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HOW TO USE FUNDAMENTAL ANALYSIS WHEN TRADING THE FINANCIAL MARKETS

By Your Trading Mentor,

Trading Angel

WHAT IS FUNDAMENTAL ANALYSIS?

Fundamental analysis is a method of analysing the forex market by examining economic, financial, and other qualitative and quantitative factors that may affect the supply and demand of a currency. The goal of fundamental analysis is to identify the underlying factors that may cause a currency to appreciate or depreciate in value.

In forex trading, fundamental analysis typically involves analysing economic indicators such as gross domestic product (GDP), inflation, interest rates, and employment data, as well as political and geopolitical factors that may affect the currency markets.

For example, if a country’s GDP growth rate is strong, it may indicate a healthy economy and lead to increased demand for the country’s currency. Similarly, if a country’s central bank raises interest rates, it may attract foreign investors seeking higher returns on their investments, which can increase demand for that country’s currency.

Overall, fundamental analysis can be a useful tool for forex traders to help them make informed trading decisions based on macroeconomic factors and other market drivers.

HOW DO FUNDAMENTAL AND TECHNICAL ANALYSIS COMPARE? 

Fundamental analysis and technical analysis are two different approaches to analysing the forex market and making trading decisions. 

Fundamental analysis involves analysing economic, financial, and political factors that may affect the value of a currency. This includes analysing economic indicators such as GDP, inflation, interest rates, and employment data, as well as geopolitical events that may impact a country’s economy. The idea behind fundamental analysis is to assess the overall health of an economy and make trading decisions based on the expected impact of these factors on the currency in question.

On the other hand, technical analysis involves studying charts and using various technical indicators to identify trends and patterns in price movements. Technical analysts believe that historical price and volume data can reveal trends and patterns that can help predict future price movements. This approach involves the use of chart patterns, trend lines, moving averages, and other technical indicators to identify potential trading opportunities.

Both fundamental and technical analysis have their strengths and weaknesses. Fundamental analysis can provide a broader understanding of the factors driving currency movements, while technical analysis can offer more specific entry and exit points for trades. Ultimately, successful forex traders often use a combination of both approaches to make informed trading decisions.

Using both fundamental analysis and technical analysis in forex trading can provide a more comprehensive view of the market and help traders make more informed trading decisions. 

Fundamental analysis can provide a broader understanding of the factors driving currency movements. It takes into account economic, financial, and political factors that can impact the value of a currency, such as GDP, inflation, interest rates, political stability, and trade policies. By analysing these factors, traders can gain insights into the long-term trends in the market and develop trading strategies that align with the underlying fundamentals of the economy.

However, fundamental analysis alone may not provide a complete picture of the market. It may not account for short-term fluctuations in currency prices, which can be influenced by factors such as technical indicators, market sentiment, and supply and demand. This is where technical analysis comes in.

Technical analysis involves studying charts and using various technical indicators to identify trends and patterns in price movements. It can help traders identify entry and exit points for trades, and also help them anticipate potential price movements. Technical analysis can be particularly useful in volatile markets, where short-term fluctuations are common.

By combining both fundamental and technical analysis, traders can gain a more well-rounded view of the market and develop trading strategies that take into account both long-term trends and short-term fluctuations. This can help traders make more informed trading decisions and manage their risk more effectively.

When trading the financial markets, there are several key pieces of fundamental analysis that traders should be aware of:

1. Economic indicators: Economic indicators are statistics released by government agencies and other organisations that provide information on a country’s economic performance. Some of the most important economic indicators for traders include Gross Domestic Product (GDP), inflation, interest rates, employment data, and retail sales. These indicators can provide insights into a country’s economic health and help traders anticipate potential market movements.

2. Central bank policies: Central banks play a significant role in the financial markets, as they are responsible for setting monetary policies and interest rates. The decisions made by central banks can have a significant impact on currency values, as well as other financial instruments such as stocks and bonds. Traders should monitor the statements and actions of central banks to gain insight into their policies and anticipate potential market movements.

3. Geopolitical events: Geopolitical events, such as wars, elections, and natural disasters, can have a significant impact on the financial markets. These events can create uncertainty and volatility in the markets, which can lead to sudden price movements. Traders should stay informed about geopolitical events and their potential impact on the markets.

4. Market sentiment: Market sentiment refers to the overall attitude of traders and investors towards a particular market or asset. Positive market sentiment can lead to rising prices, while negative market sentiment can lead to falling prices. Traders can gauge market sentiment by monitoring news headlines, social media, and other sources of information.

By staying informed about these key pieces of fundamental analysis, traders can gain insights into the underlying factors driving market movements and make more informed trading decisions.

Forex traders can find details on economic news releases from a variety of sources, including:

1. Economic calendars: There are many websites that provide economic calendars, which list the dates and times of upcoming economic news releases. These calendars often include details on the expected outcome of each release, as well as the previous release and its impact on the market. Some popular economic calendar websites include Forex Factory, DailyFX, and Investing.com.

2. News websites: Forex traders can also find details on economic news releases from news websites such as Reuters, Bloomberg, and CNBC. These websites often provide in-depth analysis of economic data and their potential impact on the markets.

3. Central bank websites: Central banks often publish their monetary policy statements, which provide insights into their policies and outlook on the economy. Traders can find these statements on central bank websites, such as the Federal Reserve, European Central Bank, and Bank of Japan.

4. Government websites: Government agencies, such as the Bureau of Labor Statistics in the United States, often release important economic data. Traders can find these releases on government websites, along with detailed reports and analysis.

5. Social media: Social media platforms, such as Twitter, can also provide real-time updates and analysis on economic news releases. Traders can follow news outlets, analysts, and other traders on social media to stay informed about the latest developments in the markets.

By using these sources, forex traders can stay informed about economic news releases and their potential impact on the markets, allowing them to make more informed trading decisions.

Until next time, Happy Trading!

Love from, Your Trading Mentor,

Trading Angel x 

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POPULAR FOREX TRADING INDICATORS

And Some Lesser Known, Advanced Indicators

By Your Trading Mentor,

Trading Angel

Forex trading is a challenging activity that requires traders to analyse market trends and make informed trading decisions. One of the tools that traders use to analyse the market is indicators. Indicators are mathematical calculations based on a currency pair’s price and/or volume. When I first started trading forex I was completely obsessed with indicators as I though there was sure to be one which was the holy grail and told me the exact moment to buy and sell! I realised pretty quickly this was ridiculous. These days I’m actually more of a price action girl myself whilst also being really keen on fundamental analysis and macro economics. Having said that, technical indicators still have their place and can be useful tools either to give you a binary set of rule for your trading plan or also to give you some key information which will help you to analyse how the market is moving and there for how it is likely to move in the future 

In this blog post, we will discuss the advantages of using indicators in forex trading, I will also compare technical indicators to price action trading. 

THE ADVANTAGES OF TECHNICAL INDICATORS 

1. Identify Trends

Indicators can help traders identify trends in the market. By analysing past price movements, traders can determine if a currency pair is trending up or down. Trend-following indicators, such as moving averages, can help traders identify the direction of the trend. This can help traders make informed trading decisions and enter/exit trades at the right time.

2. Confirmation of Price Movements

Indicators can confirm price movements in the market. For example, if a currency pair’s price is increasing, but the RSI indicator is showing that it is overbought, traders may consider selling the currency pair. This is because the RSI is indicating that the price is due for a correction. Indicators can help traders confirm whether the price is overbought or oversold and identify potential entry and exit points for trades.

3. Risk Management

Indicators can help traders manage their risk. By using indicators to set stop-loss orders and take-profit levels, traders can limit their losses and maximise their profits. For example, if a trader enters a long position, they may set a stop-loss order at a level below the entry price. This can help minimise losses if the trade goes against them.

4. Objective Analysis

Indicators can provide traders with objective analysis. Unlike emotions, indicators do not change based on a trader’s mood or bias. They provide traders with objective information that can help them make informed trading decisions. This can help traders avoid impulsive decisions based on emotions, which can lead to losses.

5. Scalping and Day Trading

Indicators can be particularly useful for scalping and day trading. These trading strategies involve making multiple trades within a short period. Indicators can help traders identify potential entry and exit points for trades, and confirm the strength of a trend. This can help traders make quick decisions and execute trades efficiently.

Indicators are useful tools for forex traders. They can help identify trends, confirm price movements, manage risk, provide objective analysis, and aid in scalping and day trading. However, it is essential to note that no indicator can guarantee trading success, and traders should use a combination of indicators and other analysis tools to make informed trading decisions.

COMPARING PRICE ACTION TO INDICATORS

Technical indicators and price action analysis are two of the most popular methods used to analyse the market. I will now compare the benefits of technical indicators in forex trading to price action analysis.

Technical Indicators

Technical indicators are mathematical calculations based on a currency pair’s price and/or volume. Traders use these indicators to identify trends, confirm price movements, manage risk, and provide objective analysis. Here are some benefits of using technical indicators:

1. Objective Analysis: Technical indicators provide traders with objective analysis. Unlike emotions, indicators do not change based on a trader’s mood or bias. They provide traders with objective information that can help them make informed trading decisions.

2. Confirmation of Price Movements: Indicators can help traders confirm price movements in the market. For example, if a currency pair’s price is increasing, but the RSI indicator is showing that it is overbought, traders may consider selling the currency pair. This is because the RSI is indicating that the price is due for a correction.

3. Risk Management: Indicators can help traders manage their risk. By using indicators to set stop-loss orders and take-profit levels, traders can limit their losses and maximise their profits.

Price Action Analysis

Price action analysis is a method of analysing the market by studying the movement of price itself, without relying on technical indicators. Here are some benefits of using price action analysis:

1. Simplicity: Price action analysis is a simple method of analysing the market. It involves studying candlestick charts and identifying patterns and trends in the price movement.

2. Flexibility: Price action analysis is a flexible method of analysing the market. Traders can use it on any currency pair and any timeframe.

3. Real-time Analysis: Price action analysis provides traders with real-time analysis of the market. Traders can quickly identify potential entry and exit points for trades based on the current price movement.

Comparison

Both technical indicators and price action analysis have their benefits in forex trading. Technical indicators provide objective analysis, confirmation of price movements, and risk management. Price action analysis, on the other hand, is a simple and flexible method of analysing the market that provides real-time analysis.

Ultimately, the choice between technical indicators and price action analysis depends on the trader’s trading style and preferences. Some traders prefer to use technical indicators to confirm price movements and manage risk, while others prefer to use price action analysis to identify patterns and trends in the price movement. It is important to note that no single method can guarantee trading success, and traders should use a combination of methods and analysis tools to make informed trading decisions.

FOREX TRADING INDICATORS

POPULAR TECHNICAL INDICATORS 

Forex trading indicators are tools used by traders to analyse market trends and make informed trading decisions. There are numerous indicators available, and each one serves a specific purpose. Here I will discuss some of the most popular forex trading indicators.

1. Moving averages

Moving averages are one of the most widely used indicators in forex trading. They are used to identify trends and determine the direction of the market. Moving averages come in different forms, such as simple moving averages and exponential moving averages. Traders often use them to identify support and resistance levels, and to determine entry and exit points for trades.

2. Relative strength index (RSI)

The RSI is a momentum indicator that measures the strength of a currency pair’s price action. It oscillates between 0 and 100, with readings above 70 indicating overbought conditions and readings below 30 indicating oversold conditions. Traders use the RSI to determine when to enter or exit a trade, and to confirm the strength of a trend.

3. Bollinger Bands

Bollinger Bands are a volatility indicator that consists of three lines. The middle line is a moving average, and the upper and lower lines are two standard deviations away from the moving average. Traders use Bollinger Bands to identify potential breakouts and trend reversals. When the price of a currency pair moves outside the upper or lower band, it is considered to be a potential trading opportunity.

4. Fibonacci retracements

Fibonacci retracements are a technical analysis tool used to identify levels of support and resistance. They are based on the Fibonacci sequence, which is a mathematical pattern found in nature. Traders use Fibonacci retracements to identify potential entry and exit points for trades, as well as to determine profit targets and stop-loss levels.

5. MACD

The MACD (Moving Average Convergence Divergence) is a trend-following momentum indicator that measures the difference between two moving averages. It consists of a MACD line and a signal line, which are used to identify potential entry and exit points for trades. Traders also use the MACD to confirm the strength of a trend and to identify potential trend reversals.

In conclusion, there are numerous forex trading indicators available, and each one serves a specific purpose. Moving averages, RSI, Bollinger Bands, Fibonacci retracements, and MACD are some of the most popular indicators used by traders. It is important to note that no single indicator can guarantee trading success, and traders should use a combination of indicators and other analysis tools to make informed trading decisions.

PERHAPS SOME LESSER KNOWN TECHNICAL INDICATORS 

While most traders use popular indicators like moving averages, MACD, and RSI, there are also several lesser-known advanced indicators that can provide valuable insights into market trends and price movements. In this blog post, we’ll explore some of these lesser-known advanced forex trading indicators.

1. Ichimoku Cloud

The Ichimoku Cloud is a technical analysis indicator that was developed by Japanese journalist Goichi Hosoda in the 1930s. It consists of five lines that provide a comprehensive view of price action, including momentum, trend direction, and support and resistance levels. The five lines are:

– Tenkan-sen: A 9-period moving average of the highest high and lowest low over the past 9 periods.

– Kijun-sen: A 26-period moving average of the highest high and lowest low over the past 26 periods.

– Senkou Span A: The average of Tenkan-sen and Kijun-sen, plotted 26 periods ahead.

– Senkou Span B: A 52-period moving average of the highest high and lowest low over the past 52 periods, plotted 26 periods ahead.

– Chikou Span: The closing price of the current candle, plotted 26 periods behind.

The area between Senkou Span A and Senkou Span B is known as the Ichimoku Cloud or Kumo. The thickness of the cloud indicates the strength of support and resistance levels.

2. Fibonacci retracements

Fibonacci retracements are based on the idea that markets tend to retrace a predictable portion of a move, after which they will continue to move in the original direction. This indicator uses horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before the price continues in the original direction. The key levels are 23.6%, 38.2%, 50%, 61.8%, and 100%.

3. Elliot Wave Theory

Elliot Wave Theory is a complex technical analysis indicator that involves identifying patterns in market movements. It is based on the idea that markets move in waves, with each wave consisting of a series of smaller waves. The theory identifies five waves in the direction of the trend, followed by three corrective waves. Traders use Elliott Wave Theory to identify potential entry and exit points.

4. Volume Profile

Volume Profile is a tool that displays the volume traded at each price level over a specified period. This information can be used to identify areas of support and resistance, as well as potential entry and exit points. Volume Profile can also help traders identify areas of high liquidity, which can be useful when placing orders.

5. Relative Vigor Index (RVI)

The Relative Vigor Index is a momentum indicator that compares the closing price to the trading range over a specified period. It is designed to measure the strength of a trend and to identify potential trend reversals. The RVI is calculated by subtracting the closing price from the opening price and dividing the result by the trading range. The result is plotted on a scale from 0 to 100.

In conclusion, these lesser-known advanced forex trading indicators can provide valuable insights into market trends and price movements. However, traders should be cautious when using these indicators, as they can also generate false signals. It is important to thoroughly research each indicator and to test it before incorporating it into a trading strategy.

If you’re wondering what my favourite indicator is, at the moment I would say it is the Smart Money Concepts Indicator on TradingView. If you don’t already have a TradingView account it is my favourite place to do my technical analysis, you can sign up and trial the pro version for free for a month using this link. Just don’t forget to cancel before the month is up if you don’t want to go ahead with your subscription 

https://www.tradingview.com/?offer_id=10&aff_id=25988

Until next time, Happy Trading,

Love From Your Trading Mentor,

Trading Angel x

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WHAT IS NFP AND SHOULD YOU BE TRADING IT? 

By Your Trading Coach

Trading Angel 

NFP USED TO SCARE ME 

When I first started trading forex macroeconomics scared me, mainly because I didn’t understand it and it seemed to create all sorts of chaos on the charts. My technical analysis was on point but if I ever placed a trade which was text book technical analysis and then it unexplainably got stopped out on a spike I would just say ‘some big new must have happened, that was unlucky’. While I was correct that some big news often did happen, it probably wasn’t unlucky as we are actually told in advance when they are being released (more or less, sometimes they are a surprise). When I first started trading forex I was told about NFP and I was told don’t trade it. It causes a lot of volatility, spiking and strange reactions in the markets. This is all true. But one of the wonderful things about NFP is it happens once a month at the same time each month so we get plenty of warning. However as I had already dismissed it as something I wasn’t going to bother trading or understanding because it was too difficult and wasn’t worth it I often ended up completely forgetting when it was taking place and still letting it cause problems for me If I left trades open beforehand. 

OK, I GET YOU WERE SCARED OF IT BUT WHAT IS IT

So the short version of the long story is that NFP stands for Non-Farm Payroll and is big economical data which comes out on the first Friday of every month (usually). This month, March 2024, it’s one of the few occasions it’s on the second Friday of the month. If you are in the UK like I am it will be released at 13:30 in the afternoon. As the name suggests it’s to do with payroll in America which ISN’T farm related. Which means, most payroll. The numbers when released show us how many jobs have been added or removed in the US over the past month. High numbers are generally good for the US dollar as its showing a healthy economy where people are in work and low numbers suggest a weakening US economy and can therefore can be seen as bad for the US dollar. While this might sound super easy to trade, just buy USD pairs when the numbers are high and sell when the numbers are low, there are actually some nuances which make it slightly less straightforward. What we get on our economical calendar is the previous number, and the consensus for what is expected to be announced on NFP. If, for example, the consensus shows we are expecting the numbers to be high and when they are released they are high, but not as high as expected but still higher than previous – this could be interpreted as bad news, or just confused news. You might see on a 5M chart a whipsaw of bull and bear candles trying to make sense of whether this is actually good news for the US economy or bad news. And that is why it’s not easy to trade NFP. 

I’VE HAD A CHANGE OF HEART 

Having said all of this I’ve actually recently become a little bit obsessed with NFP and all other forms of macroeconomic data. Having realised that my technical analysis was on point but my macroeconomics could do with some TLC I decided to book myself in for classes with my very own trading mentor. An expert in macroeconomics called Patrick Reid who works for a company called Adamis Principle. I could not recommend the mentor programme enough for those who need a bit of help with their fundamental analysis. Having a better understanding of financial news and economic data and how it moves the markets in the short term, long term and semi long term, I have now made friends with NFP. I stand by the fact that it can be difficult to trade on the day when the news is immediately released but paying attention to the numbers which come out and how this affects sentiment on the US dollar over the following weeks is incredible valuable. These sorts of big economic data releases can often be the thing which reverses trends and causes the markets to move in another direction, so paying attention to what comes out on NFP day, even if you don’t trade the day itself, can be really helpful for the following weeks. 

FINANCIAL MARKETS HAVE A HOLISTIC RELATIONSHIP 

And while NFP is referring to economical data in America and predominantly affects the USD pairs, the global financial markets have a sort of holistic relationship with each other and you’ll often notice that big news for one market can often have a big impact on other markets aswell. For example, often indices like SPX and NASDAQ can move in the opposite direction to the USD and XAUUSD or Gold can often move in the opposite direction to the USD. European stock markets like DAX or FTSE can then follow the lead of the American index funds and often move in a similar direction. And often AUD can move in the same direction as XAUUSD which means it will be moving in the opposite direction to the USD. I know there is a lot of information here but my point is basically to not leave any trade open during NFP thinking it won’t be affected just because its not USD! 

I’d love to hear if you trade NFP or how you use the information or even if you found this information helpful

Happy Trading,

Love From, Your Trading Coach

Read More

WHAT IS NFP AND SHOULD YOU BE TRADING IT? 

By Your Trading Mentor

Trading Angel 

NFP USED TO SCARE ME 

When I first started trading forex macroeconomics scared me, mainly because I didn’t understand it and it seemed to create all sorts of chaos on the charts. My technical analysis was on point but if I ever placed a trade which was text book technical analysis and then it unexplainably got stopped out on a spike I would just say ‘some big new must have happened, that was unlucky’. While I was correct that some big news often did happen, it probably wasn’t unlucky as we are actually told in advance when they are being released (more or less, sometimes they are a surprise). When I first started trading forex I was told about NFP and I was told don’t trade it. It causes a lot of volatility, spiking and strange reactions in the markets. This is all true. But one of the wonderful things about NFP is it happens once a month at the same time each month so we get plenty of warning. However as I had already dismissed it as something I wasn’t going to bother trading or understanding because it was too difficult and wasn’t worth it I often ended up completely forgetting when it was taking place and still letting it cause problems for me If I left trades open beforehand. 

OK, I GET YOU WERE SCARED OF IT BUT WHAT IS IT

So the short version of the long story is that NFP stands for Non-Farm Payroll and is big economical data which comes out on the first Friday of every month (usually). This month, March 2023, it’s one of the few occasions it’s on the second Friday of the month. If you are in the UK like I am it will be released at 13:30 in the afternoon. As the name suggests it’s to do with payroll in America which ISN’T farm related. Which means, most payroll. The numbers when released show us how many jobs have been added or removed in the US over the past month. High numbers are generally good for the US dollar as its showing a healthy economy where people are in work and low numbers suggest a weakening US economy and can therefore can be seen as bad for the US dollar. While this might sound super easy to trade, just buy USD pairs when the numbers are high and sell when the numbers are low, there are actually some nuances which make it slightly less straightforward. What we get on our economical calendar is the previous number, and the consensus for what is expected to be announced on NFP. If, for example, the consensus shows we are expecting the numbers to be high and when they are released they are high, but not as high as expected but still higher than previous – this could be interpreted as bad news, or just confused news. You might see on a 5M chart a whipsaw of bull and bear candles trying to make sense of whether this is actually good news for the US economy or bad news. And that is why it’s not easy to trade NFP. 

I’VE HAD A CHANGE OF HEART 

Having said all of this I’ve actually recently become a little bit obsessed with NFP and all other forms of macroeconomic data. Having realised that my technical analysis was on point but my macroeconomics could do with some TLC I decided to book myself in for classes with my very own trading mentor. An expert in macroeconomics called Patrick Reid who works for a company called Adamis Principle. I could not recommend the mentor programme enough for those who need a bit of help with their fundamental analysis. Having a better understanding of financial news and economic data and how it moves the markets in the short term, long term and semi long term, I have now made friends with NFP. I stand by the fact that it can be difficult to trade on the day when the news is immediately released but paying attention to the numbers which come out and how this affects sentiment on the US dollar over the following weeks is incredible valuable. These sorts of big economic data releases can often be the thing which reverses trends and causes the markets to move in another direction, so paying attention to what comes out on NFP day, even if you don’t trade the day itself, can be really helpful for the following weeks. 

FINANCIAL MARKETS HAVE A HOLISTIC RELATIONSHIP 

And while NFP is referring to economical data in America and predominantly affects the USD pairs, the global financial markets have a sort of holistic relationship with each other and you’ll often notice that big news for one market can often have a big impact on other markets aswell. For example, often indices like SPX and NASDAQ can move in the opposite direction to the USD and XAUUSD or Gold can often move in the opposite direction to the USD. European stock markets like DAX or FTSE can then follow the lead of the American index funds and often move in a similar direction. And often AUD can move in the same direction as XAUUSD which means it will be moving in the opposite direction to the USD. I know there is a lot of information here but my point is basically to not leave any trade open during NFP thinking it won’t be affected just because its not USD! 

I’d love to hear if you trade NFP or how you use the information or even if you found this information helpful

Happy Trading,

Love From, Your Trading Mentor 

Read More