Improve your Fundamental Analysis
We have already discussed how to trade using forex fundamentals and also seen why I basically the top 5 reasons why I do not trade forex news .However ,this does not mean that one cannot make living trade forex news and forex fundamentals. Here are some of the ways that I think can help a forex trader increase their chances with trading forex fundamental Analysis.
1. Get the Whole Market Picture
If you decide to trade forex fundamentals on the basis of news, do it right and get the whole picture and not just pieces of it.A lazy trader is only interested in the that part of the market that interests him. For example if you are trading crude ,one may need to know what the current production levels are, what are the crude stockpiles,how do they compare to previous months and what is OPEC doing. Just because there is a hurricane warning in the Gulf does not necessarily mean that the crude market goes up.
In forex it doesn’t mean much to say that the dollar is going to go up or down just because the feds has cut rates. Since forex is a two currency game , one currency movement does not necesarily mean that it will weaken with all other currencies.In the last dollar sell off ,we saw that though generally the faller lost value ,the rate of fall was not equal accross the board. It fell less in percentage terms against the yen than against the euro.
2. Complement Fundamental Analysis with Technical Analysis
Now since you have a sence of what the fundamentals are telling you, why not complement that with simple technical analysis? What is so hard about setting up a simple moving average crossover to confirm your market entry.There is nothing very complicated about a moving average crossover and you will feel more at ease with your trade if both your fundamental analysis and technical analysis agree.
3.Trading Patiently
The most important thing you can ever do for your sanity in trading forex news is to be flat before the market news.As a high probability trader ,you know that it is not worth trying to guess where the market is going before the news is released.If you are not flat ,you are gambling not trading.
The normal market report after any type of forex news release is a spike. The next move is a retracement sometimes to keep going lower and sometimes to come back and rally. Jumping on board before the market settles is dangerous to your account balance. The best thing you can do is to sit back and wait for the market to pick a clear direction and then trade when all the noise is over. I call any trader who trades those spikes the forex broker’s best friend. I have seen 200 pip spikes and stops never being honoured, gaps in one broker charts that are not on any other broker. I have seen forex gurus get wiped out in one trade and I personally have endoured losing half my account in 1 minute of trading.
Here is my simple tip
Note how the market is trading before the release of a news event. Whichever direction it is moving in is the what the consensus is thinking. If the number is in line with expectations, this is the direction the market should move and any surprises may cause it to move the other way. If the market does not continue in the direction it had been moving and the forex news was expected,the best thing to do is to not enter that market as it failed to move the way it should.
So in short
- If the market should go up and it doesn’t , it’s going lower.
- Don’t jump into a trade as soon as the news comes out. My rule of thumb is to wait 15 minutes
- Let the market digest the news.
- Be flat before the news release otherwise you should go to vegas and gamble.
We shall continue with this tommorow
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