Why Incorporating Technical and Fundamental Analysis Can Make You More Successful
Among the many skills essential in your Forex trading technique is the ability to analyze. There's two primary types of Forex analysis which are fundamental analysis and technical analysis. I will show you the different types of fundamental analysis trading and i hope you'll learn how to apply it in your Forex trading technique. If you are justa technical trader, you might benefit and perhaps improve your profits by means beyond your existing approaches.
In short, Fundamental analysis depends on the news reports: political and economic aspects. Traders that use fundamental analysis will monitor various news sources: TV, radio, and news feeds on the net; in order to discover the political and financial aspects that could move the currency prices. As an illustration, if the US Non- Farm payroll report is good, it will cause the US dollar to move up. In case the number is disappointing, then the US dollar will drop against other foreign currencies.
Every major news release includes a forecast or consensus figure determined by economists prior to the news release. If the actual release number differs from the forecast or expected figure, the market is surprised and will react to the release immediately. The bigger the surprise, or deviation, it will produce bigger reaction. To illustrate, when the upcoming US ISM Non- Manufacturing PMI has a forecast number of 54. 5, and our standard deviation is 3. . The actual release is released as 50. 5. Because the actual deviation is 4. , you would enter a short trade on USD/ JPY, USD/ CAD, or USD/ CHF or a long trade on GBP/ USD, AUD/ USD, EUR/ USD.
There are actually three main approaches to trade the fundamental analysis: Spike trading, Retracement trading, and Pre News trading. Trading the spike is the most popular strategy to trade the fundamental analysis, and is the best known. Most Forex traders usually associate spike trading with fundamental analysis trading. To trade the spike, basically we wait for the news release to come out. According to the actual release number we'll enter the market right away if our expected deviation is hit. This kind of trading requires that you have access to the news release promptly when it is released, have a fast reaction to entera trade, and have a decent broker that allows news trading.
To trade the retracement, we wait for the news release to come out, we wait for the initial spike, and then we will wait for the market to retrace back within just ten to fifteen pips of the pre- release price. Sometimes when we have a huge deviation, we could go into the market at 20 pips from the pre- release level, but it will be based on your own discretion. Market will usually retrace within the first 5 to 30 minutes, if a retracement is to take place. This trading strategy is especially easier to enter intoa trade, mainly because we avoid the very first volatility of the initial news release, and a lot Forex brokers permit this type of news trading.
Pre News trading, this method of fundamental analysis trading is probably the most advanced and the most difficult to analyze. Basically, we base our entry on market sentiment and technical trend of the currency pair and we go into the market 5 minutes prior to the actual news release. You should always enter in the direction of the current trend and only use this trading method with news releases that will not alter the market trend. For example, you must not use this method for the US Non- Farm Payroll, GDP, and CPI; but you can pre- news trade the Retail Sales, Trade balances, and PMI reports.