Fundamental Trading System
Fundamental trading system takes into account economic reports for determining parameters. It takes into account the price movement and demand for currency in the economic reports. Trading system or trading strategy is a trading plan, which depends on certain parameters.
There are two types of trading system- technical trading system and fundamental trading system. Unlike technical trading system, which uses technical indicators and charts for determining price movements, the fundamental trading system depends on economic reports.
Demand factors (pertaining to currency) also impact a fundamental trading system.
Parameters of a fundamental trading system:
The reports published by the Federal Government with regard to the rates of interest are a parameter. Another is the demand for the United States dollar.
In other words, the Federal government reports on and its capacity to impact currency demand is also another aspect. It is a well known fact that economic reports do impact currency demand and the fundamental trading system ascertains the manner in, which these reports influence the trading system.
Advantages of fundamental trading system:
The main advantage of using a fundamental trading system lays in the fact that it takes into consideration the main factor, which impacts the price movement. It determines the driving force behind the changes in the price movement.
Disadvantage of fundamental trading system:
In the event when the parameters are not met, loss may be incurred, which gets reflected in the economic reports. Another drawback is that the change in price gets "factored into currency price", prior to the release of the economic report. Even though the economic report may be as per the anticipation of the analysts, there may be anomaly in the price movement.
It is very important to choose the appropriate trading style to make the trade successful. Inappropriate decisions pertaining to the selection of a trading style may lead to trading stress.
Symptoms of trading stress include the following:
- Being moved (or affected) by euphoria or "trading waves".
- Breaking away from the trading system
- Reacting to each and every trade movement.