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Posts Tagged ‘Foreign exchange market’

There is no hard and fast rule on whether to use fundamental or technical analysis when it comes to forex trading and analysis. There are good things to be said about technical analysis and there are equally good things to be said about fundamental analysis. I think that a persons preference aligns with certain other preferences and probably align to whether you are a right brain thinker or a left brain thinker and as is often the case with such things you just need to firstly understand the differences between them to be able to make a choice in what you might use.

I myself prefer to use primarily technical analysis. With Forex of course no amount of technical analysis will provide any answers to what amounts to a trading halt, that is the market trading sideways prior to some major point of fundamental interest such as an election an interest rate change or debt announcements etc that alter the course of the markets.  All the market indicator tools around are primarily about technical analysis and metatrader has some great parts for this.

For fundamental analysis on the forex market you need to have a clear understanding on the relationship of interest rates and all other fundamentals that might affect the movement of a currency pair. What does a rising interest rate in Japan or Australia have on currency movements. What is the likely attitude of the market to a change of government at the upcoming election.

Technical analysts don’t need to so strongly know about the impact of these fundamental events however  the technical analyst does need to be aware that such events are most likely to create trading opportunities and be on the lookout for the signals that say game on. What the  technical analyst needs to do is find the opportunities by monitoring the graphs to find when price movement is to occur. A technical trader should not go into the market until a trend has formed alleviating the number of time when the market fails to move from the news or worse takes a temporary opposite position that activates a stop loss. Use what was Warren Buffets share trading strategy to take small but almost guaranteed successes rather than speculating with larger opportunities that might go bad and damage your capital.

From this one can conclude that neither is right, but how our brains think will probably guide the best choice. One thing to keep in mind is that a trader that is versed in both techniques of analysis and is able to separate what choices have been made with a trade in the market will likely be a very successful trader. If you choose to take a trading position with fundamental analysis don’t second guess yourself with technical analysis  and vice versa.

Now as you get started in your quest to develop your skills as a forex trader one of the  things you will be tempted to do is to change around the time frame you use for trading. For example you might want use the 15 minute time frame for conducting your technical analysis in the market. This is fine and really depending on your strategy you can choose to use a number of different time frames. So back to our example you have started out analysing the market at the 15 min time period and then you have decided there is an opportunity in the market.

You enter a trade with your broker and it all appears to be going OK. You expected the market to go up and it has been, but it hasn’t really gone as far as you might have liked your profit is very small and surely based on your research it will travel higher. It has now in fact appears to have turned against your proposed trade and you are looking likely to lose money on this deal. So you now choose to change your time period for the trade to a 5 minute interval, it seems reasonable you don’t have a close enough view with a 15 minute interval. The market now looks OK, it even appears like it might or has turned up again  a small spike occurs in the market, but these are fleeting and difficult to catch. but you breathed a slight sigh of relief. You can now be happier. Then it appears that the market is turning down again and well it looks kind of strange, as the fall seems quicker and larger. Your perception of the market behavior is altered to how you originally decided to take your market position. Of course you could take the other tack and move the time frame out looking also to save a falling trade looking for a longer term downside.

Many of these will end up with a margin call situation and disaster is not culled. This is a difficult idea for some new traders to swallow and will be a hard lesson learned by some.  s trade that is taking you negative is  a bad trade at the best of times an learning to close them out early and take a small loss is a clever trading tactic

Happy trading

Peter

Many new forex traders go into the market with the idea that technical analysis done right like the text book tells them is just about the same as the holy grail. It is just what you do. Well I will tell you now, that you will most likely loose a significant amount of money if you do just that.

Firstly let us get something very straight. Technical Analysis is a backward looking analysis. The process involves analyzing events already gone. Now behavior being what it is means that past behavior generally sets some predictors. Lets say that again “Past behavior generally sets some predictors”. You got that. You see what you are saying is based on a historical perspective the mob rule of a lot of people doing things together makes likely behaviors to happen across the collective markets. These indicators give a feel for the markets direction of movement.

Scenario

The market has moved up to a threshold at which your technical analysis suggests a turn is imminent. The trader takes a sell as the next direction is down. Along comes the government and raises interest rates a bit unexpected and the market continues to rise. The indicators of you were reading them suggested that it might turn, but it also indicated that the forex traders had left the floor, no one was in the market on that pair, it was becoming relatively illiquid. Don’t be the brave one and go in, wait until the market sets the new direction.

There are some who believe that the currency pairs are pushed around by banks working as a collective. I know the banks have to move a lot of funds. They also have to at times find a lot to get a deal for a large corporation moving. Ever purchased some heavy equipment to start a mine. Those guys need a huge amount of a currency to fund the purchase of equipment. Not enough banks from around the world could collectively agree on exactly the currency movement that was to be produced. Therefore some banks will have to loose out if they are not part of the collective and what does one have to do to get in.

Scenario

A trader analyzes the market, the market is rising on this pair, it looks like a buy position. The thing that the trader hasn’t noticed is the dwindling volume in the market the trades are leaving the market on this one. Sorry it looks like you are approaching a peak in the market. The market may get news that continues its climb. It is also reaching a point where it might take a tumble.

Many new forex traders show who are using technical analysis overload their indicators. Don’t even bother! I keep it reasonably simple. I only use candlestick charts. I only use MACD and simple moving averages at 5 and 25 to analyze the market. Your mind may better understand other indicators. That is fine use them if you feel more comfortable. These are the ones I know and understand best.

So when your technical analysis of the forex markets shows that the MACD and your candlestick and moving averages comes out that you should buy on a currency pair. Stop take a breath, pause and ask yourself this. Is there a fundamental force that is telling you that the masses might just have it wrong on this occasion. Perhaps the technical analysis would be fine for Please do this for me before you trade it will help you stay ahead of the game.

This week Order Generic Female Viagra Online without Prescription saw the US dollar under renewed pressure. Initially analysts considered the week to be one that would see the dollar pull out of its slump, however the data doesn’t seem to have had any effect. Some analysts are of the belief that their is downward pressure on the US dollar due to the high levels of debt, it may be the only thing to explain its fall. The dollar has slid through the resistance at 1.50 and has also been under pressure elsewhere. The Aussie has pushed through 93 testing the waters on at least one occasion this week. A continued flight to commodities and riskier asset classes is driving the US dollar lower. Now this is having some impact on China. Its exports the Europe are getting cheaper, but importing anything from Europe is getting more expensive. US prices remain the same due to the yuan currency peg and others with free floating currencies are seeing Chinese imports getting cheaper in local terms. The lower US dollar is impacting export trade from Australia and others due to the appreciation of their currency.

Expect further downward pressure and watch testing of the Euro at a number of spots above 1.50. If it gets through to 152 then it will be pressuring major resistance at 1.53 which is where it reached in 2008.

Happy Trading

Forex Admin

Forex trading is a risky endeavour to pursue. However avoiding some pitfalls that might not have all that much to do with forex trading.

Don’t get over excited

The hype that has surrounded forex trading can get a bit over the top, don’t believe it. Get into some of the traders forums and have a look at some of the tales of woe that appear from time to time. Yes you can make money, yes you can make a lot and yes you can lose a lot if you don’t use a good broker of follow good practices. Do a fair amount of research before you enter the market a number of brokers have demo accounts that allow you to experiment and learn how to trade, they provide a generous amount of play money to learn to trade with. A good experience for anyone entering forex market trading

Tools can be bad

When you shop around and find software, ebooks and other things that are supposed to assist you in trading. Don’t rely 100% on the ability of anything to predict an outcome and therefore make your choices. Some software may provide some real assistance and some might be a load of rubbish, only emulating what you get as free tools from your broker. Now I am not saying don’t buy any tools, just test its advice a number times before applying it to real market trades.

Over confidence

Get out Some of the brokers have a process to avoid too huge of a disaster if the market swings badly against you. This is anautomatic stop loss that triggers to cut you out of a position before great damage is done. Of course it has the limitation of you might miss out on opportunity as the market swing could be enough to trigger the stop loss but not go far enough or even continue on a up or down path which means that you get kicked out when in fact longer term you should have stayed in, rode the dip and powered on up to higher profits.

I can always make money

The possibility of you being to always make money is probably about the same odds as you winning the lottery. Very slim chance of that for most of us. If you gear your trading strategy to the fact you will never make a loss, then you have a real problem and flawed strategy. You will make an error and drop a trade, most likely if you are in the market for some years quite a number, but you can also make good on the successes, just expect some failures.

Mixing analysis

From time to time you will try and second guess the market because you think you have a better idea than those that have come before and using a bit of fundamental and a bit of technical trade in a somewhat random manner. I suggest you go in and out of the market with only one analysis method. If you decide to enter the market on technical analysis trust your technical analysis to get you out safely, If you enter on fundamental analysis then you should trade to the end using fundamental analysis. Why do I say this because in my opinion you tend to get a mixed message from that.

I hope that explains a few things

Happy trading

Forex Admin