Trading Using Fundamental and Technical Analysis

There are generally two types of investor in the world today.  The first group prefers a long-term perspective, one in which it studies several companies for potential appreciation opportunities over many years, and then elects to “buy-and-hold” its chosen security for many years to come.  For this investor, fundamental analysis is definitely his preference, and he may rarely attempt to employ technical principles to guide his effort.  The latter class of investor is the active management type, or trader.  He prefers to enter and exit a market at will, using technical indicators to optimize his opening and closing of positions, recording gains as he goes and being ever mindful of fundamental data releases.

For the traders among us, whether the harried day trader or the swing-trader looking for trades that last a few days at the most, the thought of attempting to survive in volatile markets, especially the currency markets, without the assistance of either technical or fundamental analysis is anathema, an obvious prescription for failure.  The last thing a trader needs is to be blindsided by an immediate reversal of material proportions.  This situation can occur every month like clockwork with the release of non-farm payroll data by the U.S. Department of Labor on the first Friday of the month.

December 3, 2010 was just such a day.  The chart below illustrates the pricing activity of the “EUR/USD” currency pair:

   

The employment data is critical to assessing the health of the economy of the United States.  The data for the prior month is released at 8:30 A.M. EST, and analysts need about thirty minutes to assimilate the report and react.  Trading volume suddenly shifts into high gear.  Broker servers become overloaded, together with switchboards.  Attempting to change previously issued orders may not be possible during this period.  Broker agreements even specify that orders, especially stop-loss orders, may not be executed due to high volume.

In this case, there was an immediate upward movement by the Euro, a response to an unexpected increase in unemployment in the U.S., but the trend continued for nearly three hours.  Traders that “trade on the news” never try to pick a perfect bottom or top, but in this example, after the initial tsunami subsided, there was ample room to benefit from the last 100-pip leg of the run-up.

Technical indicators would have provided guidance for the above entry and exit points.  The “GBP/USD” tends to react more widely.  Its run-up was on the order of 200 pips, versus the 150 pips above. Fx trading on the news is not for the faint-hearted, but even if this opportunity is not for you, you need to be prepared for the volatility that can occur when major data releases are announced.

The dates and times of public releases of economic data in major markets are known and published.  Many brokers produce a schedule to assist their clients in preparing for these events, if only to avoid the volume outbreak.  Volatility, however, is the basis for many trading strategies, and measuring the strength and momentum of the trend is key to selecting profitable opportunities in the market.  There are indicators that have been designed to give guidance in both of these areas.

Even for the long-term investor, there are obvious benefits to be gained from technical analysis.  The optimization of your security entry price can yield immediate gains.  Major stock patterns are much like shorter versions within currencies – they tend to move in waves.  Technical indicators can prevent you from buying on a peak when an overbought condition is prevalent.

The Trade In Currency

The currency exchange rates are determined by the market. The currency is free-floating and as a result its rate is not fixed as was done before. The rates in the market are determined by the extent of demand and supply of the currency in the market. As a result, its rates constantly changed and fluctuated. Earlier the currency rate was based on the fixed exchange rate when a currency was fixed with reference to another by the government who could change or devalue this rate as and when needed. Between World War II and 1966 the Western European countries fixed the exchange rates to the dollar. The market based exchange was adopted later.

Whenever there is a change in the value of one currency, the exchange rate with another currency will change. When the demand for a currency increases and is more than the supply, it becomes more valuable. But when the demand is lower than the supply, the value of the currency declines. The increase in demand for a currency can be due to many reasons. There could be an increase in the transaction demand for the currency. Or there could be an increase in the speculative demand for the currency. The transaction demand is related to the level of business activity of the country, the employment levels and the gross domestic product (GDP). When more people are employed, the more will be the spending on goods and services.

Currency worth about $4 trillion dollars is traded every day. It is one of the largest markets in the world. There are a number of guides in the market to teach about foreign exchange market to persons who wish to invest in the market. Some of these are The Forex Training Video Course , Instant Forex Profit, The Magical Forex Trading, The Professional Forex Training, The Forex Assassin, The Forex Strategy Workbook and Auto Cash System.

The change in the demand for currency as a result of business activity is adjusted by the central banks by adjusting the available money supply. It is difficult for the central banks to adjust to the demand for money from speculation. They try to do this by adjusting the interest rates. With higher interest rates, there is an increase in the purchase of that currency. The demand for the currency increases. Currency speculation is considered to undermine the economy of a country as large currency speculators can unduly influence the exchange rates.

Why Invest?

Investment is central to business management as well as finance and economics. Instead of consuming the resources, when these resources are allocated for the creation of future benefits, then such allocation is called investment. Earning of profit and future income is the basic motive for investment. Assets that fulfill these are the objects of such investments by individuals or organizations. Moreover it is the assets that have a lower risk with a potential of profit or income that are where investments are most likely to be made. But if the asset or instrument is not properly analyzed for its risk and potential benefits with the real possibility of even the loss of the principal invested, and yet investment is made, then this is speculation and not investment.

Investments differ in economics and finance. In economics, investment mean investing on productive real assets such as tangible goods as a factory, machines or a house or intangibles as education or training. In finance, investment refers to financial assets as investment in bank deposits, money markets or capital markets or even in liquid assets as precious metals, real estate, shares, equity, bonds, foreign currencies, or collectibles.

Investments can be made indirectly through intermediaries. These intermediaries include banks, mutual funds, pension funds, insurance companies, collective investment schemes, and investment clubs. These intermediaries then make investment decisions either on real assets or financial assets to earn an income or profit which then are shared with the original investors. Alternatively, investors can invest directly in shares or buy assets. Investment comes with a risk of capital loss.

A major economic activity in the world today is the foreign exchange market. It is important to learn what currency trade market is before entering the market for investment. Some of the forextrading strategies can be learnt from the various learning tools available for purchase in the market are The Forex Video Course, The Magical Forex Trading, Instant Forex Profit, The Forex Assassin, The Professional Forex Training, Auto Cash System and The Forex Strategy Workbook.

Today the forex market is valued at about US$4 trillion dollars per day and is increasing every year. Currency is bought by investors or traders when it is cheaper with reference to another currency. A profit is made by selling the currency when it is costlier with reference to the other currency. The rate of exchange between these two currencies is called foreign exchange rates or FX rate or forex rate. This exchange rate specifies how much is one currency worth in another currency.

Currency and Its Role

Foreign exchange market is where currency is traded. When trade in goods and services were limited as in olden days, the system of transaction was through barter. Barter was a system where the transaction was carried out by exchange of goods. But with the expansion of trade, this form of transaction became quite cumbersome. An intermediate between the goods traded was invented. Formerly this was in the form of coins made of metals which had intrinsic value such as gold, silver and copper. The use of coins to buy and sell goods became convenient. The problem was when the value of goods sold or bought were high. It required that much more coins which was just too cumbersome posing a practical problem. Moreover trade further expanded. Something easier to handle had to be invented. That was how banknotes made its appearance to substitute coins. Initially the banknotes were pegged to valuable metals such as the gold standard. But this was later de-linked. Now the value of banknotes comes from the value decreed by governments. These banknotes are issued by banks that are controlled by national governments.

Each country had its own currency. Trade between countries required that the transactions had to be carried out in multiple currencies. The expansion of international trade in goods and services required that the central banks and governments purchase more of the currencies of countries with which they carried out trade. Currency trading emerged and soon became a distinct economic activity. The exchange rate becoming determined by the market, the demand and supply regime, more and more players entered the market such as currency traders, financial institutions, and money managers.

Today the foreign exchange market transacts trade in currency worth US$4 trillion. It has emerged as a major global economic activity. There are e-books and other learning tools that not only explain how the market operates but also take you step by step to actual investments. Some of these are Forex Trading Explained, Tax Lien Investing, Forex Trading Made EZ, The Forex Video Course, Instant Forex Profit, The Magical Forex Trading, Professional Forex Training, Forex Assassin , The Forex Strategy Workbook and Auto Cash System.

Over half the investments made in the forex market are speculative. The currency exchange rate is susceptible to quick changes due to economic, political and even environmental factors. The forex market is also vulnerable to rumors.

The Top Ten Ways Traders Do Not Come Out on Top

Top 10 Trading Mistakes

Before you even consider the thought of becoming an investor, you should first be sure that you have enough money to set aside for it. By “sufficient”, I mean earning an amount beyond what is necessary for your daily expenses. Once you have the money enough to invest, you may begin by identifying your own objectives. People commonly begin investing for reasons such as college tuition of kids, retirement, or the purchase of a house. Also, the following are seven common blunders of investors that you must avoid: You want to make sure you do not do these things when you are getting involved in fx trading systems.

1.) Not employing the diversification technique.

The diversification technique is the method of spreading the portfolio among a wide variety of investments like mutual funds, stocks, and bonds. This is a method that the successful investors use to manage risks. If you fail to implement this method, the impact that fluctuations from even a single security will have on your portfolio can be quite weighty.

2.) Impetuous selling of investments.

Patience is a trait all investors must have. You must anticipate that the growth of majority of investments is very slow. Many investors are easily distracted and hastily sell their stocks. While many have been successful as day traders, this is mostly not recommended. You should avoid fancy hot investing tips and stick to the basics.

3.) Pursuing investments.

You should not chase after a stock or fund just because it was one of the hottest yesterday. Everything is unstable when it comes to investing. The hottest stocks yesterday could go through a critical decline today. You should research the various investment vehicles and identify which ones seem to have the most potential based on how they did during the past and on the future performance statistics. You can be more methodical in your approach by using forex tips to make some money.

4.) Not determining the distribution for each investment before making a purchase.

The first step to becoming a successful investor is deciding how much to invest in every asset. You will only create more problems if you buy a stock, fund, or any other investment when you have not yet done a provision for your investment vehicles.

5.) Not doing a risk assessment.

In investing, ultimately, you will have to decide on how much you are willing to squander without losing too much sleep. Many investors are not prepared for investments with high risks yet these are what they frequently invest in.

6.) Tendency to get distracted easily.

You should develop an investing strategy and strictly abide by it in any case. Unless you have not been making any success with it for some time now, then there is no reason to simply deviate from it. Do not let yourself be distracted by a sudden trend or a hot tip.

7.) Neglecting to monitor investments.

A lot of investors, especially those who are just starting out, pay close attention to their investments for some time and then lose interest or get sidetracked. Constantly keeping track of your investments is very important in investing.

Forex Pips Secrets

Learn Forex Pips Secrets

Here is an useful Forex Pips Guide from a cool forex website.

When you start looking for currency exchange articles, you will quickly observe references to the forex pip. Your gains and losses will be determined in pips. another thing that is measured in pips is the spread, the difference between the bid and ask prices which is the main cost of FX trading and how the forex brokers create their money. Hence it is obviously very  significant to know what is a pip.

The word is an acronym standing for percentage in point (otherwise, price interest point). It is the least increment of changes in values. It allows us to evaluate a climb or fall in currency rates in percentage terms as an alternative of dollars and cents.

What should we use Pips instead of dollars? The logic for this is clear. In the foreign exchange market there is no world currency in which to define prices. The United States Dollar may be the most generally traded currency but it is not drawn in in all trades. If you are trading cross rates, i.e. two extra currencies such as EUR/GBP or any other pairs that does not involve USD, it would not make any sense at all to state your profits and losses in terms of United States dollars. as an alternative, we require something that is a small percentage of the value of whatever currencies we are trading with.

This means that the monetary value of a pip varies according to the currency pair. Even if you are making use of the best forex trading software you need to have a very good knowledge about pips.

nearly all currencies are quoted to 4 decimal points. For illustration you might notice the bid price for EUR/USD quoted at 1.3641 and ask price 1.3645. The change (the spread) is 0.0004 or 4 pips. In this case a pip is 0.01% of a lot.

accordingly if the lot size was $100,000, one pip would be worth $10. For a lot size of $10,000, one pip would be US$1.

That is the worth of pips when the US dollar is the quote currency, i.e. XXX/USD. But when the quote currency is different, one pip is commonly ten units of that currency (e.g. 10 euros or 10 pounds). Or if your lot size is 10,000 units, one pip is 1 unit (1 euro or 1 pound).

The Japaense Yen is an exception which has a much lower unit value than most currencies (you get a lot of yen to the dollar). For this reason of this, the yen is only quoted to the second decimal point. You might see a price USD/JPY 110.12. In this case one pip is 0.01 or 1% but in yen, not dollars. So the pip value is JPY 1000 which at that price would be worth US $11.012.

These numbers can be confusing when you are a beginner at currency trading. So it is better for beginners to trade consistently with just one forex currency pair.

When you trade in one pair repeatedly every day you will soon get used to how much a pip means in terms of your actual gains and losses in your account. You will understand how much one pip is worth in dollars or in your own currency.

But when you are are doing forex trading quite a few different currency pairs, you have to deal with pips of diverse values. If you get baffled, you could be taking greater risks than you intended or closing trades with less gains than you thought. It is much easier to deal with just one pair initially until you have a sound understanding of trading practices and forex pip values.