Fundamental Analysis Trading

There are two types of traders:  the technician and the fundamentalist.  A technician looks at charts and trades off of patterns and mathematical equations. The fundamental analyst studies the factors that affect supply and demand, as well as economic indicators that may influence the markets. The key is to accumulate this information and to act upon it before it is reflected in the futures price.

For those trading the agricultural markets, the USDA released monthly reports have valuable information on the fundamental outlook for various agricultural commodities.  These reports provide a “snapshot” of the fundamentals at that point in time and allow traders to take a position in the market that they believe has the opportunity to produce a profit. Using this information and comparing it to previous reports, last year’s crop progress, weather variances and supply and demand, the fundamental trader will formulate an opinion on where agricultural prices are going. This definition can be applied to any and all other markets that are controlled or determined by production levels, weekly reports that provide key information, world events and economic news.

Fundamental Report

Supply and Demand

In a country with a free-market economy, prices are not set by a central planning bureau—they are set by supply and demand. Because supply and demand reflect the information and beliefs of traders in those markets, prices should reflect sum of all information and beliefs that market participants have. That said, fundamental reports can change the sentiment of an underlying market, which is why so many market participants continually stay abreast with fundamental reports scheduled to be released throughout the day. 

Economic Indicators

Economic indicators are useful tools that allow one to assess the overall strength and likely direction of the economy. These indicators can also have a significant impact on financial markets, and it is important for traders to understand and monitor them.

By closely monitoring the indicators and the country’s financial activity, traders are able to estimate what an upcoming figure may be. It is common for financial markets to react to an economic announcement by comparing the reality versus the expectation of that number. Although most reports are released at least once a month, it’s important to understand that each indicator is lagging and simply looking backwards on economic activity. 

Popular Economic Reports

  • Real Gross Domestic Product (GDP)
  • Consumer Price Index (CPI)
  • Non-Farm Payroll Employment
  • Housing Starts
  • Retail Sales
  • Business Sales and Inventories
  • Durable Goods Orders
  • Initial Jobless Claims
  • Consumer Confidence Index

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The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

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