By Steve Misic, Online Trading Academy XLT-Forex Trading Instructor
So much information comes at a trader during the course of the day. Much of this information is conflicting. The decision to buy or sell becomes a challenge. Information overload can harm your ability to become a consistent trader. The goal for a trader is to organize all the information into some kind of actionable strategy to become a complete trader. A complete trader of any market uses both key fundamental data and technical analysis to focus on the execution of his or her trading plan. Today we will discuss the necessary fundamental and technical data that a complete Forex trader needs to focus on. While this information is geared toward longer term trend trading, it is necessary for a more active Forex trader to understand in order to determine if the trades being taken are with the major trend, or counter to the major trend.
No question, fundamental information about the strength or weakness of a country's economy is the driving force behind the bullish or bearish consensus of thought of the traders that trade the currencies of these countries. Money will flow into the countries that have a strong economy. This will show up in the form of a new uptrend on a price chart as more and more money flows into the country to purchase assets and therefore, increase the demand for that country's currency. One such currency that recently began a strong uptrend against all the major currencies of the world is the Australian Dollar. The fundamental reasons are improvement in China's economy leading to recent strength in the commodities that Australia exports, very few mortgage defaults, and most important, the highest interest rate among the top economies of the world.
Central Bank |
Next Meeting |
Last Change In Rates |
Current Interest Rate |
The Reserve Bank of Australia |
Jun 02 2009 |
Apr 07 2009 |
3% |
Bank of Canada |
Jun 04 2009 |
Apr 21 2009 |
0.25% |
Bank of England |
Jun 04 2009 |
Mar 05 2009 |
0.5% |
Bank of Japan |
May 22 2009 |
Dec 19 2008 |
0.1% |
European Central Bank |
Jun 04 2009 |
May 07 2009 |
1% |
Federal Reserve |
Jun 24 2009 |
Dec 16 2008 |
0.25% |
Swiss National Bank |
Jun 18 2009 |
Mar 12 2009 |
0.25% |
Figure 1
In addition to understanding the fundamentals, the complete Forex trader uses a chart because long before the true reasons for a trend move become known, the hints or signs of the intentions of the traders will be visible on the chart if the trader knows how to read the clues. The weekly chart of the Australian Dollar versus the US Dollar below was showing signs that traders were moving money into the AUDUSD well ahead of this recent uptrend. After the September 2008 sell off due to the worldwide credit crisis where fear drove money into the safe haven US Dollar, the AUDUSD began to base and trade in a range in October 2008 between .6007 and .7237. The weeks that followed of sideways action featured a chart pattern called the symmetrical triangle which is an indecision pattern. As certain traders were selling as indicated by the lower weekly highs, the AUDUSD buyers were paying higher prices for the AUDUSD as indicated by the higher weekly lows. The week of March 13, 2009 is when the AUDUSD traders made the decision on the next direction for the pair when the AUDUSD was able to close above the downtrend line of the symmetrical triangle. This breakout was ahead of the scheduled April 7th, 2009 Reserve Bank of Australia interest rate decision, and a week after the panic lows in the world equity markets.
AUDUSD Symmetrical Triangle
Figure 2
The first week of May 2009 was when the AUDUSD broke out into a new Stage 2 uptrend by closing above the 2009 highs. This was also a break of another weekly chart pattern called the ascending triangle. By this time, all the fundamental data was being reflected in the charts, and most currency traders are aware of the strength of the Aussie.
AUDUSD Ascending Triangle
Figure 3
During our Extended Learning Track (XLT) - Forex Trading classes, we attempt to decipher the clues that the charts are telling us. We also discuss the fundamentals as we work toward developing actionable strategies to take advantage of the various stages of the currency markets. Since the AUDUSD is currently in a Stage 2 uptrend, the best way for swing traders to participate in the trend move going forward is to buy a dip to a new demand level as they form below current price. Moving down to the daily AUDUSD chart shows a new demand level near the daily trend line. A more active intraday trader can find many more demand levels below current price to enter in the direction of the major trend, and several quality supply levels above current price to counter trend trade short. The key to becoming a complete Forex trader is to have a plan before entering a trade based on both the fundamentals and the technicals and then executing the plan. As we move forward each week, we will work toward the goal of becoming a complete Forex trader.
Steve Misic - smisic@tradingacademy.com
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