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The Basics of Trading the Forex Market: Terminology Part One
The Basics of Trading the Forex Market: Terminology Part Two
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Technical Analysis
Technical analysis attempts to forecast future price movements by examining past market data. This involves using various technical indicators that help you decipher what is going on in the market i.e. are we in an uptrend, downtrend, or are we going nowhere?
Some of these technical indicators include: moving averages, stochastics, relative strength index (RSI), Bollinger Bands, MACD, Fibonacci retracements, and others. These are visual representations placed on a trading chart to help the trader make a decision whether to buy, sell or stay out of a market.
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Fundamental Analysis
Fundamental analysis studies the main underlying elements and variable that help influence the direction of the currency.
Some of these elements are government policies, economic indicators (such as retail sales numbers, non farm payrolls, housing starts, Consumer Price Index, Producer Price Index, and Gross Domestic Product), etc. Basically, fundamental analysis attempts to use those economic numbers (i.e. news events) to help show traders where the economy and thus markets are headed.
One needs to be aware and prepared for the various news events that are planned to be announced. Many of the fundamental reports are posted at certain times of the day/week/month so it is fairly easy to get prepared for them.
NOTE: When trading, it is essential to use both fundamental and technical analysis to help you make decisions. While you may have technical analysis down pat, ignoring the fundamentals can cost you money.
For example, let's say that your indicators are all showing an uptrend is continuing in a pairing consisting of the US Dollar. You feel it is rebounding. You ignore the fact that there is a major announcement scheduled at 9:00am EST about the credit market. The news comes at 9:00 that 2 major US banks and mortgage companies just announced they are going to lose $30 billion in the sub-prime mortgage fiasco. You are long in the US Dollar market -- well guess what just happened? You probably just experienced a 50-200 pip drop in that pairing in the matter of seconds!
There are a number of online financial calendars that you can use to help you keep track of the major key indicator announcements. These sites include: Bloomberg.Com, Briefing.Com, Yahoo U.S. Economic Calendar, CNNfn.Com, FXWeek.Com, and many others.
The point is: it is not that difficult to keep track of the major announcements. Don't let laziness cause you to lose money!
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