Monday, January 23, 2017

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Forex Signals for Technical Traders

In the last few months, we have published two articles regarding forex signals. The first article was called Forex Signals for Scalpers, where we explained how forex signals helped scalpers to maintain a broader view of the market as well as benefit from long-term trade ideas, since the scalpers usually open and close trades for just a few pips profit. The second article was called “Forex Signals for Fundamental Traders”. In that article, we explained that fundamental traders benefited from forex signals as they were provided with signals based on technical analysis, which is the other half of a complete analysis. It’s also the reason underpinning some moves that don´t follow the logic of the fundamentals. So we will cover why forex signals are helpful for the technical traders too.

Technical traders not enough

Often technical analysis alone is just not enough

Fundamental forex signals – One of the most obvious benefits of forex signals for technical traders is the fundamental analysis that many of the signals are based on. Many traders who only use the technical analysis to trade forex leave out the other half of the bigger picture when they make decisions. Now, I know that the technical analysis works well most of the time, but the fundamental analysis is just as important - if not more. I mean, the technical analysis might show a perfect textbook opportunity with which a technical trader would obviously be willing to take. But just one piece of data, or economic news, or a political event can turn thing around in an instant and you end up losing a lot of money. With many forex signals you get the technical analysis included as a package. We here use the fundamental analysis as well as technical analysis when issuing our signals.

Milking the large moves – Technical analysis indicates many good trading opportunities and entry points but sometimes the timing of the exit points it indicates is premature. With fundamental analysis and fundamental forex signals you maximize the benefits of a good trade by keeping it open until the fundamentals shift and that position runs its full course. The technical indicators often reach oversold/overbought levels too early, which means that a technical trader has to close the position. The one year sell trade in EUR/USD is a very good example. If you sold this pair at the top around 1.40 in May 2014 as a technical trader... you would get out at 1.24-25 because that´s where the technical indicators told you to exit. That´s a strong resistance level; the 200 MA that reversed the price just lies there, the monthly candlestick closed as a doji, the stochastic is well oversold and the RSI is nearly oversold. But the fundamental analysis tells a different story. The ECB promised to start the QE program and cut the interest rates the next year while the FED was entering a tightening cycle. According to technicals, a trader would have closed the position at 1.24-25 which is less than half of the entire downward move, because as you can see the price continued down for another 20 cents to around 1.0450s. So, with fundamental forex signals a technical trader can fully milk the large moves.

Technicals missed

If you purely followed the technicals, you would have missed about 20 cents

The technical analysis doesn´t point to anything – In June 2015, I was looking at the USD/CAD chart. After making a technical analysis of the USD/CAD chart in several time frames, I came to the conclusion that there wasn´t anything to trade, whichever way you looked at it - or at least the risk/reward ratio was too big which made it dangerous. But the US oil inventory data was due shortly and the published inventory was much larger than the expectations. At that moment, since the Canadian dollar is positively and closely correlated to oil, we issued a long-term signal to buy USD/CAD, even though the technical analysis told us otherwise. As you can see from the chart below, USD/CAD moved up about 20 cents (2,000) pips since then.

20 cents up

USD/CAD has move 20 cents up since mid-June 2015

Divergent price action and technicals – Sometimes the technical analysis points in one direction but the price keeps going the other way. As a technical trader, you would be puzzled and frustrated by this since you would normally open positions in the way that the technical analysis is pointing. But that´s happening because of a fundamental reason behind all this. It might not e an economic data release or an economic event. In the example below, USD/JPY kept declining 500 pips below the 116 level which is a strong resistance - even though the stochastic and RSI were oversold in the daily and monthly charts. Fundamentally, the US and Japanese monetary policy was quite divergent in favour of USD, yet this pair kept falling. If you were an experienced fundamentals analyst and saw the broader picture you´d realize why this happened. The global economy had been slowing for a while and the Chinese stock market decline made the overall economic sentiment even worse. When there is panic in the financial markets, the money goes into the Japanese Yen and that was the reason for the decline in this pair. So, it would be safer to register with a forex signal provider that uses fundamental analysis as well.  

JAP falling relentlessly
JPY/USD kept falling relentlessly even though the technical indicators pointed up.

As you can see, there are many benefits for technical traders if they follow forex signals properly. Many forex signal providers, like us, have a team of traders and analysts who specialize in different fields of the financial markets and take different types of analysis into consideration before opening a forex signal. With forex signals, a technical trader gets the fundamental analysis as well which looks at the market from another angle and maximizes the profits. Therefore, if you are a purely technical trader it would be wise to follow forex signals.   

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Skerdian Meta, Leading analyst
Skerdian Meta is our leading analyst. Skerdian is a professional Forex trader and market analyst and has been actively engaged in market analysis for the past 9 years. Before becoming our leading analyst, Skerdian served as a trader and market analyst on Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands on trading. Skerdian has a masters degree in finance and investment.
Other posts by Skerdian Meta, Leading analyst


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