Fundamental Trading or Technical?

Which type of analysis will your trading strategy use? Technical or fundamental? Or perhaps a mixture of the two?

Fundamental analysis is the practice of analyzing an asset's intrinsic value based on micro and macroeconomic factors. For example, fundamental analysis of a Forex currency pair might involve evaluating the health of two countries' economies and looking at their central bank's monetary policy for an indication of which direction those currencies will move in.

Proponents of technical analysis subscribe to the theory that every possible bit of available information is already reflected in the price of an asset. They believe that historical prices can give an indication of how the price may behave in the future.

The most successful trading strategies will generally use a mixture of the two. There are certain economic events or announcements that even technical traders will avoid trading around due to the impact this will have on the market, whilst others may flock to the markets during these times.

Credits:Roberto Rivero/edited and audited by Geovany C.Q

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Planning Your Trade Exit

Some traders do not appreciate that knowing when to exit the market is just as, if not more, important as knowing when to enter. Exit too early and you might not realize your profit target, exit too late and you may end up losing more than you should have. Take profits and stop losses are very important tools that every trader must use to manage their risk when trading. But as well as these tools, your trading strategy should include conditions for exiting the market. It might be a certain level of profit or a certain amount of loss. Or just as technical indicators trigger traders to enter the market, there may be another signal which causes them to leave. Credits: Roberto Rivero/e dited and audited by Geovany C.Q

How To Plan Your Market Entry

Now we get to the actual trading itself. The next step to building a trading strategy is to plan what your trigger will be to enter the market. For fundamental traders, this could be something like a change in monetary policy from a particular country. Perhaps when a central bank reduces its base rate, the fundamental trader will take a short position against that particular currency, or vice versa. A technical trader's entry to the market will be triggered by a technical indicator or patterns on a candlestick chart. So In reality, there are a whole host of different indicators that traders can use within their trading strategies. Credits: Roberto Rivero/e dited and audited by Geovany C.Q

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