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Developing A Trading Strategy (Part 1)

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Indices trading strategies are generally based on two main forms of analysis.

Fundamental Analysis

The first type is fundamental analysis.

In this type of analysis, traders base their trading decisions on economic developments and other factors that might impact indices.

Fundamental analysis traders keep a close eye on the economic calendar and closely monitor data releases that may affect index prices.

Economic data that fundamental analysis traders tend to keep a close eye on include:

  • Gross Domestic Product (GDP) figures
  • Unemployment figures (e.g. nonfarm payroll data)
  • Interest rate decisions
  • Inflation data
  • Consumer confidence reports
  • Purchasing Managers’ Indices (PMIs)

Technical Analysis

The second type of analysis is called technical analysis.

In this type of analysis, traders study index price charts and analyse price trends, patterns, and indicators in an effort to predict future index price movements.

The idea behind technical analysis is that historical price information can be used to predict future price movements.

Reprinted from eTorothe copyright all reserved by the original author.

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