Being an Effective Trader.
In order to become an effective trader, you will need to know how to effectively use these three types of market analysis.
Let us give you an example of how focusing on only one type of analysis can turn into a disaster.
- Let’s say that you’re looking at your charts and you find a good trading opportunity.
- You get all excited thinking about the money that’s going to be raining down from the sky.
- You say to yourself, “Man, I’ve never seen a more perfect trading opportunity in GBP/USD. I love my charts. Now show me the money!”
- You then proceed to buy GBP/USD with a big fat smile on your face (the kind where all your teeth are showing).
- You take a selfie of this big grin and post it on Instagram.
- Then you do a happy dance and post that on TikTok.
- But wait! All of a sudden the trade makes a 100 pip move in the OTHER DIRECTION!
- Little did you know, but the UK just gave an FU to the EU.
- Since you just look at charts, you have no clue WTF an EU is. So you Google it.
- You learn that it stands for the European Union, which is an economic and political union involving 28 European countries, that allows free trade, which means goods can move between member countries without any checks or extra charges.
- OMFG! You now just realize that it’s probably serious if the UK wants to do this. Their economy could be devastated. Lots of people might lose their jobs.
- Suddenly, everyone’s sentiment towards Britain’s market turns sour, and everyone trades in the opposite direction!
- Your big fat smile turns upside down and you start getting angry at your charts.
- You throw your computer on the ground and begin to pulverize it. (taking a photo of it and tweet it out.)
- You just lost a bunch of money, and now your computer is broken into a billion pieces. (But your tweet now has a million likes.)
- And it’s all because you completely ignored fundamental analysis and sentimental analysis.
That is why part of our trading protocol is to first check ForexFactory.com to see if there may be an upcoming news event (news events are fundamental analysis) so we can trade around it.
(Note: This was not based on a real story. This did not happen to us. We were never this naive. We were always smart forex traders… From the overused sarcasm; we think you get the picture.)
Ok, ok, so the story was a little over-dramatized, but you get the point.
Remember how your mother used to tell you as a kid that too much of anything is never good?
Well, you might’ve thought that was just hogwash back then but in forex, the same applies when deciding which type of analysis to use.
Don’t rely on just one.
Instead, you must learn to balance the use of all of them. It is only then that you can really get the most out of your trading.
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