In this topic, I will be discussing how one can be profitable in Forex Trading beyond using basic technical analysis. Note, when I say “basic” I meaning support, resistance and trend lines. It is believed that before anybody can call themselves a forex trader they must have understanding of technical analysis – at least to a slight extent.
At this point of writing this article, I assume you already know the “basics” and understand how they work. If not, you can visit our EDUCATIONAL SERIES to learn more.
What Moves The Markets?
So let’s begin with the subject at hand, what moves the market? Why does it move in certain patterns? And how can one profit from such moves in Forex trading?
Price is moved based on millions of individuals who buy and sell simultaneously; I can further say that price is the reflection of the psychological effects of traders around the globe.
But, there is a moving factor that makes these individuals to either place a trade or exit from one. We can perceive this to be “the fundamental analysis”. The fundamentals in an economy makes the currency spike up or down and sometimes consolidate but, all in respect to the price action and technical on the chart.
As we further proceed into the subject one has to agree that the fundamentals of a currency pairs are influenced by “news” from either side of the country. And to make money from these movements one has to find a good and reliable a source for economic news.
This source could be found on sites such as Investing.com, DailyFx.com, MyFxBook, Yahoo Finance, Google Finance, and Forex Factory etc. These can be read either on the website itself or via downloadable apps into your smart phone or tablets. You do not have to worry about paying for any services as these mobile apps are free.
Economic or Fundamental data is constantly fluctuating creating those ups and downs in the Forex market. We do have to take into consideration the currency among different countries.
Example will be the Euro which is the European Union’s currency issued by the European Central bank. Note: that the European Union is made up of 19 independent state –which include Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain. Now that we know this fact, we have a slight understanding that when Euro fundamentals are shown on the economic data calendar we need to check what state it is coming from and understand the economic status of each state to give us a clue if the market is going to move up, down or stay neutral and for how long this effect is going to last.
NOTE: That some states in the European Union, have more influences than others example will be news about the Germans GDP will have more momentum than the same news from Latvia.
Economic data are divided into 3 sectors which are low, medium and high. Low being the least impact or not so important, medium mid-level importance and high being a hard impact and very high importance. All have to be taken into consideration as they all move the market.
Some focus on only high impact news to gain more pips but, it is not always the case that a high impact news event will push the market for major pips. At times low impact news can cause major volatility in the Forex market. As we know all fundamental events move the market no matter how big or how small.
We should not neglect “National Holidays” as these holidays banks and financial institutions are to be closed which will result to a thin volatility in the market -take 4th July for example in the US
Now to the good stuff! Why does the market move in a certain way when economic data is released? Let us take a look at some economic news: its effect and how long that particular event will have a reaction to market volatility. We will take Euro as our case study and we will look at the economic data for that pair, what state it came from and how it affected market movement.
In the example below, the Economic data for Current Accounts from the European Union was released after having a bullish run in previous months. The negative news was low impact and it created the start of bearish cycle.
Picture was taken from Forex Factory website as you can see previous data is positive, current data is negative and economic event is released monthly. Being day traders monthly releases are not held for a whole month as other data from other states can over power a previous decision.
Below is the chart on a lower timeframe, depicting the result of fundamental event yellow line shows the time and date of this event and how it created volatility in the market ending the bullish cycle till next economic data.
When, taking this type of trade, there are lots of factors one has to put into consideration. But the most important of them all is, RIGHT TIMING. Sometimes, one might enter into a trade late, when most of the actions are over and that’s why I advise using pending order. Set the pending order and when price comes to your desired level, it will be triggered.
Secondly, is MONEY MANAGEMENT, Money Management (MM) is very important if you want to survive for a long time in this business. I always advice traders, to use a small lot size and grow their account. There is no point rushing to increase your account balance and end up blow your account.
In conclusion, forex is a lucrative business when treated like one and I will advise you all to follow your trading strategy, plan and remember than the cause of blown accounts is because of over trading. So, if there are no trading opportunities in the market as per your strategy or plan, don’t force it because the market is not compassionate of your economic status and will take your hard earned money. Word of advice just simply walk away, close your trading terminal for the day and wait for next session. The market is not going anywhere just simply wait for your set ups come to you and with that state of mind the money will come.