Technical analysis is crucial to Forex trading – in particular for isolating entries and exits – but still it alone is not enough for devising an all-inclusive trading strategy. Market sentiment in Forex is driven mainly by the geopolitical and economic news. The chief market makers in Forex – hedge funds, multinational corporations, central banks, and the main investment banks – are not concerned with the flag formation in the USD/EUR on the daily charts. As an alternative, they devise their trading strategies by studying the geopolitical developments and economic news in addition to the latest statements of G-8 financial authorities. As a result, the appropriate approach to Forex trading may be summed up as follows: start fundamentally, enter and exit on the technical premises.
According to the common knowledge in the Forex market, Forex traders who have the desire to trade on fundamental basis should focus on long time frames with daily or weekly charts. While Forex traders who want to trade shorter time frames, like hourly charts, have to concentrate on technical indicators. However, this piece of advice can’t be more wrong in Forex. Yet, is it not only feasible to scalp Forex fundamentally, but individual Forex traders actually have an important plus over larger market players when it comes to carrying out their trades.
One of the main positive features of the Forex market is that it trades off of macroeconomic news that is obvious, impossible to fabricate and easily accessible by all market traders simultaneously. The key news that moves the Forex market is governmental economic data such as GDP growth rates, inflation readings, the latest employment statistics and trade balance reports.
On the other hand, playing the expectations game alone is not enough to create money-making trades. This is where technical analysis becomes essential to a winning fundamental strategy. The best, most gainful fundamental scalps take place under technically acute conditions. These highest-possibility strategies are devised when a favorable fundamental prerequisite occurs under technically overbought conditions and vice versa. The same dynamic happens backwards: if currency prices are enormously oversold and fundamental news shocks to the negative aspect, the majority of Forex market makers will hurry for the exits, making a rally of sell orders, which produces a powerful momentum-driven move that can be traded profitably.
Forex trading is a many-sided matter that demands both fundamental awareness and technical know-how. Not only is scalping on economic news feasible, it can be highly profitable – as long as the Forex trader focuses to technicals as well as fundamentals.
Written by A. Collins who is a chief developer of simply Forex strategy ProFx and other forex automated trading software which are available on ForexEAsystems.
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