How do economic events impact the Global Currencies?
In my interview with several traders their opinions on applying fundamental analysis in the course of their forex trading decisions I’ve received two different answers.
RESPONSE to Trader A
The fundamentals they discuss are usually not worth reading about since markets have already priced the price down. I am taking a look at (1) the long-term pattern, (2) the current chart pattern, and (3) finding a suitable starting point for buying or sell.
RESPONSE OF Trader B
I generally trade based on a market view. I don’t make trades based on the basis of technical information. I rely on technical analysis, and it’s great however I’m unable to start or maintain a position until I can understand the reasons why the market moves.
Trading The Forex Market
There is a lot of hype surrounding technical analysis by some experts who claim that it will predict the future.
Analysis of the technical environment tracks the past, but it is not able to forecast the future. It is up to your own knowledge to make a decision about the past actions of certain traders tells you about the future activities that other investors.
To me, technical analysis is similar to an instrument for measuring temperature.
Fundamentalists who claim that they’re not paying any interest to charts are just like the doctor who claims he’s not going to check an individual’s temperature. If you’re looking to become successful in trading markets, then you must need to know what the market is doinggoing – up, down fluctuating or even chaotic .You must know all that you know about market in order to help you gain an edge.
Technical analysis is a reflection of the votes of the entire market and, as such, is able to detect unusual patterns. In essence any event that results in an entirely new chart pattern is unusual.
It is crucial to research the specifics of price action so that you can see and understand. The study of charts is essential and can alert you to any instability and changes that could be coming.
For traders in the forex market the basics are everything that make a country tick
The publication of economic and indicator of inflation (i.e. consumer spending, the employment cost index and government spending and producer price index etc. ) and politicians, government policies or an individual event could cause the market to go into a panic. All of these factors must be taken into consideration when making the choice ” whether or not trade.”
Technical analysis is the process to use historical price data in various ways to determine the price to come in the future of the currency pair.
Fundamental analysis is an efficient way to predict economic conditions, but it’s not necessarily precise market prices and you should trade according to the technical indicators.
Foreign exchange traders place the highest importance on technical analysis since traders from all over the world employ similar charts and tools to predict market developments.
The reason why the FOREX market is so predictable at occasions is that if majority of traders are using the same graphs to identify trends and patterns, then it is likely they will behave similarly.
Therefore, the tens of thousands of traders that have traced the exact resistance line for instance, will most likely set their trades or their direction to conform to the line.
If fundamental data are released to the public there is an immediate reaction from investors as well as the speculators.
Information provided by economic and news indicators is more ambiguous than the technical indicators. There’s lots of grey areas when it comes to this kind of analysis. The market will eventually react to the way people perceive that the economic data are comparable to the current market conditions.
Economic indicators typically reveal data that “Should cause the currency to rise in value” and “May cause an exchange rate to decrease”. The terms “SHOULD” and “MAY” found in these quotation marks above illustrate the confusion of the data’s fundamentals.
Six indicators of economic performance
Here’s an example of how you can analyze fundamental data looks similar to. Let’s assume that there are six indicators of economic performance (there are many more).
Let’s name our indicators 1, 2, 3 and 4, 5 and 6. We are waiting for the information from our indicators to appear in a magazine about finance or on an online source. The readings we get of our data on economics for EURO as follows:
- Indicator 1 is in an area where the Euro might rise
- Indicator 2 is located in an area where the Euro could rise
- Indicator 3 is within an area where the Euro may fall
- Indicator 4 is an area in which the Euro typically falls
- Indicator 5 is in a range that indicates the Euro could rise
- Indicator 6: is located in an area in which the Euro might fall
If you look at these indicators, it is difficult to know what the Euro will be doing. Additionally, currencies are trade in pairs. Therefore, you must obtain the essential information for a different currency pair, and then contrast it with the EURO. I’m sure you can see that this isn’t an easy job.
I don’t want to dissuade you from studying basic data. The best method to gain knowledge is to master each piece of economic data at each step. At some point, you’ll make a puzzle out of the most fundamental and technical information and make better informed trading decisions.