Today’s traders not yet long on the USD must be yelling at the charts, “Wait for me!” It is not too late to jump aboard, although the trend is out. If the Non-Farm Payroll, NFP, comes in between 165-200K and the unemployment rate at 7.9%, you should maintain a neutral to slightly bullish stance. You can open the 5-minute chart, wait a few minutes to see if there is a dip and go long. You could price in long positions on dips to 95.58 and 95.47 respectively, as the price target or trailing stops at 96. If the NFP comes in below 165K, you must expect a short-term bearish move. Bring up a daily chart and consider making a longer term trade while preferring to wait it out for an attractive entry point at which to go long. You could wait for a potential dip to the former resistance of 94.86, or, if the market sees high volatility, wait for another correction to support at 93.55. This is where the bullish trend line and the 20-day moving average appear set to converge upon each other. If you are reluctant to follow the above advice, another option is to open short positions with a stop-loss order at a purely psychological barrier of 96 and price targets at 94.86 and 93.55 respectively. This has a very attractive risk-return. If the USD/JPY does not prove to be too exciting a venture right now, realize EUR/USD has every potential to be a rollercoaster ride. You really should not get carried away. The Fed will not consider the jobs market to be strong enough right now, as the US economy is expected to need 250K new jobs per month to bring true unemployment down. Although positive data led to higher appetite for risk taking and a bearish dollar, you can consider the correlation now reversed. You can now expect a positive jobs report to have a positive impact on the dollar. Monetary policy is the impetus behind the forex market so positive data will re-spark the Fed into making what possibly will be hawkish sentiments. The EUR/USD is finding bullish support after ECB President Mario Draghi had a neutral tone in his releases in recent weeks. Regardless, investors should expect the rising currency to be capped by Italy’s turmoil, weak economic indicators, and also by the fact that Draghi stated he has an eye on the exchange rate. Additionally, you would need to rise above the idea that the risk appetite will not be bullish for the EUR/USD. This is a very dicey decision requiring a crystal ball. You might prefer to trade the NFP reaction on the USD/JPY, instead of risking the volatile EUR/USD. Japan has shown an unwavering commitment to easing and the bias, fundamentally and technically, is for a bearish yen. This is much more comforting than the EUR/USD status both now and as expected in the near future.
Fundamental and Technical Analysis
Financial analysis mainly falls under two broad categories: fundamental analysis and technical analysis. These two types of analysis are the primary methods used to predict the movement of prices on financial markets, but they are very different from each other. Fundamental analysts are concerned with basic economic factors while technical analysts study the history of price movements of assets. These may be two separate schools of thought, but nowadays smart analysts have begun merging them in order to increase the accuracy of their insights.
A Basic Comparison
When analyzing an underlying asset, fundamental analysts and technical analysts approach the task from different angles. A fundamental analyst usually begins by examining the financial statements of the business to determine its approximate value. After making the necessary calculations, the fundamental analyst then compares the value of the company’s stock to the value he or she obtained from the statements. Stocks that trade below this value are considered sound investments while stocks that trade above this value could mean trouble.
Meanwhile, technical analysts believe that it is a waste of time to look at a company’s financial statements because the value of the company is reflected in its stock price. Technical analysts are certain that everything required to make an accurate prediction can be found in a stock’s historical price charts.
Timeframe Differences in Fundamental Analysis and Technical Analysis
Fundamental analysis and technical analysis may both be viewed as useful, but many traders agree that their strengths depend on the timeframe of an investor’s strategy. Fundamental analysis is considered to be more useful for long-term investment strategies because it can take years for a company’s intrinsic value to show up in the market. Investors must often wait for long periods before a profit is realized. Fundamental analysts believe that the risk of investing over the short term is too high but that the risk eventually falls over the course of a longer timeframe.
The long-term approach of fundamental analysts is a reflection of how the method operates. Financial statements are only released on a quarterly basis, and it can take time to calculate the latest earnings per share (EPS). In addition, fundamental analysis depends on how a business is operated, and when a business attempts to change or improve its position by implementing new strategies, it can take time before the fruits of these labors emerge.
In contrast, technical analysis can be performed over the short term. Charts are available to be studied on several timeframes, including weeks, days and even minutes. Financial experts state that technical analysis is best for investors who are concerned with making a profit through trading instead of making a profit through investing. In short, an investment is made in the hope that an asset will increase in value over time while the profit from trading is realized by selling an asset at a higher price regardless of its intrinsic value.
Merging Fundamental Analysis and Technical Analysis
Many financial experts believe that fundamental analysis and technical analysis cannot be combined because they approach the subject from incompatible angles. However, a new breed of analyst has already begun to merge the two methods and achieve respectable profits.
Most of these analysts use one of the methods as a primary strategy while the other is used for supplemental knowledge. For instance, a fundamental analyst may use technical analysis to determine the most profitable time to enter into a new investment. In addition, a technical analyst may take a look at a company’s financial reports to strengthen an analysis in which some doubt exists.
Binary Options analysts, including the esteemed team at Banc 54, utilize all tools – fundamental and technical – available to them to reach their conclusions, giving clients the most concise information possible. For more information on these analysis techniques, contact your broker directly.
The Psychology of trading
Investor psychology can be a powerful force in the markets, driving asset prices up beyond any reasonable expectation of value, and keeping them there until long after most investors have given up on any hope of a reversion to the mean. On the flip side, the madness of crowds can drive asset prices down far enough for smart investors to identify bargains and make a rewarding profit. The challenge is to develop and stick with a rational plan of action even when markets are at their most irrational.
As an investor, your most important task is to identify how your emotions are influencing you, and to make sure that you change them from a dangerous enemy clouding your judgment into a powerful ally guiding your insights. Investors who are passionate about trading can sleuth out the kinds of bargains that make fortunes, as long as they don’t get carried away. As the saying goes, you don’t have to be completely accurate, but you can get very rich just by coming close.
The process of protecting your investments from your emotions starts with writing out an investment plan. In this first step, you should decide how much you are willing to pay for an asset and when you would be willing to sell it to realize a profit. Most importantly, define how long you are willing to wait and how much you are willing to risk before it is time to write off the investment and realize a loss. It is important to develop this plan in a detached, logical state of mind so that you don’t succumb to the market hype that could lead you astray in the heat of a trade.
Writing out an investment plan to define your entry and exit points is easy compared to the second step — actually sticking with your original plan in the face of unexpected developments. It can be tempting to ride out a lucky streak for a little too long, or to cave in to panic and exit a trade the moment it starts moving against you. But that’s why you should detail your plans ahead of time. It’s painful to watch other investors continue to profit from a trade that you’ve walked away from, but it’s even more painful to get completely wiped out because you stayed in a trade for too long.
Over the course of several investments, you will have developed a track record that you can review for accuracy. If you keep an investment log or journal recording why you entered into specific investments, and how you expected them to unfold, you can compare your expectations to real-world results and identify patterns in your thinking. The third step in a long-term investing strategy that protects you against your own emotional shortcomings is to analyze these patterns to understand your investment strengths and weaknesses.
By refining your investment process over time, applying your strengths and compensating for your weaknesses, you can realize long-term gains by knowing when to follow the herd and when to avoid getting trampled.