Education

Look beyond the chart

Add some news to your trading

Forex
trading or any type of CFD and non-derivative trading requires an immense
amount data. The stereotypical image of a trader sitting in front of a six-screen
array with the Wall Street Journal and the New York Times opened on their desk,
exists for a reason.

If
you go into most brokerages small or large (but respectable of course we aren’t
talking unregulated or less-than-legal ones) you will likely see one or
multiple televisions playing Bloomberg on loop. Trading requires
an immense amount of data. Please excuse the repetition. 

Look beyond borders

In
this global economy international events can have diverse and far-reaching
effects. For example, some analysts believe the Arab Spring was a result of
laxed monetary policy in the U.S. A ramp up of “currency
production
” – caused increased commodity prices. This in turn caused
prohibitive prices which cultivated discontent – resulting in the uprising.

This
effect though was twofold – as the instability in one of the most oil rich
regions in the World, caused the price of crude to increase also.

You
can see how one effect – monetary policy or quantitative easing- can affect
multiple markets some loosely correlated and on the other side of the world. The
scenario I presented you to for example affected currency, energy, government
bonds and index markets. 

Look beyond charts

I
think no better example exists of how something that normally should have no
effect on the markets actually does today – Twitter. Granted it’s the specific
Twitter feed of one of the leaders of the free world, but none the less we have
seen the markets react to a certain somebody’s social media postings. It’s a
reality no matter how surreal it seems.

If
you have time, Bloomberg designed a very interesting and interactive page,
which shows the Dow Jones industrial average, during certain of Trump’s tweets
which mention development and the economy.

This
isn’t the only Twitter account you should be watching though; most central
banks have Twitter accounts:

Not
only are these accounts a great source of data and for the third time now: trade requires an immense amount of data, but
you could even possibly extrapolate which tone the Central Bank is pointing
towards – hawkish or dovish.

Financial news is better than charts

This
is arguably the most contested matter in the world of trading, what is more
effective at predicting market movements; technical or fundamental analysis? This
study
showed information taken from news sources is 56% accurate at predicting the directional
movement of an underlying asset and market volatility.

While
this study
postulates that algorithmic trading (which has gained popularity in recent
years) for the prediction of index movements, generally only works on a smaller
time scale, finding an absence of correlations at large time scales and has
random process consistency.  

Another
great example of this is the July 13th news that Theresa May intends
to keep trade relationships with both the EU and the US – but is unlikely due
to Brexit and U.S. sanctions on the EU. That same day, the GBP started experiencing
a significant drop – due to a visit by President Trump which brought into
question Brexit and it standing as an obstacle to a potential US/UK trade deal. 

They are all tools

Ultimately,
all forms of analysis are tools – sometimes you need a screwdriver, sometimes
you need a hammer, even when you have a great multitool in your pocket. Don’t
completely commit your analysis and strategy to one methodology. For the last
time trading requires an immense amount of data.

Trading
with the right broker can offer not only the right tools to get a deep
understanding of the market, but also conditions that are beneficial to you the
trader. Fixed spreads means that even during peak volatility your spread will
remain unchanged, institutional tools adapted for the retail market – such as dealCancellation
which allows traders to undo losing trades.

easyMarkets also offers a
completely new trading product called easyTrade, which
allows clients to trade with zero spreads, no margin requirements, with known
and predefined maximum risk. 

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