We all know that trading Forex is a risky business and we encounter risks with each trade on a daily basis. It’s our duty as traders to protect our capital from these risks as much as possible.
A common question in the Forex community, especially asked around a lot by rookie traders, is whether fundamental analysis or technical analysis is better to trade the Fx market.
Trading Fundamentals – Differentiating between important and noise events. How misleading stories create abnormal price moves?
We are often witnesses of hectic price action in the Forex market which in most cases leaves traders scratching their heads wondering why and how things happened.
What’s even worse, those sharp moves are very often completely reversed and the market continues in the previous direction anyway! Those who got their stops taken out, lament about all the profit they could have made while those who held their positions are happy that they are still ending with a profit after all.
Combining Fundamentals with Technicals to Trade the Crosses
Although this is the exchange rate that everyone is looking at and referring to, markets are known to often overprice or underprice financial assets, and the same holds true for currencies.
To find out how much a currency pair is over or underpriced and to determine the longer-term fair value of an exchange rate, economists use several different methods by which they can obtain the so-called “real” or effective exchange rates.
This holds true both in the short and the long term, so, for example, one day, the US Dollar will be the strongest currency while the Euro will be the weakest on the day, and on another day the British Pound may outperform all while the Euro and the US Dollar will fall somewhere in between.
Devaluations and Revaluations vs. Appreciation and Depreciation
This is in contrast to a floating exchange rate system as is the standard among most developed countries where the value of a currency is determined by supply and demand forces in the market.
Cross pairs are not moving in isolation – Majors and crosses are closely related
Aside from the relationships that exist between some of the major USD pairs, cross currency pairs also have certain relationships to the major pairs and to other crosses.
Fundamental analysis basically uses underlying economic factors for both countries to forecast future exchange rates for a currency pair.
Similarly, we cannot expect the global FOREX market to exist in isolation without getting affected by numerous other variables.
So, what exactly is this elusive concept of market sentiment in Forex trading?
However, professional traders take one step further and consider every possible factor which has the tendency to affect FOREX rates.
Buying low and selling high is the usual way of making money in FOREX trading, however, it is not everyone’s cup of tea since it requires a lot of work. It’s worth knowing that there is a simpler and easier alternative to this - carry trading.
In 2014, it was overtaken by China, whose economy had been growing three times as fast in the last few decades.
If several years of data are examined, it is usually established that the forex market tends to move in fairly predictable patterns.
It is only logical to think that all or most (at least 99%) of these decisions are based upon some sort of systematic thinking rather than emotions or wild guesses.
Trusted FX Brokers
Forex Education - Basics:
Forex Education - FX Brokers:
Forex Education - Technical Analysis: