A lot of factors come together in determining whether one would have success with trading or not. One of these key factors has to do with the fundamental analysis of currency trading. Aside political influence, how a country’s economy is faring has a direct relationship with the strength of the said nation’s currency.
I am more of a technical trader as I have a bias on price action, but I always consider fundamentals in my analysis. Fundamental analysis are way unpredictable than technical analysis; but when it is singled down to the economy, we can always use the economic calendar as a guide.
At the beginning of every trading week, I do well to check the economic calendar if there is any kind of high impact news. Last week, I committed a basic trading mistake per my trading rules. I was so busy over the weekend that I forgot to pull up my trusted economic calendar, to see when to avoid the markets and when to embrace them.
So Monday was a holiday in the States, and the European Central Bank (ECB) had a sitting on Thursday and I had no wind of it.
The usual me would not enter a trade on a holiday and with a key economic release from the (ECB); I would have sat through the outcome before touching the Euro. Even as I had EURUSD included in my weekly watch-list; it was part of my picks of the week and I took a short position on the holiday.
After some hours I came to check on my trade only to realize the markets were not moving much. That was right when it dawned on me to pull up my economic calendar to see what was really up. I had already committed to a position so I had to sit through the choppiness until Thursday, before I realized some sort of profits. This would have been avoided if I had updated myself with news from the economic calendar.
How Fundamental analysis is the driver of the markets.
I noted that I consider fundamental analysis but I do that in the sense that I avoid it. I always want to know when a high impact news is scheduled in order not to trade at such times. This in no way means that the fundamentals are useless.
In fact, without economic news releases and other fundamentals, the market would not move an inch. This is the reason why the British Pound has been the most volatile currency this January; whereas the rest are making choppy moves.
The most liquid pairs for this month are GBP pairs because Brexit is fueling the movements. Now that is the power of the fundamentals.
Technical analysis to me is the way to go because it has a higher degree of certainty than trading based on the news solely. If you are a news trader and you have had no edge with it, you might want to reconsider your ways. In a perfect world, positive outcomes produce bullish moves, negative outcomes produce bearish moves and expected outcomes lead to quiet markets.
Sadly, we are not in a perfect world. Fundamental analysis trading based on high impact news brings out the following results.
- A positive outcome can produce a bearish move/ quiet markets
- A negative outcome can produce a bullish move/ quiet markets
- An expected outcome can produce a bullish/ bearish move
- No matter the outcome, bullish and bearish moves may alternate in a matter of minutes (spike)
When there is a spike, traders who straddle the news are caught in a limbo. Straddling the news is a strategy employed by fundamental traders who do not care about the outcome of the news. Rather, after consulting their economic calendar, they set buy stops and sell stops simultaneously on pairs that the news would affect.
This way, when the outcome produces a one directional move, they would experience profits. I have done it before and had some luck with it, but it was not worth it in the long run.
A fundamental trader after checking his economic calendar has to be strategically positioned to accept all the above instances before he finds his edge.
The simplicity of technical analysis with price action as against fundamental analysis.
On the technical side of things, I check my economic calendar to mostly stay out of the market until the outcome is certain. With that said, there are exceptional cases where I trade the news. There are some days where there would be a favorable setup on a pair, right when some news is up next.
I trade and get it right most of the time in such a situation. As to why technical analysis coincides perfectly with fundamental analysis at such times, I cannot explain. If you have been trading for a while, you might have realized that as well.
When you are a technical trader the following are the results you expect;
- Support or resistance level must hold
- Support or resistance level must break
- Retests could occur on broken levels
As simple as that may seem, it still takes a lot of skill and experience to execute trades based on that.
The cons are:
- Support and resistance level may hold for a while only to break fiercely
- Break of support and resistance levels might be false.
Considering these technical instances as opposed to the fundamentals, you do realize that the instances in technical analysis are way simple. However, simple should not be confused with easy. If you’re new to technical analysis, you can learn more about how I analyze here.
Economic calendar news you need to know about to stay ahead.
The economic calendar I use to protect my account from bleeding from high impact news is the one offered by investing.com. I actually use their mobile app for convenience; and I have filtered my news preferences to high impact news from countries of interest only. When you pull up the investing.com economic calendar; you have the options of viewing past, current and future economic news schedules.
Legend: 3 bulls represent high impact news, 2 bulls represent medium impact news and 1 bull represents low impact news.
If I totally avoid the news, then I would not trade at all because most of the time, there is various economic news every single day. I am only cautious when there is high impact news.
Rules that can safeguard your account when there’s high impact news
- Never jump ahead of the news. Do not try to predict the outcome.
- If you are in a trade that is in good profit before such news, make use of the trailing stop.
- If you are not in a trade, wait until there is a 4 hour or daily candlestick closing before you consider an entry. And that is only if there’s a setup.
“All animals are equal, but some are more equal than others” – George Orwell, “Animal Farm”. News on the economic calendar are not given equal importance, and I tell you why below.
Super high impact news.
Central Bank Interest Rate Decision, Employment Rate, Non- farm payroll and Speech from the governor of a Central Bank are the highs among the high impact news. In fact, when you see any of these on your economic calendar, it pays to sit on your hands most of the time.
Mid high impact news.
Gross Domestic Product (GDP) and Consumer Price Index (CPI); they are very capable of tumbling the markets.
There is this kind of high impact news which I do not really mind trading through; though they have the capability of moving the markets in awe. These ones are Retail Sales, Producer Price Index, Crude Oil Inventories and many others.
Breaking News or unexpected news
This is not on the economic calendar and nothing can be done about it because they are most unlikely. They are one in a million occurrences. They come in the form of wars, natural disasters, “impeachment, resignation, assassination or death of a powerful world leader”, and all the wild guesses you can add.
For a fact, the high impact news you need to know about are the ones which I have mentioned here. You will come across a lot of them when you pull up your economic calendar; they are not as standard as the above-mentioned.
It is a long standing argument between traders that; between fundamental analysis and technical analysis, one is important than the other. Though I love the technical side of the markets, I would say they complement each other. And I would add that, it pays to master one and have a rough knowledge about the other.
I’d end by saying, do not be like Trader Raymond; he forgot to check his economic calendar and almost lost his edge.
This is as far as it goes. If you have any experience with direct news trading, I would love to know about it in the comment section.