Saturday, December 10, 2016

KEY ELEMENTS THAT YOU HAVE TO KNOW AS AN FX TRADER



The market is definitely in constant moving due to its basic supply and demand rules. There are many variables involved but the fact is that when certain currency pairs are in either bullish or bearish trend, it will not easily change its direction unless something happened that switch the key sentiment, or probably when it reached certain overbought or oversold technical levels where majority and big market participants start taking the reverse positions.

But again, it still in constant wave of movement due to its nature of dynamism.

Hence, if you wish to trade the market successfully with minimum margin of errors, you need to consider all the dynamic factors involving the key elements of analysis as follows.

FUNDAMENTAL

1. Any NEWS with regard to the currency origin, be it hawkish or dovish will definitely create the greed vs fear factor that drives buyers and sellers to react.
2. Expectation raised through SPEECHES by the country's President, Prime Minister, Central Bank Chairman's or any key officials will also have the same factor where market will normally react by buying the news.
3. ECONOMIC CALENDAR and data released including NFP, Interest Rates, PMI, CPI, GDP etc will have at least a short term impact on currency pairs movement.
4. SENTIMENT of fear due to sudden economic collapse (e.g. Greece, BREXIT) or terrorist attack (e.g. BRUSSELS Airport) will definitely take a serious toll over that currency pairings.

TECHNICAL

1. Fibonacci Levels - One of my favorite technical levels that I always check on daily basis. These levels are basically make or break levels where price tend to bounce or make a breakout. So always watch out these levels. 
2. Moving Averages - Be it simple or exponential, MA has always been an easy technical indicators for marking the support and resistance levels on any pair. Furthermore, it is one of the simplest form of trend identifier be it on larger or smaller time frames.  
3. Zeros Levels - This is what we call psychological level. I learned about this mainly from Kathy Lien's books on Day Trading and Swing Trading The Currency Market. When price approaching round number especially at 50's, 00 or 000 levels (e.g. EURUSD - 1.0500, 1.0600, 1.1000 or 1.0550), pay extra attention since these are favorite levels where traders put their STOP LOSS, TP as well as pending orders.
4. Previous Top vs Previous High - Also serves as common support/resistance where price either bounce or breakouts when reaching these levels. This is especially obvious on the Daily and Weekly Chart where traders favor to place their BUY/SELL LIMIT orders.
5. Elliot Wave - I am not an Elliot Wave fan in particular, but I do pay attention on the 1-2-3-4-5-A-B-C pattern formation of each bearish and bullish wave. Though not easy to see the exact pattern, I found it pretty useful for my analysis.
6. Japanese Candlestick pattern - This is the basic of all technical indicators. Just google for details. If you do not understand the CS pattern, you better learn them now.
7. Relative Strength Index (RSI) - Also helpful in understanding whether the current pair is already on OB/OS condition. It helps you to plan your trade accordingly.
8. Volumes - Not really helpful but I just use it as simple indication on how active or liquid the market is on that particular days or hours.

MENTAL (Market's Psychology)

1. Fear - When the market is controlled by the BEARS, you can see the price action clearly on the downward trend on any particular days or weeks. For example, GBPUSD has been super-bearish since the BREXIT vote result in June 2016.
2. Greed - Unlike Fear, when the BULLS are in control, you can see the price action clearly towards the upward path. This is clearly seen on the USD/JPY pairs since the US Election day on last 8th November 2016, climbing from 101.00 to 115.00 in a matter of 4 weeks.   
3. Relax - This is seen during holidays when market is illiquid with no major news and key players in the market. Best time not to trade and doing something else. 
4. Ranging/Sideways/Choppy - This is when you see the price are either ranging or choppy, a clear sign of sideways market where BULLS and BEARS share equal strength.
5. Breakouts - This is the moment when you really don't want to be on the other side of the market. Sometimes breakouts can be a fake move, but on another time, it could be imminent and should not be played around. Just imagine if you were going long on the GBPUSD pair on that 24th June 2016 @ 1.5000 levels. Unless you have a deep pocket, holding a long position at such level without having a stop loss would be a very very bad decision. 

Of all the elements highlighted above, the point is that you should be aware and consider them before you take up any trade decision. I knew personally some traders who religiously stick to their technical analysis without even bothering the news at all. I must admit that I am a market technician as well with over 60% of my trades depend on the technical analysis. But still, I believe there is no harm on paying extra attention on other elements as highlighted above.

Just look at what happened on the EUR/USD pair on the 5th until 9th Dec 2016 move. It was climbing steadily from Monday until Wednesday, when suddenly spiking up on Thursday (after ECB Press Conference) and revert its movement back to South until Friday evening, coming back to its opening price level for the week @ 1.05xx. If you were blind on what happened on the fundamental side of the currency pair, you would probably bite your fingers when seeing a good 300 pips profit turned to a loser, or probably breakeven if you put your SL at the entry level.



Till then, safe trade and have a nice week ahead!

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