David Waring

In our last lesson we wrapped up module 3 of our free forex trading course with a look at some of the major factors that need to be considered when trading the carry trade strategy. If you have followed all of our lessons up to this point you should now have a good understanding of the basics of forex trading, the logistics of executing trades on a forex trading platform, and how trade flows and capital flows are the two broad categories of things that move the forex market. In today's lesson we are going to start a new module on the fundamentals of forex trading with a look at the question of should traders focus on fundamentals or technicals in their trading?

As we learned in our free basics of trading course in the free course section of InformedTrades.com, traders analyze any financial market including the forex market in one of 3 ways:

1. Through Fundamental Analysis

2. Through Technical Analysis

3. Through a Combination of fundamental and technical analysis

While which method a trader chooses is ultimately up to them and their trading personality, it is my opinion that a trader who at least has an understanding of both technical and fundamental analysis is in a better overall position to trade profitably, than someone who focuses on only one school of thought.

To help understand this lets say that I am a trader who studies technical analysis and believes that at least in the short term, which is the time frame that I trade on, that technicals are all that matter. Next lets say that I am looking at a chart of the EUR/USD at 8:20 AM on the first Friday of the month, and my technicals are telling me that the trade is a good buy.

If I focused purely on technical analysis then I would probably enter that position not knowing that at 8:30 AM I may be in for a surprise that I was not expecting. As those of you who have been through module 8 of my basics of trading course know, at 8:30 AM on the first Friday of the month Non Farm Payrolls (NFP's) are released, which historically has been one of the most market moving fundamental releases in the forex market.

While I am not saying that a trader who trades on technicals should not take a trade that looks good to them from a technical standpoint because of weak fundamentals, what I think this shows is that technical traders who at least have an understanding of fundamentals have the ability to decide whether or not they should factor in a specific piece of fundamental information or no. In my opinion this gives them a big leg up on technical traders who dismiss fundamentals altogether.

Now lets say that I am a trader who trades a carry trade strategy which trades based off of a model I built to forecast interest rates based on fundamental news releases. Next lets say that my model generates a buy signal at 1.4700 which I have included on the chart on your screen. Would my trading not be better served if I at least knew that there was a major head and shoulders top in place, so technically the market is very weak here?

As with our technical analysis example what I am not saying is that a trader who trades on fundamentals should not take a trade that they feel is good from a fundamental standpoint when the market is weak from a technical standpoint. What I am saying however is that fundamental traders who at least have a basic understanding of technical analysis have the ability to decide this for themselves. In my opinion this gives them a big leg up on fundamental traders who dismiss technicals altogether.

As you have probably realized if you have been following my courses, they are designed to give traders a knowledge of both fundamental and technical analysis because I believe a knowledge of both puts traders in the best position to learn to trade profitably. I also believe that you can't really make a decision if you are going to trade based mainly off of technicals, fundamentals, or a combination of the two unless you have a sound understanding of the basics of both fundamental and technical analysis.

As we have already covered the basics of technical analysis in my free basics of trading course, I am assuming that everyone already has an understanding of this. With this in mind the rest of this course will be focused mainly on the fundamentals of the forex market, which we will start with in our next lesson. If you have not done so already I encourage you to go through module 8 of the basics of trading course located in the free course section of InformedTrades.com which gives an introduction to fundamental analysis.

That's our lesson for today. As always if you have any questions or comments please leave them in the comments section below, and good luck with your trading!

forexer

Hi David,

5hours from now, Obama will take the seat of the White House. Will the USD strengthen against the EUR and GBP? What do you think.

I have a 500k contract EUR/USD buying at 1.29991 and GBP buying at 1.45611.
I'm afraid those will go bearish.

However, i have a 100k contract USD/JPY buying at 89.433. I think this will go bullish.

This, i think will happen if Obama assures the recession status will improve and the world believes.

Please help me... i don't want to have my account balance wiped out...

Hope to hear from you very soon...

David Waring

Hi Forexer,

Glad to hear from you.

I don't make individualized trade recommendations as one of my main goals here is to point traders towards information that will help them make their own trading decisions.

One thing that I will say here however is that from my experience successful traders have firmly outlined reasons for why they enter a trade and why the exit a trade before they get into any live trades. For more on this see the video below:

The 20 Components of a Successful Trading Plan

Best Regards,
Dave

__________________
My Free Courses: Forex Course - Stock Course - Futures Course - Basics of Trading - Subprime Crisis - Prorealtime Charts

Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

forexer

Hi David,

The RBA reduced interest rates to 3.25% on 2/3/2009 GMT. The AUS/USD quote should go down right? Demand for the AUS will fall, weakening it against the USD. However in the chart, you can see clearly that the price is on an uptrend. Is things more complexed than i thought it was? Can you kindly give a brief opinion on why the price is going up instead of down. Or will it decline after a few days.

Another question, i you don't mind,is that as you can see during 1/28 14:00 to 2/2 4:00, the price declined rather seriously. Was this due to the anticipation that the RBA was cutting rates or some other factor.

Lastly,why is there a huge gap in the close and open of the two candles? I thought Forex is extremely fast paced and there should be no gaps unlike stocks.

I sincerely hope that you can give me a opinion on these questions for i really want to understand.

Thanks for the help in advance and sorry to trouble you.

Sincerely,
Forexer

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Sri

Hello David,

Very nice videos! I accidentally found the whole series. I am catching up with the videos and it is good that it I can always go back and watch the part I didn't understand.

Thanks again!!

David Waring

Hi Sri,

Glad to hear from you and thanks for the compliment I am glad you like the videos. If you have any questions as you go through the material please feel free to post.

Best Regards,
Dave

__________________
My Free Courses: Forex Course - Stock Course - Futures Course - Basics of Trading - Subprime Crisis - Prorealtime Charts

Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

Sri

Hello Dave,

Thanks again for the videos! I am asking you the question as anyone will ask.....Did you learn all this by yourself?? Just curious sir!!

Thanks
Sri

David Waring

Hey Sri,

No luckily I had a lot of help. You can read about my background and how I got into forex on my profile at the link below:

InformedTrades - View Profile: David Waring

Best Regards,
Dave

__________________
My Free Courses: Forex Course - Stock Course - Futures Course - Basics of Trading - Subprime Crisis - Prorealtime Charts

Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.