There are two types of analysis when talking about the stock market – fundamental and technical. In this post we’ll talk about fundamental analysis for binary options trading. While performing such analysis, you’ll read the latest market news in order to get a better understanding of the market’s condition and how the price of specific stocks may change.
One of the most important things you must remember about fundamental analysis is that news about specific countries can have a huge impact on the market. The reason for this is that there are many countries which are major players on the market, and have a huge impact on it. Of course, their impact is influenced by the politics and economics in the area, so the news may help you determine the future price of specific assets. Every country is dependent on something and in the next few lines I’ll try to explain these dependences.
Let’s take a look at the biggest player out there – the United States. They are considered as a key player on the market since 1944 when several countries had to adopt the US dollar as a national currency, because of the consequences that followed World War II. Despite the fact that nowadays there is no other country that used the US dollar, many nations are still dependent on the economic and political climate in the US.
Another major name on the market is China. The Asian country is very industrialized and constantly needs large amounts of stocks like oil and silver, and as we all know, the US controls most of the crude oil in the world. Therefore the economic climate in China can be seriously influenced by the latest events in the US.
The market is dependent on this news and the condition of the major players, so it constantly follows the latest news and reacts to them. Almost every piece of news has an impact on the world economy, but some news is more influential than others. The market constantly monitors the latest announcements and news in order to adapt itself to the new world economy. These small changes give traders a chance to take advantage of the latest financial news, and use them to make money. Big political or economic events concerning one of the major players will have an impact on all countries dependent on it, and it is up to the trader to determine if the change will be negative or positive.
Keep in mind that meaningless how important the news are, their effect may be silenced by human emotions. Despite the news, traders can still change the condition of the market with their actions, so it is always important to keep a close eye on the charting data in order to avoid losing your money. News and events that influence the market are classified in three categories – low-impact, medium-impact and high-impact.
Naturally, high-impact news have the most influence on the market and are always welcomed by traders, because they give them an opportunity to make some serious money. Keep in mind that the importance of news can change depending on the economic and political climate – low-impact news sometimes end up having a huge impact on the market. The importance of news constantly changes, a good example for this is the housing data and the GDP figures for some Eurozone economics. These statistics weren’t considered important a few years back, but nowadays they play an important role and can drastically change the market.
The most important types of news you need to keep a close eye on are:
1. General employment data
3. Retail sales and consumer sentiment
4. Reports that are specific for certain countries
Components of Fundamental Analysis
Fundamental analysis has a more complicated side as well:
a) Expected Number: Leading economists will release the average figure which the news is most likely to conform to
b) Actual Number: The figure that comes with the news release
c) Deviation: The difference between the above two figures
The deviation is the thing that is most important for the trader. This figure is very likely to determine the market’s reaction, so make sure that you always get it right, and learn to read it properly. The deviation figure will tell you if the planned trade is either good or bad.