Foreign Exchange
FORMS OF TRADING
As long as there are different strategies to analyze the market and make trading decisions, traders will always have different opinions on which strategy is the most effective.
We’ll be learning the various forms of analysis today.
I will explain what works for me; and if it sits right with you, you can adopt it when you start trading.
There are basically two forms of analysis in Forex:
*FUNDAMENTAL ANALYSIS*
&
*TECHNICAL ANALYSIS*
Note them down!!!
Let's start with the first
*FUNDAMENTAL ANALYSIS*:
This is also known as News Trading. Here, you analyse the Forex market in respect to the News (also referred to as fundamental indicators, *designed to provide central banks, governments, investors and traders with a view of the state of the economy.*)
These fundamental indicators cover every aspect of the economy including employment rates, housing, interest rates, exports, imports, consumption, production, commodities and prices.
This News can be accessed via forexfactory.com, dailyfx.com, CNN, Bloomberg, CNBC and other news platforms.
Also, the MT4 app has a News Section that contains the summary of the news.
As a Forex trader, you can generate income whether the news is positive or negative.
You just need to know when to go long or when to go short (I hope you recall the meaning of this).
As I once mentioned, it is possible for everyone to make profit from the same trade at the same time.
As long as the news is rightly interpreted by everyone and the same trade is made, then everyone will make profit.
A traders profit doesnt hinder anothers (this is why we have traders that sell signals.
A signal is simply a piece of information that guides you on the trade to make).
Those that were into Crypto Trading from 2016 upwards would say profit is only made when a coin appreciates but recently some crypto exchanges have improved.
This is not the case in Forex as profit can be made whether a particular currency pair is trending upwards or downwards.
When a currency pair is appreciating, we go LONG on the pair.
When a currency pair is depreciating, we go SHORT on the pair.
Remember, to go *LONG* means to Buy
While
To go *SHORT* means to Sell
Though the news is released daily, there is a particular news release that is vital to forex traders.
Some call it The Big Bang but generally, it is called Non-Farm Payroll (NFP).
It is released by the United States of America and it causes the highest volatility in the market.
*What is NFP?*
*Please pay close attention and dont let the lecture bore you as it would be a major foundation in helping you decide what to trade*
NFP contains various data and statistics released by the United States Bureau of Labor and Statistics.
It is very influential as an indicator of the state of the US Economy that the US Federal Reserve makes monetary policy decisions based on this data.
Hence investors, financial analysts, forex traders and stock traders make trading decisions based on the News.
It is released every 1st Friday of the month by 8:30am EST i.e 12:30pm GMT, 1:30pm WAT (Nigeria Time) or 2:30pm South Africa time.
The data released includes:
1.) Non Farm Payroll increase:
This is the number of new jobs added in the US labour sector in the previous month.
It contains employment in the manufacturing sector, construction sector e.t.c excluding farm workers (hence the name), private household employees and non-profit organizations.
It is usually compared to the previous data. For example, say the news released on *Friday, 3rd of July* contains the number of new jobs added in *June*
2.) Unemployment rate in the US
3.) Sectors of the economy these jobs were added to
This is important because it gives investors and traders information on the advisable sectors to invest in; as the sectors that added more jobs would have most likely grown.
4.) Average hourly earnings of the workers in the US
This is also an economic indicator.
If the number of workers remains the same while their earnings increase, it will have the same effect on the economy as though their number increased and vice-versa.
5.) A revision of the previous non-farm payroll.
This enables easy comparison and helps to know whether there has been an improvement in the economy or otherwise.
Let's get to how to interpret the data it contains
*INTERPRETATION OF NFP*
When more jobs are created, it is an indication that business ventures are growing.
Remember that newly employed would receive payment and this means more people would have money to spend on goods and services.
This, in turn, contributes to the growth of the economy and vice-versa (less job creation, dwindling economy).
Also, the US government pays the unemployed citizenry some stipends.
The more jobs are created, the less the number of unemployed citizens the government supports financially; and those funds are applied in boosting the economy.
This is a summary of what NFP entails and why it affects the volatility of the market.
Most forex traders avoid social events on the first Friday of the month in anticipation of the NFP and to be able to take advantage of the temporarily high volatility it imposes on the market.
Its so important that you should trade it even when on the sick bed or park if youre driving when its released.
Some traders trade once a month, funding their accounts only to trade NFP.
It is possible to make the average Nigerians annual income in one NFP trade because of the high volatility it causes.
Let's move on to the next form of Analysis
*TECHNICAL ANALYSIS*
*TECHNICAL ANALYSIS*
This form of analysis entails making trading decisions using Indicators, Charts, Patterns, Candlesticks, Fibonacci, Support and Resistance, Pivot Points, Elliott waves e.t.c.
Technical Analysis is the most popular form of analysis.
Highly volatile news are not released daily so regular traders can't depend solely on Fundamental Analysis.
If you intend to be a regular trader, you must learn how to trade the market using Technical Analysis.
Among the 2 major Forms of Analysis, none is superior to the other nor used in Isolation.
As we move on, well see how to harmonize the two to constantly keep you on top.
The next topic on our outline is
*CURRENCY PAIRS*
*We are now getting to the practical aspects of this training where you all would see what traders do online.*
If you havent downloaded the MT4 app, please do that. Download all the other apps listed earlier
We will continue the training tomorrow; starting with this topic.
