Weekend Analysis: A Path To Forex Profits

There are three basic reasons for doing a weekend analysis. The first reason is that you want to establish a "big picture" view of a particular market in which you are interested. Doing this analysis over the weekend, when the markets are closed, is helpful because such an analysis can be made when the markets are not in dynamic flux and, therefore, you don't need to react to situations as they are unfolding.

Secondly, the analysis will help you to set up your trading plans for the coming week, which in turn will help you to decide what trading plans you might want to implement. Remember, shooting from the hip can leave a hole in your pocket! Weekend analysis should be more akin to an architect preparing a blue print from which he will take the steps, based on his blue print, to construct the different aspects of the building he's designed.

Finally, the reason for undertaking a weekend analysis is to build a routine preparation method that will help to build a trading plan in the area in which you are focusing so you can establish the necessary mindset for the upcoming week. A good analysis is how you can "psych" yourself up for the oncoming trading activity.

Preparing for the Week
Since this is a forex article, the emphasis is on the necessary preparation for trading forex during the coming week. But the preparatory steps can also be used and are helpful if you trade stocks, bonds or commodities. It's important to remember that none of the markets are actually separate, or trade in a vacuum. All the markets are interdependent, so that in a global economy the purchase of bonds, equities, goods and services all have an effect on the levels of supply and demand for currencies. Therefore, the price levels of the various currencies will vary when money flows around the world as investment searches for the highest and safest yields.

Understand the Drivers
The art of successful trading is partly due to an understanding of the current relationships between markets and the reasons that these relationships exist. It is important to understand the causative factors that are in play at the moment. Remember, though, that these relationships can and do change over time. Once you have a grasp on the existing relationships, then a study of price charts and the statements of the pundits, insiders, brokers and news services can be either reinforcing or ignored depending on your particular reading of the circumstances.

For example, a stock market recovery could be explained by investors who are anticipating an economic recovery. These investors believe that companies will have improved earnings and, therefore, greater valuations in the future. Hence they believe that now is a good time to buy! Or it can be that speculation, based on a flood of liquidity, is fueling momentum and that good old greed is pushing prices higher and higher until all players are on board so that the selling can begin.

A weekend analysis should be a basis for an understanding of the circumstances currently in play. These are the true fundamentals. Therefore the first question to ask is, why? Why are these things happening? What are the drivers behind the market actions?

Technical Drivers
Many technical analysts believe that patterns or certain price levels on charts can also be the drivers of trader behavior. They believe that so many traders are watching for these patterns that they become self-fulfilling prophecies. There has long been a debate, for example, whether a Fibonacci level is a number that is a measurement of some natural force or whether it is valid just because so many people watch for the number to occur and then trade accordingly. Whatever the reason, there are certain patterns and levels that will trigger trader action.

The News
The news also fuels actions. Traders wait for the news releases to confirm or deny their hypotheses and then enter or exit their trades. If these news releases occur at certain technical levels then they attract even more trader activity and can increase the odds of a successful trade. Not every news release is always valid for timing a trade. Those releases that occur at specific chart confluences can have a more dramatic effect on the volatility of the market and will provide better trading opportunities.

Setting Up a Trading Plan
By doing a weekend analysis, a trader can prepare for the coming week and, depending on the type of trading he or she likes to do, such as scalping the news, or trading the five minute charts or waiting for a swing trade setup, he or she will have a blueprint to guide his trading. The old adage of "plan your trade – and trade your plan," is sage advice.

Source - Investopedia

AddThis Social Bookmark Button


Shanon Sandquist said...

Thank you for the great report on trading!

Thanks again!,


Copyright © 2008 - Forex Trading Guide - is proudly powered by Blogger
Smashing Magazine - Design Disease - Blog and Web - Dilectio Blogger Template