The use of stock indices in Forex trading
Fundamental analytics of the foreign exchange market is effective for long-term and medium-term trading.
Such an analysis involves more than just a review of macroeconomic factors.
Because news reports do not always reflect reality. There are also more effective methods for predicting quotes of currency pairs, we are talking about stock indices.
Relationship between the currency and stock markets
Liquidity providers for Forex brokers are large investment companies or commercial banks.
• industry;
• IT technologies;
• GDP;
• Central Bank interest rate;
• business activity indices, etc.
The average profitability of an industrial sector is calculated based on the value of the assets of the largest enterprises in this industry. These data are accurately reflected by the Dow Jones stock index, which includes the assets of 100 large companies in the industrial sector of the US economy.
The dynamics of development of the financial sector of the US economy can be assessed through quotes of the NASDAQ Financial -100 index (includes financial corporations and large investment companies), and the level of technological progress and growth of information technology through indicators of the NASDAQ 100 (companies specializing in the development of IT technologies and promising startups). projects).
Thus, it turns out that the state of the US economy is mainly calculated through stock indices.
The state of the economy and the level of demand for the national currency determine the value of the monetary unit. Consequently, Forex quotes directly depend on stock indicators. Analytics
From the school algebra course, everyone remembers the method of calculating arithmetic averages. When forecasting Forex quotes, it is important to take into account the following factors:
1. Data published in the economic calendar (GDP, interest rate, as well as indices of consumer and industrial activity).
2. Quotes of the NASDAQ Financial -100, NASDAQ 100, Dow Jones index (Nasdaq biotechnology indicators are not taken into account, since such structures do not have a significant impact on the formation of the Forex dollar exchange rate)
From the data obtained, a table should be compiled and the prospects for the development of the value of the US national currency should be determined. When calculating, priority attention should be paid to the dynamics of the Fed interest rate over the past 6 months and the chart of the Dow Jones index. Other data is auxiliary.
Practical application in trade
The EUR/USD currency pair, despite its popularity, is not the most effective tool for making money on Forex.
With the mentioned fundamental approach, it is better to give preference to assets in which USD is in the numerator, that is, it is the base. The second currency should be significantly inferior in terms of international demand. After conducting an analytical review, you should find the best point to open an order using technical analysis tools and candlestick patterns:
• search for reversal patterns;
• identifying divergence using oscillators;
• drawing trend lines and local levels.
Contrary to the naive expectations of novice traders (lovers of arrows on the chart), these analysis methods remain the most effective.
The search for signals is carried out on the H4 or D1 time frame.
Stop Loss at the nearest local level. Potential profit of at least 500 points within 1-2 months (depending on trading volumes and the selected currency pair). The practical application of fundamental analysis in trading will significantly increase its efficiency.
The dollar in Forex is the basis on which the value of other monetary units largely depends. Therefore, fundamental analysis should begin with the USA.