Fundamental Forex Trading Tips – A Guide for Your Trading WeekOctober 15, 2017
The currency market moves for a reason. While technical analysis gives the direction, fundamental Forex news gives the impulse. This article intends to provide a few Forex trading tips the retail trader can use in any given trading week.
Since the Nixon shock in the 1970’s, the currency market moved freely. At least, that was valid for most of the free-floating currencies.
However, the average Joe didn’t have access to the interbank market. Simply put, the technology wasn’t available.
But, things changed. Since the Personal Computer (PC) became ordinary, productivity increased tremendously.
For the financial market, it meant a new step forward in technical analysis. Most of the trading theories we know today appeared decades ago. Only recently the PC allowed for new ways to interpret the market.
Still, nothing changed the fundamental Forex news like the Internet. Information started to move faster. And, news reached all corners of the world.
For the Forex industry, it signaled the start of a new era. Suddenly, Forex brokers appeared overnight.
It was for the first time the retail trader had access to the interbank market. Looking back, the process had terrific costs.
However, the benefits far outpaced them. A whole new world, full of opportunities, opened to the masses.
With this article, we’ll cover essential aspects for today’s retail trader. That is, we’ll include Forex trading tips to survive a trading week, such as:
- The ins and outs of the Forex trading calendar
- Making the best of the Forex market time
- How to prepare for any given trading week
- How to trade Forex fundamental news
Fundamental Forex Factors in a Trading Week
Today, the ECN (Electronic Communication Network) and STP (Straight Through Processing) technologies allow for rare trading conditions. Only a few years ago, retail traders used a four-digit trading account.
Nowadays, five-digit quotations are everywhere. In fact, it signals the broker’s ability to offer best conditions in the interbank market.
They match the best prices from various liquidity providers. As a result, retail traders get the best bid-ask prices.
However, better execution comes with a cost. While re-quotation doesn’t exist anymore, the broker can’t execute orders flawlessly.
Fundamental Forex news is to blame. Simply put, sometimes the market moves too fast.
As such, the broker will fill a pending order when there is a market. If there’s no market, it’ll do that when it appears.
And, most of the times, this would be at a different level. How to avoid it?
One answer comes from understanding how the Forex market moves. More precisely, how each trading week differs from the other.
Forex Trading Tips in a Trading Week
Like it or not, trading is a game of expectations. And, probabilities.
What are the chances for this to happen? But, no such trade has a hundred percent chances to occur.
As such, a trading plan for the trading week helps. Moreover, knowing your way out before you go in the market helps too.
But, a trading week differs from traders to traders. Or, for different types of traders, the fundamental Forex factors change.
When approaching the market, traders:
- They go in and out multiple times during the trading day, aiming for quick and small profits.
- Swing-trade. A trade can take from a few hours to a few days or even weeks.
- These traders consider the bigger picture. Often, they trade having in mind changes in the macroeconomic fundamental Forex picture.
The Typical Forex Trading Days of a Scalper
A scalper is a technical trader. Scalpers have a precise mechanical system they follow religiously.
Retail traders do scalp the news in a trading week. Here’s a guide offering some Forex trading tips for these traders:
- Look at the major story in the week ahead to influence the Forex dashboard. More exactly, check the red news in a trading week, like:
- Fed meeting schedule to spot the US Federal Reserve interest rate decisions
- Inflation and jobs data
- PMI’s and Retail Sales, etc.
- Trade with the news flow. Fading the initial reaction might be a risky process. It has the potential to affect all trading week’s gains. In doing that:
- First, wait for the news to come out
- Second, look for a pullback into a moving average or oscillator support
- Finally, go in for a minimum 1:1 risk-reward ratio, always having a stop loss
- Don’t keep positions overnight. You would avoid:
- Paying unnecessary negative swaps
- Getting caught on the wrong direction
- Blocking margin in overnight exposure
Forex Trading Tips for Swing Trading
The Forex analysis of a swing trader must consider the fundamental Forex news in a trading week. In fact, significant Forex news signals a potential turn in market expectations.
For example, if inflation is due in the upcoming trading week, it should be the cornerstone of that week’s Forex fundamental analysis. Because traders won’t wait for the central bank to react!
They’ll merely buy and sell based on what the Forex market signals. And, turns in inflation always signal troubles for the unprepared ones.
Here are some Forex trading tips for swing traders:
- Learn to be patient. If patience is a virtue, it is put to the test in Forex trading fundamental analysis.
- Learn to trade Forex having the bigger picture in mind. As such, do your analysis on bigger time frames, like four-hour and daily charts.
- Always look at the Forex economic calendar for the week ahead. As such, you’ll end up trading in the second half of the week, having in mind the fundamental Forex news in the next trading week.
Forex Trading Tips for Investors in the Currency Market
Forex trading for a living implies bigger horizons than a single day. A professional retail Forex trader will have something from every trading style.
It has to. Traders need to make it day in, day out.
Central to any fundamental analysis, Forex investors look at the bigger picture. They interpret:
- Historical charts.
The idea is to prepare the technical picture. And, the fundamental Forex strategy from a macro-perspective.
Next, they look at the fundamental Forex news in any given trading week. As such, traders will use any pullback or spike to add to the original, more meaningful picture.
Finally, their Forex fundamental analysis signals changes in monetary policy. Therefore, they mainly look at:
- Central bank meetings and press conferences
- Significant speeches of central bank figures
- Worldwide political and geopolitical factors
- Elections and other risk-events
- Other markets that may influence the Forex fundamental analysis.
How to Prepare for Any Given Trading Week
There’s no trading week like the other. That’s the beauty of Forex trading and what attracts people to it.
In other jobs/fields, work tends to have a repetitive character. Not when trading financial markets, Forex especially!
We all know the fundamental Forex news for the current trading week. And, for the week to come. And the next one too.
However, we don’t know how the market will react to it. Even though traders do have an idea, it is merely an idea, not a rule of thumb.
For example, let’s think of the Fed and an interest rate hike. Usually, this is a bullish U.S. dollar event.
But, it so happens that sometimes traders sell the dollar on the news. Because the Forex market deals with future expectations, traders will position for the next event.
It happens if the central bank communicates the process swiftly. If in a trading week the Bank of Canada, say, hikes the rates, that’s bullish for the CAD.
If on the press conference the bank signals it was one and done, the market will turn in a blink of an eye.
Recently, all major central banks in the world embraced the forward guidance principle. The Fed in the States was the first bank to introduce the concept.
Under it, central banks pledge to communicate their moves better. The idea is to keep price stability so that the markets won’t react violently anymore.
It is understandable if we think of the fact that automated trading rules today’s markets. Still, the principle ruined the way the market reacts to fundamental Forex news.
It makes it challenging to use Forex trading tips from similar situations in the past. As such, one needs a different approach to every trading week.
Tips and Tricks to use Forex Economic Calendar
It all starts with the Forex economic calendar. Absolutely everything related to positioning on the Forex market begins with it.
The first thing to look for is a significant event for the trading week ahead. If that’s the ECB (European Central Bank) meeting next Thursday, then that’s where the focus will be.
If, say, the Fed’s FOMC (Federal Open Market Committee) Statement is due next Wednesday, that’s when the market will move. Everything before the events will merely mean ranges.
As such, don’t fall for classic traps. Earlier it was mentioned that retail traders come to the market with unrealistic expectations. That’s so true!
If you buy or sell a currency pair on a Monday, and expect two hundred pips profit the same day, that’s not the right approach. The market won’t move, like it or not!
On the other hand, you MAY position on Monday for the main event of the trading week. If it is an NFP (Non-Farm Payrolls) week, the main event will happen only on Friday.
Therefore, look for the trade to cover it. Either the trade is the result of a more prominent time frame analysis, or it will fail.
Of course, that’s true unless you scalp. Swing traders, on the other hand, always look beyond short-term horizons.
Second, merely position accordingly. If a significant USD event comes up the next trading week, maybe the best decision is to avoid the USD pairs.
How to do that? Well…how about trading crosses?
As a reminder, a cross pairs don’t have the USD in its componence. Hence, traders would want to trade them before a significant USD event comes.
Finally, this is only one of the vital Forex trading tips to consider in a trading week. However, most of the fundamental Forex news follow the same path.
How to Trade Forex Fundamental News
Because trading algorithms dominate today’s markets, trading fundamental Forex news is not natural. It deals with understanding how computers “think.”
The thing is that today, with all the programming and computing power, humans still do the job. While robots execute it, humans program it.
Hence, the human factor still exists. Only the execution becomes better and better.
As such, trading news becomes more challenging by the day. Any Forex trading tips from the past won’t do the trick in the future.
Think of how the trading execution changed. Only a few years ago, the EURUSD pair traded with a three-pip spread. Three pips!
Nowadays, brokers offer it for less than 0.3 pips. That’s a huge leap forward regarding cutting the costs for the retail traders.
However, did you wondered why this happened? Technology has the answer.
With better and faster execution, came different account types. And, various risk understanding.
On a fundamental Forex event today, if you trade an ECN account, you’ll have a problem with trades executed during the news. Previous Forex trading tips won’t work.
There’s a reason for that. Before ECN conditions, traders would receive a re-quotation when the market moved too fast.
Nowadays, you won’t receive such a thing. Instead, you’ll get filled at the market.
That is when there’s a market. If robots moved the market beyond your pending order, due to fundamental Forex events, you'd enter at that level. Not at the desired one!
Make the Best of the Forex Market Time
One of the most critical Forex trading tips should do with understanding the game. Oh well, this isn’t a game, in the first place.
Real people with real money come to the trading arena. Everyone tries to make a quick buck, with as little an effort as possible.
However, not everyone makes it. In earnest, most of the retail traders fail.
Reason for that is they don’t understand the market participants. And the forces behind the market.
Moreover, because they fail to understand that, they fail to make the most of the Forex market time.
Keep this in mind for as long as you trade: only because the market is open, you don’t have to open a trade! Some people just feel the need to do something, to open a position.
If it is a trading day, why not buying or selling something? Well, it doesn’t work if you aim at a profit.
Having no position is a position. Sitting on your hands is as good as opening or closing a trade.
After all, it deals with human nature. Who you are as a person and who you are as a trader?
In a trading week, some fundamental Forex aspects matter the most. The market will move surrounding these events.
Believe it or not, the best timing for opening a trade from a swing trading perspective isn’t on Mondays. But, Thursdays and Fridays.
As one of the best Forex trading tips, look at the next week’s events before opening a trade. As such, if next week the Fed will have a meeting, trading on Friday evening makes sense.
That is if you plan on keeping it until after next week’s fundamental Forex event. And so, you’ll make the most of the current, and future trading week.
To survive in this competitive market, one must adapt. Looking at the trading week ahead is one way to prepare for the next battle.
Moreover, it represents a money management strategy. For example, one may be bullish EURUSD from a weekly time frame analysis but won’t open a trade next week.
He/she only avoids some fundamental Forex news before going long. And, he/she will use any dip caused by these events to position for the actual trade.
As such, traders use fundamental Forex events to enter a trade. Or, to find a better entry place.
Even more, traders scale into an existing trading plan. In doing that, they follow one of the most important Forex trading tips ever: avoid the news as much as possible!
But, avoiding news doesn’t mean preventing a trade. Just use a more significant time frame for the take profit and stop loss, and adjust the volume.
To sum up, traders must focus on the trading week ahead. Regardless of the fundamental Forex news, one of the best Forex trading tips says to consider the events ahead, to position for the big picture.
Capital Properties FX
October 15, 2017
"Too Close to State Financing via the Money Press," Der Spiegel, August 29, 2012 Too Close to State Financing Via the Money Press"
"I think that in my job as president": Mario Draghi, press conference, September 6, 2012