The Role Of Fundamental And Technical Analysis In Forex Trading Strategies.

Forex trading strategies are essential for making money in the FX market. With the daily trading volume of foreign exchange standing at over $3 trillion; currency trading is done in the most liquid market in the world, which is bigger than all the stock exchanges across the globe put together.

Keep in mind; it’s very easy to lose your money in the currency market if you haven’t set up a plan in the beginning.

Two of the most important tools you will use are; fundamental and technical analysis. When you look at a fundamental analysis you are able to predict the overall movement in the market. The technical approach provides forex trading strategies based upon short term currency trading. You will find that it has to do with historical pricing and the overall volume of the currency itself.

When you start planning your forex trading strategies you have to consider 3 schools of though. Some are totally against technical trading, they believe fundamental analysis is all you need, and others think that technical analysis is more realistic.

Both of them are partially right, because you should be taking advantage of them both. Today we want to show you a few examples that can help you understand why using each one can provide you with the necessary tools to be successful.

Utilizing Fundamental Analysis for Currency Trading Strategies

Did you know that the unemployment rate, fiscal deficit, inflation figures, and even the bank interest rate will have a bearing on the market as we know it today? A great example of this is if you’re trading the US dollar and Japanese Yen (USD/JPY). In this area; gold and crude oil will impact the overall price of the dollar.

Similarly, if the Japanese government were to find their exports suffering due to the price of their currency against the US dollar; they may push down the yen to make more money on their exports. All this information should be used when devising optimal forex trading strategies. Fortunately, economic data is usually released after prior intimation or at fixed intervals which give you enough time to chalk out a plan.

Utilizing Technical Analysis for Currency Trading

Making this a successful venture means you have to constantly watch charts when incorporating technical analysis. The best one to use is the Japanese candlestick chart, which is based on price movements. During this time you will want to look for entry and exit signals as well.

If you are a beginner in the currency trading market; start by analyzing the candle stick charts. Here you will see several distinctive patterns such as:

The Marabozu: This is a complete black or white candle with no shadows. A white candle signifies the continuation of a bearish trend or a bearish trend reversal while a complete black candle is indicative of a continuation of a bull run or a bullish trend reversal.

The Doji: This deals with a skinny candle that is set up as a single line. It helps you understand signals, especially when there are no buyers or sellers left. The reason for this is because the opening and closing price ends with a similar number. You will find that this can result in a trend reversal.

Another way is to look at the resistance and the support levels; the resistance is a level on the charts that the price of currency has jumped to but has not gone through while a support is a lower level on the chart that the price has plunged to but has not pierced. The theory holds that if the price goes through either the resistance or support levels; it will continue moving in that direction for some time before bouncing in the opposite direction.

What it comes down to is you don’t want to utilize only one indicator in your forex trading strategies. Instead you should use 2 or 3 of them so you have the best opportunity to be successful with your currency trading.

Want to find out more about forex trading strategies, then visit Phillip Hampton’s site on how to choose the best currency trading for your needs.

Doji Candlestick

I ran across this great article today.  This is truly an effective and simple strategy.  I really like how this trader uses the “doji pattern” to make decisions when trading.  If you don’t know what a doji is, it is a bar that has an open and close point at nearly the very same spot.  It looks like a plus sign on the chart, so it’s easy to spot.  If you aren’t sure what I’m referring to, then do a quick “Google Image” search on “doji candlestick” and you can see what they look like. – Ann

Day-Trading With the Power of the Doji
By Michael J Parsons

Early in my trading career while I was still rather naive I paid for a course on a trading method based on an “inside bar”, which is a bar that has a lower high and higher low than the previous bar. I thought that the method looked promising and the idea seemed rather simple, once price exceeds the high or low of the inside bar then you would buy or sell. A stop would then be set just beyond the other side of the inside bar. Unfortunately, even though price would often might break the high or low price it still tended to consolidate afterward rather than make a strong move. It obviously wasn’t as definitive of a move as I was originally led to believe. Additionally, the entry placed the trade entry late in the move and when the trade did fail, which was often, it would result in losses that were a bit rich for my taste. Particularly when they were repetitive. It did not take me long to abandon this form of trading.

In time I also learned about another bar called the Doji, which is used in candlestick charts. Although candlestick methodology uses this bar in quite a variety of combination s that made learning rather complex, I did take note of one very simple way it could be applied and returned to the earlier concept of trading the inside bar using the Doji bar instead.

A Doji bar is simply defined as a price bar with a similar open and close. On a chart it looks very much like a plus sign as used in mathematical addition. Often it is an inside bar, but not always. What makes this bar unique is that the open and close are typically the exact same price or at least extremely close, so it is easy to identify and find on a chart. Because it begins and ends with the same price it acts as a minor equivalent to a support and resistance level. It was this very fact that gave the Doji a higher rate of success when using the rules of the inside bar method. With a definitive price level the likelihood of violating it after price had chosen a side was very small. This reduced the failure rate dramatically.

As with any support and resistance level, the Doji open/close price can be used to signal an entry based on the direction that price gravitates away from that price level. A higher move would signal a buy and a lower move would signal a sell.

If price moves above the Doji bar high then buy

If price moves below than the Doji bar low then sell

Even better than this, an earlier entry can be made if price has already demonstrated a propensity for trending and the Doji itself is the recent high or low of the trend.

If the market is strongly trending higher then buy at the open if the next bar opens at Doji closing price or higher.

If the market is strongly trending lower then sell at the open if the next bar opens at Doji closing price or lower.

When a market is already in a strong trend then a Doji will typically result in only a momentary consolidation followed by a continuation of the prior trend. Statistically, this is what the odds favor so entering as early as the following bars open will usually result in a profitable position very quickly. A stop can be placed just beyond the Doji bar high or low which is typically within a very close range, so loses are kept at a bare minimum if the trade should fail.

Although entering on the following bars open will have a higher percentage of failures where your stop is activated, failures are still rather infrequent.

This is a simple strategy that is easy to learn and implement without interfering with any other trading approach. Keep it in mind the next time you see a little plus sign show up on your chart. It could be telling you its time to add some money to you account.