Using fundamental analysis in practical Forex trading
Forex trading is based on two methods of studying the market - technical and fundamental analysis, and although the latter option seems easier to use, it raises a lot of questions.
At first glance, it seems that there is nothing simpler than, after the release of the next news, to take and open a trade in the direction of the trend, but in fact, the market does not always behave correctly, and the price moves contrary to any logic.
Therefore, if you want to trade Forex most effectively, you should follow a few simple rules for opening and closing transactions, taking into account fundamental factors.
Market entry and fundamental analysis
The main point when trading Forex has always been entering the market, but at the same time it is necessary not only to choose the right direction of the transaction, but also to take into account the risk of a trend reversal.
It makes no sense to take a position right before the release of important news, since if this news causes a trend reversal, the transaction will be closed with a loss.
If it contains events that are predicted to cause trend reversal It’s better to postpone entering the market and wait for the news to come out. In this case, an exception may be the moment when the indicator in the forecast column corresponds to the selected direction of the transaction.
For example, you are working with the euro/dollar currency pair, for which there is an upward trend, and in a few minutes a message about US GDP will be released, and in the “Forecast” column there is an indicator (-0.5%), which means that this message will further weaken the US dollar. In such a situation, you can safely open a buy deal, but at the same time monitor the release of the news, and if the experts’ forecast is not confirmed, close the deal.
Closing positions.
News can also serve as a signal to end trading if it increases the risk of a trend reversal. You can get information about the release of this or that important news on financial news sites, or the Forex broker’s news feed directly in the trading platform:
This method is quite effective as it allows you to track news directly in the trading platform. In this case, you can immediately determine how the trend reacted to the event and quickly open a new position.
news indicator can also become an alternative source of signals ; it also broadcasts the most significant events; it is better to compare both options and choose the most interesting one for you.
For example, you opened a buy deal on EURUSD, and unfavorable news regarding the European Union appeared in the news feed, in this case it is better not to wait for the stop loss to be triggered, but to close the order yourself.
Similarly, you can build an entire strategy for trading on news, using the principles given in this article in trading.