📈 Lesson 6. Buy or sell?
It’s time to see how to analyze the market so that you could make a trade decision – choose between a buy and sell order for a particular trade instrument.
What drives the market?
Generally, an optimistic environment supports risk-on moves (everyone buys stocks and commodities), whereas pessimism makes investors risk-off so that they seek safer trades (buy assets like gold and Swiss franc). But many factors are at play.
Trader Festus: “I want to know when I should open a buy trade and when I should sell!”
Political and geopolitical events
1. Change of a country leader (elections, central bank changes). Effect: increased currency/stock fluctuations.
Example: Japanese Nikkei 225 surged in August 2021 on news that PM Suga would step down – markets anticipated reforms.
2. Geopolitical shifts (trade wars, alliances). Effect: downside pressure and volatility.
Example: US-China trade tensions under President Trump caused big USD/CNH moves.
3. Major statewide events (Brexit). Effect: volatility and downside risk.
Example: British pound selloff after Brexit referendum (2016).
Simple logic: anything that improves a country’s trade/economy is good for its currency; tensions hurt it. Stock markets like fiscal stimulus and fear rising taxes.
Economic events
1. Central bank interest rate changes – rate hikes strengthen currency, cuts weaken it.
Example: USD/JPY rose 3300 points on Dec 14, 2016 after Fed rate hike.
2. Monetary policy language – hawkish (tightening, inflation fight) supports currency; dovish (stimulus, low rates) weakens it.
Festus: “Monetary policy and interest rate sound complicated…”
Answer: Think of central banks as doctors for the economy. If they say “you’re fine” (hawkish), risk appetite grows. If they say “things are bad” (dovish), currency falls.
3. Domestic economic data (GDP, unemployment, inflation, production). Strong data → stronger currency and risk-on stocks. Weak data → bearish.
Example: Aug 6, 2021 – US labor data beat expectations, USDCAD rose 700 points.
Social events: unrest
Effect: pressure on currency/stocks, higher volatility.
Example: January 2021 US Capitol unrest put USD under pressure.
Natural events
Effect: disasters may crash a currency/stock market, but oil/gas can spike.
Example: Hurricane Ida hit US oil/gas hub – supply disruption, prices up.
Festus: “I see now. How do I plan my trade based on all these events?”
Answer: With a calendar. Check the economic calendar on the FPE website or in the FPE Trader app.
Economic calendar
Choose the period (day/week). Actual data vs. forecast drives moves. The bigger the surprise, the bigger the impact.
Importance levels: 🔴 three dots (high), 🟡 two dots (medium), 🟢 one dot (low).
For stocks, watch earnings reports (Jan, Apr, Jul, Oct). Strong earnings → stock jumps (e.g., PepsiCo).
How to analyze charts
Chart components
Price action + indicators. Timeframe: M1 (1-min), D1 (daily), W1 (weekly). Choose based on how long you keep trades.
Festus: “What is the best timeframe?”
Answer: No single best. If you trade for hours, use H1/H4. For weeks, use D1/W1. Always check a higher timeframe for context.
Trends
Uptrend: higher highs (HH) and higher lows (HL). Downtrend: lower highs (LH) and lower lows (LL).
Classic principle: buy in uptrend, sell in downtrend.
Trendlines
Draw support (through lows) and resistance (through highs). Price often rebounds from them.
Types of charts
Line chart – simple curve; Candlesticks – most popular (show open, close, high, low); Bars – similar.
Candlestick patterns like “shooting star” (small body, long upper wick) signal reversal.
Technical indicators
Festus: “I’ve heard there are tools that help traders do chart analysis. Is that true?”
Answer: Yes! Two main groups:
1. Trend indicators (Moving Averages, Bollinger Bands) – appear with price, suggest direction.
2. Oscillators (MACD, RSI, Stochastic) – separate window, show internal dynamics.
Indicators save time; learn what they show. In MetaTrader: Insert → Indicators.
Making trade decisions
Festus: “EURUSD is rising, so I should buy it ASAP. Right?”
Answer: Not so fast! Even in an uptrend, price doesn’t always go up. Look for multiple signals (trend, support/resistance, candlestick patterns).
Check the bigger picture. If price nears a previous high resistance, maybe wait for a reversal. Use support/resistance levels: resistance above price, support below.
Doing it the right way
Example: EURUSD formed a lower high (uptrend pause), broke below 20SMA – that’s a sell signal. Place Stop Loss above breakout, Take Profit at previous low.
📌 Lesson summary
- Political, economic, social, natural events move markets.
- Use economic calendar to track key releases.
- Central bank policy (hawkish/dovish) is a major driver.
- Analyze charts: trends, trendlines, candlesticks, indicators.
- Combine multiple signals before entering a trade.
Final words: Thank you for completing our beginners course! Now you know the basics. Manage funds wisely, practice on demo, and keep learning with FPE advanced courses.