How To Start Trading The Forex Market? Part7

Start Trading The Forex Market? Part7 - HOW Economic Events Impact Global Currencies, When I asked several traders their thoughts on using fundamental analysis as part of their trading decisions, I have received two opposing responses.

How To Start Trading The Forex Market? Part7

How To Start Trading The Forex Market? Part7

Trader A's RESPONSE

The basics you read are usually useless because the market has discounted the price. I look at (1) long term trends, (2) current chart patterns and (3) identify good entry points to buy or sell.

RESPONSE of Trader B

I almost always trade from a market view. I don't trade only on technical information. I use technical analysis and it's great, but I can't start or hold positions unless I understand why the market has to move.

There is a lot of hype attached to technical analysis by some technicians who claim that it predicts the future.

Technical analysis tracks the past; it doesn't predict the future. You should use your own intelligence to draw conclusions about what some traders' past activity says about other traders' future activity.

To me, technical analysis is like a thermometer.

Fundamentalists who say they will not pay attention to the chart are like a doctor who says he will not take a patient's temperature. If you want to be a successful trader in the market, you always want to know where the market is going up – downtrend or choppy. You want to know all you can about the market to give you an edge.

Technical analysis reflects the voice of the entire market and, therefore, takes on an unusual behavior. By definition, anything that creates a new chart pattern is something out of the ordinary.

It is very important to study the details of price movements to see and observe. Studying the charts is very important and be aware of existing imbalances and potential changes.

For forex traders, fundamentals are everything that makes a country move.

The release of economic & inflation indicators (i.e., consumer spending, labor cost index, government spending, producer price index, etc.), political actors, government policies or individual events can throw the market into a frenzy. This should be considered when making the decision “to trade or not to trade.”

Technical analysis, is a way of using historical price data in a different way to predict the future price of a currency pair.

Fundamental analysis is a very effective way of forecasting economic conditions, but it is not always accurate to market prices, and you MUST trade according to supporting technical indicators.

Foreign exchange traders place the most emphasis on technical analysis, as traders around the world use charts and similar tools to predict market trends.

The reason why the FOREX market can be so predictable at times is because if the majority used the same charts to determine patterns and trends, then they would likely act the same way.

So several thousand traders who have all charted the same resistance line, for example, will most likely set their trades and direction according to that line.

When fundamental data are publicly available, there is a backlash from investors and speculators.

Information in the form of news and economic indicators is more vague than technical indicators. There are many gray areas in this type of analysis. The market will ultimately react to how people think the economic data compares to the current market situation.

Economic indicators usually reveal information that "Should cause the currency to rise in price" or "May cause the currency to fall". The words “MUST” & “MIGHT” in the above quote reveal the ambiguity of the fundamental data.

Here is an example of how to analyze fundamental data. Suppose there are six economic indicators (there are many more).

Call it our six indicators 1, 2, 3, 4, 5, and 6. Now we wait for the data from our indicators to be published in financial magazines or in online sources. We get the reading for our economic data for EURO as follows:

  • Indicator 1: is in the range where the Euro may rise
  • Indicator 2: is in the range where the Euro should rise
  • Indicator 3: is in the range where the Euro could fall
  • Indicator 4: is in the range where the Euro usually falls
  • Indicator 5: is in the range where the Euro can rise
  • Indicator 6: is in the range where the Euro may fall

By looking at the indicators above, you have no idea what the Euro will do. Furthermore, currencies are always traded in pairs. So you have to get fundamental data for other currency pairs and compare them with EURO. I think you can imagine that this is not a simple task.

I don't want to discourage you from fundamental data. The best way to learn is to study one economic data at a time. Eventually you will build the puzzle from all the fundamental and technical data and make more informed trading decisions.


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