Friday, April 14, 2006

Forex Trading Using Fundamentals Or Technical Analysis

Trade the news or trade the data?

There is continuing debate as to whether it is more profitable to trade the news or trade the data from the charts. This is called trading fundamentals "trading the news" or, in the case of trading the data - Technical Analysis. Personally I trade on the data most of the time, whilst keeping an eye on the news feeds (more on news feeds in a moment) I keep an eye on the newsfeeds and economic calendars for two reasons.

1) To ensure I don’t enter a trade when there is an important economical announcement imminent.

2) To verify if the effects I am seeing on a currency pair are due to the news announcement or imminent news announcement.

I think the general consensus on “trading the news” is NEVER enter a trade before the news is announced – You can get caught badly if the news is not as expected (as the ECB announcement last week, which was the total opposite of expectations)
If after you read the announcement, you see the market moving in any one particular direction – then you can decide if you want to enter the trade, if you think the trend will continue (or reverse) . Again there is debate here, but most successful forex traders will wait for the market to settle down after it’s made a major move, before trading again.

So, where do we find these newsfeeds, and how do we read them. The first thing we are going to need is a news reader. There are many free ones on the web (and we like free stuff!) I use Googles free news reader. Google also has a nice info page and tour of their reader. Google newsreader info

So now we have our reader, what do we read on it? There are many newsfeeds online, I use CNN newsfeeds . Follow this link to add many interesting feeds to your reader. Bloombergs newsfeeds are also excellent and seem to be updated more frequently than some of the others. A lot of the Forex trading platforms also offer news alerts. Sometimes they charge for this, sometimes it’s free. Personally I don’t think anyone should pay for news reports when there is so much free information online.

Another free resource, which is invaluable is Bloombergs economic calendar. Here you can keep your eye on upcoming economic announcements due in the week.

Whether or not you decide to be a fundamentals man, or a technicals kind of guy is up to you. Personally I prefer reading the charts and learning to analyze the data, and I think it’s key to long-term successful forex trading.

Finally, a little anecdote to lend a little brevity to the subject.

A university professor was talking to a technical analysis expert.

“Why don’t you come down to my classroom, as I’m giving a lecture all about economics and how the global economy and world events impacts the world currency markets. – I think you’d find it very interesting.”

To which our Technical analysis expert replies.

“Wow professor that does sound fascinating, and I’d love to come. But, as I’m a bit busy at the moment, why don’t I fly you up to New York on my private jet – and we can discuss your theories over lunch at the Four Seasons.”

Happy trading, and good luck!

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At 2:15 AM, Blogger JB said...

wish you a good start with your forex adventure. you might be interested to have a look at it's a good fx site with easy to understand basics.

happy learning

ps: i personally dont' like your "interesting stuff" and "payed links" sections, you won't earn money with that. instead focus on your own business!


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