In both the equity markets and Forex, there are two basic forms of analysis that can be used. The first is a technical analysis and the other is a fundamental analysis. Forex traders primarily stick with the technical analysis, and by and large this serves them effectively. Below is a review of the two different analysis forms and the ways in which they can be applied.
Beginning with the nature of fundamental analysis, it is important to remember that it is extremely complex. Additionally, this form of analysis is used for those that are looking into the future, rather than for those focusing on short-term trends. Some traders, however, employ the strategy of trading on the basis of short term news releases. There are patterns to be found, and short term success is possible through this method. When looking for currency value indicators, focus on Durable Goods, (CPI), (PMI), Retail sales, and Non-Farm Payrolls.
These are some of the reports to focus on, but they are far from the only valuable information relevant to your strategy. Besides for official reports, there are other sources of information that can serve as value indicators. Keep your eyes open for commentary, quotes, and other unofficial communication that have a powerful effect on the markets. These sources of information can be bear just as much influence as official reports. Pay attention to the discussions regarding interest rates, confidence, and inflation. What is said is very valuable and most certainly has an effect.
It is wise to pay attention to the overall attitude regarding specific issues. Focus on the language that is used to describe market trends, interest rates, etc. Less than positive sounding language out of the Federal Reserve Chairman’s mouth can be just as much of an indicator as an official report. The Humphrey Hawkins Hearings and well as the Federal Open Market Committee are two of the most important meetings you need to be on top of.
Although it is extra work, the very act of reading over these reports and reacting to the commentary can offer Forex traders with an incredible advantage. This type of fundamental analysis can help them understand long-term trends while at the same time, allow some traders that are quick on the trigger to take short-term profits. In short, pay attention to what important people are saying.
The only way you can do this, is to know when, where, and what they are saying. In order to employ the fundamental strategy, you need to know the economic calendar, and keep it around everywhere you go. If you are basing your strategy on these reports, then you simply cannot miss one. Know when they are being released. Ask your broker for more information. This is what they do, and they can even provide you with immediate access over the internet to these meetings.
Technical Analysis focuses on analyzing price trends. Forex markets never close, and are open twenty-four hours a day, which explains the difference between Forex and equities. If Forex, you are dealing with continuous action. Thus, the technical analysis has to adjust to this new timeframe, and some of the forms used are Pivot points, Elliot Waves, Parabolic SAR, and Fibonacci. After familiarizing yourself with the details, you can decide on your approach. The best advice is to go with what makes you feel the safest. Discuss your options with your broker. Good luck!
