Help Guide To Forex Fundamental Analysis: What Will You Understand Before Trading News
Among the many skills essential in your Currency trading strategy is to be able to analyze. There are 2 primary types of Forex analysis which are fundamental analysis and technical analysis. I will teach you the different types of fundamental analysis trading and with luck , you will learn how to use it in your Forex trading technique. If you're strictlya technical trader, you might profit and possibly increase your profits by means beyond your current approaches.
To be brief, Fundamental analysis depends on the news reports: political and economic aspects. Traders using fundamental analysis will observe various reports sources: TV, radio, and news feeds on the net; to learn about the political and economic aspects that can move the currency prices. For example, if the US Non- Farm payroll report is good, it will cause the US dollar to move up. In case the number is disappointing, then the US dollar will drop against other foreign currencies.
Each And Every major news release has a forecast or consensus figure determined by economists prior to news release. If the actual release number is different from the estimate or expected figure, the market is surprised and definately will respond to the release immediately. The bigger the surprise, or deviation, it will produce greater reaction. For example, when the upcoming US ISM Non- Manufacturing PMI has a predicted number of 54. 5, and our standard deviation is 3. . The actual release comes out as 50. 5. Because the actual deviation is 4. , you'd enter a short trade on USD/ JPY, USD/ CAD, or USD/ CHF or maybe a long trade on GBP/ USD, AUD/ USD, EUR/ USD.
There are three main approaches to trade the fundamental analysis: Spike trading, Retracement trading, and Pre News trading. Trading the spike is the most popular strategy to trade the fundamental analysis, and is the best known. Most Forex traders usually associate spike trading with fundamental analysis trading. To trade the spike, basically we wait for the news release to come out. Based on the actual release number we'll enter the market immediately if our expected deviation is reached. This type of trading requires that you have access to the news release immediately when it is released, have a fast reaction to entera trade, and also have a good broker that allows news trading.
To trade the retracement, we wait for the news release to come out, we wait for the initial spike, and then we will wait for the market to retrace back within just ten to fifteen pips from the pre- release price. Often when we have a huge deviation, we can go into the market at 20 pips from the pre- release level, but it would be dependent on your own discretion. Market will usually retrace within the first 5 to 30 minutes, if a retracement is to occur. This trading strategy is especially easier to initiatea trade, mainly because we avoid the initial volatility of the initial news release, and many Forex brokers allow this type of news trading.
Pre News trading, this method of fundamental analysis trading is probably the most advanced and the most difficult to analyze. Basically, we base our entry on market sentiment and technical trend of the currency pair and we go into the market 5 minutes prior to the actual news release. It is recommended to enter in the direction of the current trend and only work with this trading method with news releases that won’t alter the market trend. As an example, you must not use this method for the US Non- Farm Payroll, GDP, and CPI; but we can pre- news trade the Retail Sales, Trade balances, and PMI reports.
