [[Institutional_and_Retail_Traders#Why_should_Traders_learn_the_Institutional_Way_of_Trading? | Why should Traders learn the Institutional Way of Trading?]]


We have a huge Wiki on [[Sentiment Analysis]]. Here we will do a short explanation of [[Sentiment Analysis]].


The other most common driver of fundamental information is something called sentiment. We have already mentioned sentiment a few times now but up to this point I have not provided a definition of what sentiment actually is. 
You can access the main Wiki for [[Institutional and Retail Traders]] [[Institutional_and_Retail_Traders | HERE]].


Let’s first think of fundamentals as the big macro picture of the health of an economy.  If the particular economy is performing well and interest rates are rising then we would expect the currency of that nation to move higher over the long run.  People want to invest in growing and stable economies that are performing well so this means that they will need to buy the local currency of that economy in order to invest in it.  This is the most basic picture I can come up with for what fundamentals are. 


Well, we know that currency prices just don’t go up in a straight line.  It would be nice but that’s not the reality unfortunately.  Even though the big picture fundamental outlook may be overall positive there will be many days where the price actually goes down against the fundamental trend.  In these times this means that the sentiment of the day has turned negative and forced price temporarily to be out of line with the big picture fundamentals. 
=='''[[Fundamental Supply and Demand]]'''==


Sentiment, in its most basic form, is the mood of the market right now in the current trading session.  It’s similar to fundamentals except it lasts for much shorter periods of time.  Sentiment can be both in line with the fundamentals but it can also move price in the opposite direction of the fundamentals.  The interesting thing about sentiment is that it can last anywhere from a few seconds to many weeks depending on how strong that sentiment is. 
When discussing fundamental analysis there are some core principles that we need to be aware of.  [[Supply_and_Demand | Supply and demand]] are at the heart of fundamental moves in all markets including [[Forex]]. In the following Wiki we will explore:


The importance of this aspect of supply and demand cannot be underestimated.  Sentiment is so important that you will spend most of your time trying to identify the current sentiment for your trading opportunities.  This is especially true if you are a shorter term trader such as a day trader.  If you are a day trader you will need to be in tune with how the market is feeling all day while you are trading.  This may sound a bit overwhelming but in a later section I will teach you all about certain tools that are designed to do the heavy lifting for you to keep you up to date minute by minute.
* [[Fundamental_Supply_and_Demand#Fundamental_Supply_and_Demand | Fundamental Supply and Demand]]
* [[Fundamental_Supply_and_Demand#Demand | Demand]]
* [[Fundamental_Supply_and_Demand#Supply | Supply]]
* [[Fundamental_Supply_and_Demand#Equilibrium | Equilibrium]]


I would personally classify myself as an intra-day sentiment trader.  I always want to keep the big picture fundamentals in the back of my mind but for me my biggest concern is what the market is thinking right now so that I can jump in and hopefully make some pips in the current trading session. 


For me, the very best trades that I have are when the current sentiment is in line with the big picture fundamentals.  These are the easiest trades because you have the power of the longer term investors using the fundamentals and the shorter term hedge fund traders using the sentiment all pushing the price together in the same direction.  This is when you can make a lot of pips very quickly with trades that never try to go against you.  This is one of most important concepts in this training that we will continue to dig into more and more as we go along.
You can access the main Wiki for [[Fundamental Supply and Demand]] [[Fundamental Supply and Demand | HERE]].


The very best trades look like the following:


• If fundamentals + and sentiment + then buy all day long at good buy points.
=='''[[Sentiment Analysis Overview from a Fundamental Perspective]]'''==
• If fundamentals – and sentiment – then sell/go short all day long at good sell points.


These are the type of trades that tend to last longer and move more in terms of pips. These are the trades that can make you millions if you know how to identify the fundamentals and sentiment of the day properly.
Fundamental Analysis and Sentiment Analysis are two of the most important subjects in Forex trading. In this Wiki, we will take a [[Sentiment Analysis Overview from a Fundamental Perspective]] and explore some ways to trade them including:


Good trades look like the following:
* [[Sentiment_Analysis_Overview_from_a_Fundamental_Perspective#The_Best_Trades | Sentiment Analysis Overview from a Fundamental Perspective]]
* [[Sentiment_Analysis_Overview_from_a_Fundamental_Perspective#The_Best_Trades | The Best Trades]]
* [[Sentiment_Analysis_Overview_from_a_Fundamental_Perspective#Good_Trades | Good Trades]]


If fundamentals + and sentiment - you have 2 options:
You can access the main Wiki for [[Sentiment Analysis Overview from a Fundamental Perspective]] [[Sentiment Analysis Overview from a Fundamental Perspective | HERE]].


# Allow the negative sentiment to bring price back to where it makes fundamental sense to start buying again.
# Trade the negative sentiment short against the positive fundamentals.  This is where knowing how strong sentiment is will help you make some profitable trades against the big picture fundamentals.


=='''[[Exchange rates | Exchange Rates]]'''==


If fundamentals - and sentiment + you have 2 options:
[[Exchange rates]] are an important aspect of understanding the full spectrum of fundamental analysis which is why we created a separate Wiki devoted entirely to [[Exchange rates]]. In the following Wiki, we will explore:  


# Allow the positive sentiment to bring price back to where it makes fundamental sense to start selling again.
* [[Exchange_rates#What_is_an_Exchange_Rate? | What an Exchange Rate is]]
# Trade the positive sentiment long against the positive fundamentals.  This is where knowing how strong sentiment is will help you make some profitable trades against the big picture fundamentals.
* [[Exchange_rates#Exchange_Rate_Examples | Exchange Rate Examples]]
 
* [[Exchange_rates#The_Technical_Aspects_of_Exchange_Rates | The Technical Aspects of Exchange Rates]]
 
* [[Exchange_rates#Exchange_Rate_Pricing_Theories | Exchange Rate Pricing Theories]].
At its most extreme, virtually nothing will stop a market until its participants have been fully satisfied.  The markets are simply too large for one entity, authority, or even group of authorities to move prices in a direction that the markets don’t appear to want.  Five billion dollars of transactions would represent a serious intervention by a major central bank but would only represent less than 1% of the daily FX volume in the London trading session alone.  But, when all of the big players all agree that price should be moving in a particular direction this can lead to some fantastic trading opportunities with major upside potential for your trading account. 
* [[Exchange_rates#Central_Banks_and_Exchange_Rates | Central Banks and Exchange Rates]]
 
In later sections I will expand on the concept of sentiment and give you the tools and strategies you need to trade with sentiment effectively.  But for now I just want you to understand that fundamentals are the big macro picture of what is going on in an economy and sentiment is the mood or the market right now in the current trading session.  Sentiment is caused by fundamental economic data and market moving information that could come in many forms which we will discuss in upcoming sections. 
 
 
=='''Exchange Rates'''==
 
We have already created separate Wikis on [[Exchange rates]] so please click on the links to take you to those specific Wikis to obtain this information.




The main page for [[Exchange rates]] is found here: [[Exchange rates]]
The main page for [[Exchange rates]] is found here: [[Exchange rates]]
'''Table of Contents'''
1 [https://volatility.red/Exchange_rates#What_is_an_Exchange_Rate? What is an Exchange Rate?]
2 [https://volatility.red/Exchange_rates#Exchange_Rate_Examples Exchange Rate Examples]
3 [https://volatility.red/Exchange_rates#The_Technical_Aspects_of_Exchange_Rates The Technical Aspects of Exchange Rates]
4 [https://volatility.red/Exchange_rates#Exchange_Rate_Pricing_Theories Exchange Rate Pricing Theories]
4.1 [https://volatility.red/Exchange_rates#Purchasing_Power_Parity_(PPP) Purchasing Power Parity (PPP)]
4.2 [https://volatility.red/Exchange_rates#Portfolio_Balance Portfolio Balance]




=='''Money Supply'''==
=='''Money Supply'''==


We have already created separate Wikis on [[Money Supply]] so please click on the links to take you to those specific Wikis to obtain this information.
We have a separate Wiki on [[Central_banks#Monetary_Policy_and_Money_Supply | Money Supply]] so please click on the links to take you to those specific Wikis to obtain this information.


The main page for [[Central_banks#Monetary_Policy_and_Money_Supply | Money Supply]] is found here: [[Central_banks#Monetary_Policy_and_Money_Supply | Money Supply]].


The main page for [https://volatility.red/Central_banks#Money_Supply Money Supply] is found here: [https://volatility.red/Central_banks#Money_Supply Money Supply]


=='''[[Intermaket Analysis]]'''==


'''Table of Contents'''
To get a good grip on financial [[trading]] we need to take a few minutes out to look at something called ''"Intermarket Analysis"'' and how various asset classes and markets relate to each other. In the following Wiki on [[Intermaket Analysis]] we will cover subjects such as:


1 [https://volatility.red/Central_banks#Monetary_Policy_and_Money_Supply Monetary Policy and Money Supply]
* [[Intermaket_Analysis#Overview_of_Intermarket_Analysis | Overview of Intermarket Analysis]]
* [[Intermaket_Analysis#The_Link_between_Bonds_and_Stocks | Links between Bonds and Stocks]]
* [[Intermaket_Analysis#The_Link_between_Commodities_and_Bonds | Links between Commodities and Bonds]]
* [[Intermaket_Analysis#Deflation_and_its_Effects | Deflation and its Effects]]


2 [https://volatility.red/Central_banks#Ways_to_Manipulate_the_Money_Supply Ways to Manipulate the Money Supply]
The main Wiki on [[Intermaket Analysis]] can be found [[Intermaket_Analysis | HERE]].


=='''Intermaket Analysis'''==


To get a good grip on financial trading we need to take a few minutes out to look at something called Intermarket analysis and how various asset classes and markets relate to each other. 
='''Advanced Fundamental Analysis'''=


General Overview:


In general, equity share prices of publicly listed companies are highly cyclical.  For example, investors and traders typically shift out of shares and into fixed income securities, such as bonds, when they expect or are fearful of a recession taking place in a particular country.  When they expect that the recession is coming to an end and a recovery is near they then move their money back into shares.  This cyclical trading activity between recession and expansion within an economy is a basic cycle of preserving capital and seeking to gain high yields. 
=='''[[Fundamentals and Sentiment]]'''==


The ideas of moving into and out of asset classes when the fear of recession and greed of economic expansion is also known as risk off and risk on.  Risk on and risk off is what all financial markets attempt to do on a daily basis.  It’s all about preserving capital in times of fear and hunting for a profit in times of greed.
In the following Wiki, we will explore what both fundamentals and sentiment are and build and expand on previous information from our [[Fundamental Analysis]] Wiki.


For example; if share prices are rapidly climbing then this is likely a risk on environment because traders are hunting for a profit.  If share prices are getting beaten up and falling hard then this is probably a risk off market because money is coming out of shares.  Keep in mind, if money is coming out of one market, such as equities, then that money will typically go into assets that are considered safe such as government issued bonds.
You can access the main Wiki for [[Fundamentals and Sentiment]] [[Fundamentals and Sentiment | HERE]].


Most money managers have a legal mandate to keep a large percentage of the cash they have from investors actually invested in the markets.  This explains why when money comes out of one asset class it tends to move into another asset class.  Money needs to keep moving and it can’t do so if it is being held as cash on the books. 


The direction of equity share indices, such as the S&P 500 or the DAX, can be a valuable leading indicator when determining the overall health of a particular economy.  One of the old popular beliefs in economic circles is that a healthy stock market is a good measure of a healthy economy that the stock market belongs to.  This is because if people are continuing to buy up equities then we have a risk on market that is looking to gain a nice yield or a healthy profit.  When the market goes risk on this means that market participants are not worried about the health of the economy and are willing to put their money at risk because they think there is a good chance of making a nice profit.   
=='''Central Banks'''==


Shares are also highly sensitive to corporate earnings news.  If stock prices rise faster than the current and or projected corporate earnings then investors might become concerned that the price to earnings ratio or P/E ratio is too high and the stocks are now overvalued. This in turn could potentially cause a sell off until the actual earnings make sense with the P/E ratios for companies. 
[[Central_banks | Central Banks]] are so important to the [[Forex]] market and all other financial markets that we have devoted an entire in-depth Wiki to all things [[Central_banks | Central Banks]]. In the following Wiki on [[Central banks | Central Banks]] we will explore:


Conversely, lower P/E ratios may indicate cheap prices for shares and a reason to start buying stocks again.  This typically happens as an economy is expected to turn the corner out of a recession and into a growth period again.  This is the time that the market is attempting to price in future positive expectations and make some good money at the same time.  The early bird gets the worm so to speak. 
* [[Central_banks#Introduction_to_Central_Banks | Introduction to Central Banks]]
* [[Central_banks#A_Brief_History_of_Central_Banks | A Brief History of Central Banks]]
* [[Central_banks#Central_Banks_and_Interest_Rates | Central Banks and Interest Rates]]
* [[Central_banks#Overview_of_what_Central_Banks_do | Overview of what Central Banks do]]
* [[Central_banks#Monetary_Policy_and_Money_Supply | Monetary Policy and Money Supply]]
* [[Central_banks#Central_Bank_Monetary_Policy_Tools | Central Bank Monetary Policy Tools]]
* [[Central_banks#Hawks_and_Doves | Hawks and Doves]]
* [[Central_banks#Major_Central_Banks | Major Central Banks]]


This is also a good time to point out that what the market “expects” for the future is just as, if not more, important than what is actually happening currently in the economy.  This is because it’s the expectations of the market that moves price before those expectations actually become reality.  This is the markets discounting mechanism and in equity indexes it is generally thought to price in expectations of 3 to 6 months from the current time. 


Between 1972 and 1982 dramatic changes took place with the introduction of futures contracts on treasury bonds, currencies, and stock index futures.  Since introducing these new futures contracts the world of futures trading has morphed from the simple and more traditional stocks and bonds futures contracts to a much larger and more complex futures trading marketplace with almost limitless asset classes available to trade.  This has really opened up many new trading products that might be of potential value to certain types of traders and investors.  It has also made the world of Intermarket analysis and shifting money into and out of one asset class to another rather simple and efficient for market participants should they choose. 
The main Wiki page for [[Central banks | Central Banks]] is found here: [[Central banks | Central Banks]]
 
 
===The Link between Bonds and Stocks===
 
It has become clear that the direction and movement of futures markets can have an influence on stocks and commodities.  Futures can give us early warning signs of the expectations on interest rates and inflation trends within certain economies.  This will then affect the foreign exchange and stock markets. 
 
The stock market is divided into many sectors and industry groups.  If we look carefully we can see profitable sector rotation into and out of certain areas.  We can see this from certain futures price movements. 
 
Sector rotation happens when large financial institutions such as pension funds, hedge funds, or large portfolio managers shift their investments from one sector of the economy or stock market to another.  What happens is that these financial institutions sell one asset class and use the money from the sale to buy another asset class rather than just holding onto cash. 
 
Not all sectors of the economy perform equally well at the same time.  Portfolio managers will attempt to make higher returns by timing economic cycles because some assets will perform better in a healthy economic cycle and others will perform better in a recessionary economic climate.  Sector rotation is all about being in the highest performing asset at the right time in all cycles.  At least that is the idea; it’s not exactly how it goes because, as we know, not all investment companies make money every year. 
 
The basic premise of intermarket analysis is that all markets are linked in some way.  Money goes into one asset class and when it is time to move out of that asset class it must move into another rather than simply being held as cash.  Money is not typically held in cash because cash alone does not yield any return, it must be in an asset to potentially make a profit.  Plus, why would an investor give their money to a portfolio manager who holds all cash rather than hunting for a profit in the markets?  This would make no sense because the investor could clearly hold the cash himself without having to pay the typical high fees to a portfolio manager. 
 
The direction of interest rate movements influences the stock market.  In general, bond prices move in the opposite direction to interest rates and yields.  Interest rates can be tracked in real time by watching the pricing of government bond futures.  When bond prices are rising this would mean that yields are falling which is normally considered positive for stocks prices.  A comparison between the S&P 500 cash index and its related futures contract to that of the Treasury bond futures charts will show that they have generally moved in the same direction under normal market conditions.  This is not always true, such as when the market is facing serious uncertainties, but for the most part it’s a pretty solid correlation. 
 
In the short term, sudden changes in the S&P 500 futures contract are often influenced by sudden changes in the Treasury bond futures contract.  Sudden changes in the S&P 500 futures will of course have an effect on the pricing of the 500 stocks that make up the S&P 500.  In the longer term, changes in the trend of the Treasury bond contract often warn of similar changes in the S&P 500 cash index.  So we can come to the conclusion that bond futures can be viewed as a leading indicator for the stock market.  In turn, bond futures are influenced by the trends in the commodity markets. 
 
Let’s take a second to note that in a disinflationary environment the correlation between bonds and stocks usually decouple.  Basically, the correlation goes out the window until a more normal market environment comes back.  During a disinflationary environment bond prices typically rise while stock prices fall. 
 
Disinflation is simply a period or process of a slowing rate of inflation.  It’s used to describe instances when the inflation rate has reduced marginally over the short term.  Although it is used to describe periods of slowing inflation, it should not be confused with deflation which can be devastating to an economy.  Deflation is a situation where the economy is actually shrinking rather than growing.  This is the kiss of death to a central banker and they will do anything in their power to avoid deflation. 
 
To put it overly simplistic, inflation is how much prices of a standard basket of goods and services are going up and can therefore show us how much the rate that the economy is going up.  A healthy developed economy should grow at a rate of around 2% over the long run. 
 
 
===The Link between Commodities and Bonds===
 
Bonds are not just linked to equities and Forex; they are also linked to commodities. 
 
Treasury bond prices are affected by the market expectations for future inflation readings.  Remember, the market expectations are just as, if not more, important that what actually happens with inflation because the market will always attempt to discount what it believes will happen in the future right now in the current market. 
 
Commodity prices are considered to be a leading indicator for inflationary trends.  This is because we all use and consume commodities and if the prices are going up then we will obviously be paying more for commodities which causes inflation to grow.  This means that commodity prices usually move in the opposite direction of bond prices.  This is because if inflation is going up (i.e. commodities are going up in price) we can say that the economy is very likely doing well and that will cause bond prices to go down.  In this situation, bond prices go down because bond issuers will pay lower premiums when times are good and higher premiums when times are bad.  The issuer would only prefer to pay a higher premium when the economic outlook is looking bad because a higher premium will always be more enticing for people to invest their money.   
 
If you perform a study of historical market charts dating back to the 1970’s they will show you that when there is a sudden upturn in commodity prices this is usually correlated with relatively equal declines in bond prices. 
 
Intermarket analysis is an interesting subject and could command a lot of your time should you choose to go down that route.  However, it’s just fine for now to understand that the dollar influences commodities, commodities influence bonds, and bonds influence stocks. 




===Deflation and its Effects===
=='''[[Economic data releases | Economic Data Releases]]'''==


The intermarket influences that I have described so far are based on statistical models dating back to the 1970’s.  In the United States the 70’s was a period of runaway inflation.  This high inflation environment favored commodity and stock prices to go up.  Since the Asian markets collapse in 1997 and its subsequent spread into the global economy, commodities have been hit hard with many boom and bust cycles.  The Asian markets are such major consumers of commodities that the downturn has caused a lot of volatility. And it works in reverse, whenever the Asian markets are booming commodities boom right along with it.  This has caused a long term bullish run in bonds and non-commodity based equities. 
Just like [[Central_banks | Central Banks]], [[Economic data releases | Economic Data Releases]] are so important to all financial markets that we have created a separate Wiki for them. In the following Wiki we will explore:


Furthermore, the slower price rises observed during the late 2000’s may now have turned into damaging deflation whether or not the economic data supports it.  This is a situation called beneficial disinflation which causes the bond and stock markets to decouple from their normal correlations. 
* [[Economic_data_releases#Economic_Data_Primer | Economic Data Primer]]
 
* [[Economic_data_releases#The_Importance_of_Globalization | The Importance of Globalization]]
While the inverse relationship between bonds and commodities are maintained, deflation can cause the stock and bond markets to develop an inverse relationship as well which historically has not been the case.  Therefore, while a relationship is always maintained, its nature may change in a disinflationary world and this relationship is what the global markets are currently trying to sort out at the time of this writing in 2017. 
* [[Economic_data_releases#How_to_know_when_Economic_Data_is_Released | How to know when Economic Data is Released]]
 
* [[Economic_data_releases#What_Traders_Need_to_Know_about_Economic_Data | What Traders Need to Know about Economic Data]]
We are now in a time when traditional correlations may not be as effective as they once were in simpler times.  The global markets are incredibly linked at this point but we have a situation where the central banks of each individual country are not enacting their monetary policies as if they are linked.  It will be interesting to see how all this recent printing of money in the form of quantitative easing changes or strengthens the traditional correlations. 
* [[Economic_data_releases#The_Expectations_of_Data_is_Critically_Important | The Expectations of Data is Critically Important]]
 
* [[Economic_data_releases#Economic_Data_and_Economic_Cycles | Economic Data and Economic Cycles]]
For now you have a basic introduction of historical correlations.  You will quickly start to see how all the markets work together once you start immersing yourself in daily analysis.  Understanding how the global financial world works can be fascinating once you really start to come to terms with the basics.  We will continue to build on this foundation as we go along in the training.
* [[Economic_data_releases#Economic_Data_Types | Economic Data Types]]
 
* [[Economic_data_releases#Specific_Economic_Indicators | Specific Economic Indicators]]
 
* [[Economic_data_releases#Economic_Indicator_Pre-Trade_Considerations | Economic Indicator Pre-Trade Considerations]]
=='''Economic Data Releases'''==
 
We have already created separate Wikis on [[Economic data releases | Economic Data Releases]] so please click on the links to take you to those specific Wikis to obtain this information.




Line 448: Line 153:




'''Table of Contents'''
=='''[[How the Forex Market Relates to other Markets]]'''==
 
1 [https://volatility.red/Economic_data_releases#Economic_Data_Primer Economic Data Primer]
 
2 [https://volatility.red/Economic_data_releases#The_Importance_of_Globalization The Importance of Globalization]
 
3 [https://volatility.red/Economic_data_releases#How_to_know_when_Economic_Data_is_Released How to know when Economic Data is Released]
 
4 [https://volatility.red/Economic_data_releases#What_Traders_Need_to_Know_about_Economic_Data What Traders Need to Know about Economic Data]
 
5 [https://volatility.red/Economic_data_releases#The_Expectations_of_Data_is_Critically_Important The Expectations of Data is Critically Important]


6 [https://volatility.red/Economic_data_releases#Economic_Data_and_Economic_Cycles Economic Data and Economic Cycles]
The Forex market relates to other financial markets in various ways. In this Wiki, we will explore how different markets relate to and affect the [[Forex]] market including:
6.1 [https://volatility.red/Economic_data_releases#The_Trend The Trend]
6.2 [https://volatility.red/Economic_data_releases#The_Cycle The Cycle]
6.3 [https://volatility.red/Economic_data_releases#The_Economic_Cycle The Economic Cycle]
6.4 [https://volatility.red/Economic_data_releases#Indicators_within_the_Economic_Cycle Indicators within the Economic Cycle]
  6.4.1 [https://volatility.red/Economic_data_releases#Leading_(Cyclical)_Indicators Leading (Cyclical) Indicators]
  6.4.2 [https://volatility.red/Economic_data_releases#Coincident_Indicators Coincident Indicators]
  6.4.3 [https://volatility.red/Economic_data_releases#Lagging_Indicators Lagging Indicators]
  6.4.4 [https://volatility.red/Economic_data_releases#Indicator_Wrap_Up Indicator Wrap Up]


7 [https://volatility.red/Economic_data_releases#Types_of_Economic_Data Types of Economic Data]
* [[How_the_Forex_Market_Relates_to_other_Markets#Bonds | Bonds]]
7.1 [https://volatility.red/Economic_data_releases#Gross_Domestic_Product Gross Domestic Product]
* [[How_the_Forex_Market_Relates_to_other_Markets#Commodities | Commodities]]
  7.1.1 [https://volatility.red/Economic_data_releases#Real_GDP Real GDP]
* [[How_the_Forex_Market_Relates_to_other_Markets#Equities | Equities]]
  7.1.2 [https://volatility.red/Economic_data_releases#Nominal_GDP Nominal GDP]
  7.1.3 [https://volatility.red/Economic_data_releases#Per_Capita_GDP_(GDP_per_Head) Per Capita GDP (GDP per Head)]
  7.1.4 [https://volatility.red/Economic_data_releases#Productivity_GDP Productivity GDP]
  7.1.5 [https://volatility.red/Economic_data_releases#GDP_Deflators GDP Deflators]
7.2 [https://volatility.red/Economic_data_releases#Employment Employment]
7.3 [https://volatility.red/Economic_data_releases#Unemployment Unemployment]
7.4 [https://volatility.red/Economic_data_releases#Personal_Income_and_Disposable_Income Personal Income and Disposable Income]
7.5 [https://volatility.red/Economic_data_releases#Consumer_and_Personal_Expenditure,_Private_Consumption Consumer and Personal Expenditure, Private Consumption]
7.6 [https://volatility.red/Economic_data_releases#Consumer_Confidence Consumer Confidence]
7.7 [https://volatility.red/Economic_data_releases#Business_Conditions:_Indices_and_Surveys Business Conditions: Indices and Surveys]
7.8 [https://volatility.red/Economic_data_releases#Inventory_Data Inventory Data]
7.9 [https://volatility.red/Economic_data_releases#Industrial_and_Manufacturing_Production Industrial and Manufacturing Production]
7.10 [https://volatility.red/Economic_data_releases#Capacity_Utilization Capacity Utilization]
7.11 [https://volatility.red/Economic_data_releases#Manufacturing_Orders Manufacturing Orders]
7.12 [https://volatility.red/Economic_data_releases#Motor_Vehicles Motor Vehicles]
7.13 [https://volatility.red/Economic_data_releases#Construction_Orders_and_Output Construction Orders and Output]
7.14 [https://volatility.red/Economic_data_releases#Housing_Starts,_Completions,_and_Sales Housing Starts, Completions, and Sales]
7.15 [https://volatility.red/Economic_data_releases#Retail_Sales_or_Turnover,_Orders_and_Stocks Retail Sales or Turnover, Orders and Stocks]
7.16 [https://volatility.red/Economic_data_releases#Wholesale_Sales_or_Turnover,_Orders_with_Stocks Wholesale Sales or Turnover, Orders with Stocks]
7.17 [https://volatility.red/Economic_data_releases#Imports_of_Goods_and_Services Imports of Goods and Services]
7.18 [https://volatility.red/Economic_data_releases#Exports_of_Goods_and_Services: Exports of Goods and Services:]
7.19 [https://volatility.red/Economic_data_releases#Trade_Balance,_Merchandise_Trade_Balance Trade Balance, Merchandise Trade Balance]
7.20 [https://volatility.red/Economic_data_releases#Export_and_Import_Prices,_Unit_Values Export and Import Prices, Unit Values]
7.21 [https://volatility.red/Economic_data_releases#Producer_and_Wholesale_Prices Producer and Wholesale Prices]
7.22 [https://volatility.red/Economic_data_releases#Surveys_of_Price_Expectations Surveys of Price Expectations]
7.23 [https://volatility.red/Economic_data_releases#Wages,_Earnings,_and_Labour_Costs Wages, Earnings, and Labour Costs]
7.24 [https://volatility.red/Economic_data_releases#Unit_Labour_Costs Unit Labour Costs]
7.25 [https://volatility.red/Economic_data_releases#Consumer_or_Retail_Prices Consumer or Retail Prices]


8 [https://volatility.red/Economic_data_releases#Overview_of_Economic_Specific_Indicators Overview of Economic Specific Indicators]
8.1 [https://volatility.red/Economic_data_releases#Trading_with_Specific_Economic_Indicators Trading with Specific Economic Indicators]


9 [https://volatility.red/Economic_data_releases#Specific_Economic_Indicators Specific Economic Indicators]
You can access the main Wiki for [[How the Forex Market Relates to other Markets]] [[How the Forex Market Relates to other Markets | HERE]].
9.1 [https://volatility.red/Economic_data_releases#Growth_Domestic_Product_Expanded Growth Domestic Product Expanded]
9.2 [https://volatility.red/Economic_data_releases#Consumer_Price_Index_(CPI) Consumer Price Index (CPI)]
9.3 [https://volatility.red/Economic_data_releases#Non-Farm_Payrolls_(NFP) Non-Farm Payrolls (NFP)]
9.4 [https://volatility.red/Economic_data_releases#Average_Hourly_Earnings Average Hourly Earnings]
9.5 [https://volatility.red/Economic_data_releases#Unemployment_Rate Unemployment Rate]
9.6 [https://volatility.red/Economic_data_releases#Trade_Balance Trade Balance]
9.7 [https://volatility.red/Economic_data_releases#Current_Account Current Account]
9.8 [https://volatility.red/Economic_data_releases#Producer_Price_Index_(PPI) Producer Price Index (PPI)]
9.9 [https://volatility.red/Economic_data_releases#Industrial_Production Industrial Production]
9.10 [https://volatility.red/Economic_data_releases#ISM_Manufacturing_Index ISM Manufacturing Index]
9.11 [https://volatility.red/Economic_data_releases#Durable_Goods_Orders Durable Goods Orders]
9.12 [https://volatility.red/Economic_data_releases#Housing_Starts_and_Building_Permits Housing Starts and Building Permits]
9.13 [https://volatility.red/Economic_data_releases#New_Home_Sales New Home Sales]
9.14 [https://volatility.red/Economic_data_releases#Consumer_Confidence_Index Consumer Confidence Index]
9.15 [https://volatility.red/Economic_data_releases#IFO_Business_Climate_Survey IFO Business Climate Survey]
9.16 [https://volatility.red/Economic_data_releases#GDT_Price_Index GDT Price Index]
9.17 [https://volatility.red/Economic_data_releases#Crude_Oil_Inventory_Numbers Crude Oil Inventory Numbers]
9.18 [https://volatility.red/Economic_data_releases#Economic_Indicator_Wrap_Up Economic Indicator Wrap Up]
 
 
=='''Central Banks'''==
 
We have already created separate Wikis on [[Central banks | Central Banks]] so please click on the links to take you to those specific Wikis to obtain this information.
 
 
The main Wiki page for [[Central banks | Central Banks]] is found here: [[Central banks | Central Banks]]




'''Table of Contents'''
=='''[[Economic Cycles]]'''==


1 [https://volatility.red/Central_banks#Introduction_to_Central_Banks Introduction to Central Banks]
[[Economic Cycles]] are such an important and vast subject that we have a separate Wiki dedicated to all things on [[Economic Cycles]]. In the following Wiki on [[Economic Cycles]] we will explore:  
1.1 [https://volatility.red/Central_banks#Why_Traders_need_to_know_what_Central_Banks_are_Thinking Why Traders need to know what Central Banks are Thinking]
1.2 [https://volatility.red/Central_banks#Questions_to_Ask_about_Central_Banks Questions to Ask about Central Banks]


2 [https://volatility.red/Central_banks#A_Brief_History_of_Central_Banks A Brief History of Central Banks]
* [[Economic_Cycles#State_of_the_Economy | State of the Economy]]
2.1 [https://volatility.red/Central_banks#1870_-_1914 1870 - 1914]
* [[Economic_Cycles#Inflation,_Deflation_and_Hyperinflation | Inflation, Deflation and Hyperinflation]]
2.2 [https://volatility.red/Central_banks#World_War_1_and_2 World War 1 and 2]
* [[Economic_Cycles#Economic_Cycles_and_the_4_Phases | Economic Cycles and the 4 Phases]]
* [[Economic_Cycles#Economic_Data_and_Economic_Cycles | Economic Data and Economic Cycles]]
* [[Economic_Cycles#Indicators_within_the_Economic_Cycle | Indicators within the Economic Cycle]]


3 [https://volatility.red/Central_banks#Central_Banks_and_Interest_Rates Central Banks and Interest Rates]


4 [https://volatility.red/Central_banks#Overview_of_what_Central_Banks_do Overview of what Central Banks do]
Please refer to the Wiki for further information on [[Economic Cycles]].


5 [https://volatility.red/Central_banks#Monetary_Policy_and_Money_Supply Monetary Policy and Money Supply]
5.1 [https://volatility.red/Central_banks#Expansionary_Monetary_Policy Expansionary Monetary Policy]
5.2 [https://volatility.red/Central_banks#Contractionary_Monetary_PolicyContractionary Monetary Policy]
5.3 [https://volatility.red/Central_banks#When_Contractionary_Monetary_Policy_Goes_Wrong When Contractionary Monetary Policy Goes Wrong]
5.4 [https://volatility.red/Central_banks#Exchange_Rates Exchange Rates]
5.5 [https://volatility.red/Central_banks#Money_Supply Money Supply]


6 [https://volatility.red/Central_banks#Central_Bank_Monetary_Policy_Tools Central Bank Monetary Policy Tools]
==Related Wikis==
6.1 [https://volatility.red/Central_banks#Ways_to_Manipulate_the_Money_Supply Ways to Manipulate the Money Supply]
6.2 [https://volatility.red/Central_banks#Interest_Rates Interest Rates]
  6.2.1 [https://volatility.red/Central_banks#Understanding_Interest_Rates Understanding Interest Rates]
  6.2.2 [https://volatility.red/Central_banks#Interest_Rate_Examples Interest Rate Examples]
  6.2.3 [https://volatility.red/Central_banks#How_the_Forex_Market_Focuses_on_Interest_Rates How the Forex Market Focuses on Interest Rates]
6.3 [https://volatility.red/Central_banks#Price_Controls Price Controls]
  6.3.1 [https://volatility.red/Central_banks#Swiss_National_Bank_Price_Control_Example Swiss National Bank Price Control Example]
6.4 [https://volatility.red/Central_banks#Reserve_Requirements Reserve Requirements]
  6.4.1 [https://volatility.red/Central_banks#How_Central_Banks_Use_Reserve_Requirements How Central Banks Use Reserve Requirements]
6.5 [https://volatility.red/Central_banks#Credit_Control Credit Control]
6.6 [https://volatility.red/Central_banks#Central_Banker_Language Central Banker Language]
6.7 [https://volatility.red/Central_banks#Moral_Suasion Moral Suasion]
6.8 [https://volatility.red/Central_banks#Open_Market_Operations Open Market Operations]
6.9 [https://volatility.red/Central_banks#Quantitative_Easing Quantitative Easing]
6.10 [https://volatility.red/Central_banks#Final_Thoughts_on_Central_Bank_Tools Final Thoughts on Central Bank Tools]


7 [https://volatility.red/Central_banks#Hawks_and_Doves Hawks and Doves]
Readers of '''Fundamental Analysis''' also viewed:
7.1 [https://volatility.red/Central_banks#Central_Bank_Member_Speeches Central Bank Member Speeches]
7.2 [https://volatility.red/Central_banks#Central_Bankers_are_Not_Created_Equal Central Bankers are Not Created Equal]
7.3 [https://volatility.red/Central_banks#Hawks Hawks]
7.4 [https://volatility.red/Central_banks#Doves Doves]
7.5 [https://volatility.red/Central_banks#What_is_a_Centrist_(Neutral)? What is a Centrist (Neutral)?]
7.6 [https://volatility.red/Central_banks#Why_do_Traders_Care_about_Hawks_and_Doves? Why do Traders Care about Hawks and Doves?]


8 [https://volatility.red/Central_banks#Major_Central_Banks Major Central Banks]
* [[Fundamental and Sentiment Trading Strategies]]
8.1 [https://volatility.red/Central_banks#USA_%E2%80%93_Federal_Reserve_(Fed) USA – Federal Reserve (Fed)]
* [[Sentiment Analysis]]
  8.1.1 [https://volatility.red/Central_banks#Fed_Structure Fed Structure]
* [[Risk Management]]
  8.1.2 [https://volatility.red/Central_banks#Fed_Mandate Fed Mandate]
* [[Central banks]]
  8.1.3 [https://volatility.red/Central_banks#Fed_Minutes Fed Minutes]
* [[Monetary Policy Tools]]
  8.1.4 [https://volatility.red/Central_banks#Forward_Guidance Forward Guidance]
  8.1.5 [https://volatility.red/Central_banks#What_Does_the_Fed_do_and_How_do_they_do_it? What Does the Fed do and How do they do it?]
8.2 [https://volatility.red/Central_banks#Europe_%E2%80%93_European_Central_Bank_(ECB) Europe – European Central Bank (ECB)]
  8.2.1 [https://volatility.red/Central_banks#ECB_Structure ECB Structure]
  8.2.2 [https://volatility.red/Central_banks#ECB_Provides_Forward_Guidance ECB Provides Forward Guidance]
  8.2.3 [https://volatility.red/Central_banks#The_ECB%E2%80%99s_Mandate The ECB’s Mandate]
  8.2.4 [https://volatility.red/Central_banks#ECB_Meetings ECB Meetings]
8.3 [https://volatility.red/Central_banks#United_Kingdom_%E2%80%93_The_Bank_of_England_(BOE) United Kingdom – The Bank of England (BOE)]
  8.3.1 [https://volatility.red/Central_banks#BOE_Structure BOE Structure]
  8.3.2 [https://volatility.red/Central_banks#BOE_Mandate BOE Mandate]
8.4 [https://volatility.red/Central_banks#Japan_%E2%80%93_The_Bank_of_Japan_(BOJ) Japan – The Bank of Japan (BOJ)]
  8.4.1 [https://volatility.red/Central_banks#BOJ_Structure BOJ Structure]
  8.4.2 [https://volatility.red/Central_banks#BOJ_Jawboning BOJ Jawboning]
  8.4.3 [https://volatility.red/Central_banks#BOJ_Mandate BOJ Mandate]
8.5 [https://volatility.red/Central_banks#Switzerland_%E2%80%93_Swiss_National_Bank_(SNB) Switzerland – Swiss National Bank (SNB)]
  8.5.1 [https://volatility.red/Central_banks#SNB_Structure SNB Structure]
  8.5.2 [https://volatility.red/Central_banks#SNB_Monetary_Policy SNB Monetary Policy]
  8.5.3 [https://volatility.red/Central_banks#Switzerland_and_Exports Switzerland and Exports]
8.6 [https://volatility.red/Central_banks#Canada_%E2%80%93_The_Bank_of_Canada_(BOC) Canada – The Bank of Canada (BOC)]
  8.6.1 [https://volatility.red/Central_banks#BOC_Structure BOC Structure]
  8.6.2 [https://volatility.red/Central_banks#BOC_Monetary_Policy_Mandates BOC Monetary Policy Mandates]
8.7 [https://volatility.red/Central_banks#Australia_%E2%80%93_The_Reserve_Bank_of_Australia_(RBA) Australia – The Reserve Bank of Australia (RBA)]
  8.7.1 [https://volatility.red/Central_banks#RBA_Structure RBA Structure]
  8.7.2 [https://volatility.red/Central_banks#RBA_Mandates RBA Mandates]
8.8 [https://volatility.red/Central_banks#New_Zealand_%E2%80%93_The_Reserve_Bank_of_New_Zealand_(RBNZ) New Zealand – The Reserve Bank of New Zealand (RBNZ)]
  8.8.1 [https://volatility.red/Central_banks#RBNZ_Structure RBNZ Structure]
  8.8.2 [https://volatility.red/Central_banks#RBNZ_Mandate RBNZ Mandate]
8.9 [https://volatility.red/Central_banks#Other_Central_Banks Other Central Banks]

Latest revision as of 12:27, 23 November 2023

Fundamental Analysis is simply the process of identifying and understanding the "factual reasons" why the market is moving in the direction that it is currently moving within the overall trend. This is in contrast to simply identifying that a trend or price move has already happened. Identifying that a market has already had a price move is the job of Technical Analysis which is all backward-looking. Understanding why a particular currency or market is moving is the job of fundamental analysis which is forward-looking and allows you to use this information to try and predict where prices might go in the near future.

Fundamental Analysis is an extremely underserved subject when it comes to retail traders and how they obtain their trading knowledge. In this Wiki, we will explore all the various aspects of fundamental analysis and how you can apply that to your own trading for improved performance.


This Wiki is a part of our Essential Forex Trading Guide. Be sure to check that out HERE.



Introduction to Fundamental Analysis

The Basics of Fundamental Analysis

Fundamental Analysis goes far beyond a simple Technical Analysis approach which is what the typical retail trader will use to make their trading decisions. Understanding Fundamental Analysis will give you more conviction because you can have confidence that you are trading the real reasons why the market is moving rather than simply guessing by using some variation of chart pattern or indicator to make your trading decisions. In this Wiki, we will explore The Basics of Fundamental Analysis including:


You can access the main Wiki for The Basics of Fundamental Analysis HERE.


Objections to Fundamental Analysis

There are many Traders that are opposed to the concept of Fundamental Analysis. There are various reasons for this but what we will do in this Wiki is point out a few of the most popular objections and then provide some context on why they may not be well-founded objections including:


You can access the main Wiki for Objections to Fundamental Analysis HERE.


Institutional and Retail Traders

There is a big difference in the way that a retail trader approaches the Forex or any other financial market from how a professional institutional trader will go about navigating them. In the following Wiki, we will explore concepts such as:


You can access the main Wiki for Institutional and Retail Traders HERE.


Fundamental Supply and Demand

When discussing fundamental analysis there are some core principles that we need to be aware of. Supply and demand are at the heart of fundamental moves in all markets including Forex. In the following Wiki we will explore:


You can access the main Wiki for Fundamental Supply and Demand HERE.


Sentiment Analysis Overview from a Fundamental Perspective

Fundamental Analysis and Sentiment Analysis are two of the most important subjects in Forex trading. In this Wiki, we will take a Sentiment Analysis Overview from a Fundamental Perspective and explore some ways to trade them including:

You can access the main Wiki for Sentiment Analysis Overview from a Fundamental Perspective HERE.


Exchange Rates

Exchange rates are an important aspect of understanding the full spectrum of fundamental analysis which is why we created a separate Wiki devoted entirely to Exchange rates. In the following Wiki, we will explore:


The main page for Exchange rates is found here: Exchange rates


Money Supply

We have a separate Wiki on Money Supply so please click on the links to take you to those specific Wikis to obtain this information.

The main page for Money Supply is found here: Money Supply.


Intermaket Analysis

To get a good grip on financial trading we need to take a few minutes out to look at something called "Intermarket Analysis" and how various asset classes and markets relate to each other. In the following Wiki on Intermaket Analysis we will cover subjects such as:

The main Wiki on Intermaket Analysis can be found HERE.


Advanced Fundamental Analysis

Fundamentals and Sentiment

In the following Wiki, we will explore what both fundamentals and sentiment are and build and expand on previous information from our Fundamental Analysis Wiki.

You can access the main Wiki for Fundamentals and Sentiment HERE.


Central Banks

Central Banks are so important to the Forex market and all other financial markets that we have devoted an entire in-depth Wiki to all things Central Banks. In the following Wiki on Central Banks we will explore:


The main Wiki page for Central Banks is found here: Central Banks


Economic Data Releases

Just like Central Banks, Economic Data Releases are so important to all financial markets that we have created a separate Wiki for them. In the following Wiki we will explore:


The main Wiki page for Economic Data Releases is found here: Economic Data Releases


How the Forex Market Relates to other Markets

The Forex market relates to other financial markets in various ways. In this Wiki, we will explore how different markets relate to and affect the Forex market including:


You can access the main Wiki for How the Forex Market Relates to other Markets HERE.


Economic Cycles

Economic Cycles are such an important and vast subject that we have a separate Wiki dedicated to all things on Economic Cycles. In the following Wiki on Economic Cycles we will explore:


Please refer to the Wiki for further information on Economic Cycles.


Related Wikis

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Last modified
This page was last edited on 23 November 2023, at 12:27.
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