Fundamental Analysis vs Technical Analysis. Use Both!

You´ll often hear people who trade the currency market talk about 2 different ways of trading. There´s the traders who trade the fundamentals (using the knowledge of what´s going on in the world, market news, macro and mico economic indicators) and there are those traders who rely on statistical analysis of historical trends to guide them in their trading.

Well, we have some news for you. We reckon that there is ONLY one way of trading. And that´s to make use of as much information as you can- whether that be news, statistical charts, gossip, tweets (increasingly important) and conversations with your friends.

Use all of the tools available to you! Here are some of the more important tools:

Fundamentals

The thing that makes online currency trading so interesting, in our book, is that it is affected by politics, economics and world events. Ignore these, and it doesn´t matter how good your chart reading is, the market may jump the other way.

Make sure you read the newspapers, set up rss feeds that pull off stories from top resources like CNNMoney, FT, the BBC and Reuters, watch the news and generally stay informed. (TIP- use FeedDemon to pull of rss feeds).  If you are not a news junky now, you will be, believe me! Use the resources that we suggest here on Online Forex King- we pull feeds on to our home page.

So you´ll know that if there is a UK election tomorrow, there will be big moves in Cable (GBPUSD). If there is a big debt crisis in Europe, the Euro might tank.

Look at the economic calendar section on Online Forex King and you´ll get a good idea of all the economic announcements coming up that are likely to affect currency prices. You need to get a handle on the strength of a country´s economy (or rather the confidence of investors in the strength of a country´s economy – the two things are not necessarily the same). The more confidence in the economy, the more confidence in the currency.

Technical Analysis

Think charts, charts, charts. You are going to be spending a lot of time looking at them! You need to become a Chart Geek. The idea is to look into the future, by spotting trends that look like the past. You´ll be hearing alot of terms like Elliot Waves, MACD, Bollinger Bands (you´ll be popping open the Bolly hopefully if you master these), Stochastic Oscillators, blah, blah, blah. But more on that later. Just start by looking at trends, and make sure you look at different scales (1 minute charts- lots of noise, 4 hour charts, and 24 hour charts- more long term).

The key thing is to work out the long term trend (the newspaper business sections are a good starting point for this). Hence the classic forex saying “The Trend is your Friend”. If you know the trend, and trade in the same direction, you are more likely to make money. But remember, trends change too!

Social Networking

You may have tried Twitter out, and thought “what on earth is this for”? Well- we have got news for you. Twitter was designed for forex trading! Or if it wasn´t, it should have been. This really is a game changer- you need to be on it, but just make sure that you understand that there is a lot of rubbish on there. You need to find the nuggets. Start by following our forex tweets, and then fine tune the people who you are following as you go. And share your thoughts. Forex trading used to be rather a solitary existence…not any more! Also, use Facebook, Linkedin, and look out for good forex blogs.

Of course, all this takes time, so before you wade in, make sure you organise your time. Set aside an hour or so each day for this- you don´t want to be spending all day on these sites, but you don´t want to be ignoring these resources either. Yhey are more tools for your box!

So, in summary:

  • Use all the tools available to you.
  • Become a news junky!
  • Get into those charts. Start on the long term (24 hour) and then drill down. Try and find the trend at each level.
  • To begin with, trade in the same direction as the trend.
  • Get on Twitter, Facebook and Linkedin
  • Organise your time- allocate a certain % each day for analysis, news reading, social networking.

Next
Types of Charts. Line Charts, Bar Charts and Candlesticks