Learning using fundamentals in trades

[ahefner33]

Hello all. Im trying to better learn using fundies in my trades. Just can't get the concepts on how they affect price movement.

I wanted to ask if this is an example of fundemental analysis.

I been reading up and hearing that the speech from Bernanke today will say that the FED is looking to the possibility of raising rates. Would this cause the dollar to gain strength through out the day on most majors?

Say you were intra-day on EUR/USD. Would you look for just short trades before the speech and if it coomes out true would this mean a bullish dollar. Thanks to all for the help

Adam

[rhodytrader]

Sounds like you might be confusing news trading and fundamental trading. There is a significant difference. Take a look at this piece.

[ahefner33]

Originally Posted by rhodytrader

Sounds like you might be confusing news trading and fundamental trading. There is a significant difference. Take a look at this piece.

rhodytrader

Hey. Thank you for that information. I am still confused because to me it seems to be the same thing but just in different views. THis quote from that piece says for a fundamental analysis

"looking at the things like GDP growth rates, interest rate policy, government spending, inflation, consumer action, and many other factors. The idea is to develop an expectation of where the economy and/or interest rates and other elements are heading in order to extrapolate a direction for the market."

Wouldnt the expectation of the FED to increase interest rates make the dollar strong? So this woould make a bullish market? I am not talking about making a trade right before a report, trying to make a quick profit from the deviation of the expected and realized but more of the overall trend? Sorry if I do not make any sense but I hope you can see what I am trying to say/ask.
Anyway, thank you for your response and helpfulness. Reps to ya.


Adam

[shadow]

Remember there are two currencies at hand. Just because there is inflation in one there may be stronger in the other. The difference between fundamental and news trading is - you need an economic calender, fundamental - you need to study business cycles, past charts of the economic data, commodities that coincide with the currency, inflation with both currencies. To be honest, fundamental trading is quite tough, but that is not to say that it isn't profitable. anyways hope that clears up the difference between the two.

[rhodytrader]

Originally Posted by ahefner33

Wouldnt the expectation of the FED to increase interest rates make the dollar strong? So this woould make a bullish market? I am not talking about making a trade right before a report, trying to make a quick profit from the deviation of the expected and realized but more of the overall trend? Sorry if I do not make any sense but I hope you can see what I am trying to say/ask.

You talked about intraday trading in your initial query. That, to me, implies news trading. If you were talking about a weeks to months projection, then you're talking fundamental analysis and trading.

As to the expectation of a Fed rate hike making the USD stronger, the answer is maybe at best. It assumes such a rate move has not already been factored in, and that other factors (such as interest rates abroad) do not offset the move in some fashion. If you really want to twist your mind in a knot, you could say that a rate hike could hamper the economy, which might be USD negative.

[topgun]

Nice article. I love this quote:

"There’s one other side of this discussion that should also be mentioned, which is taking positions ahead of data releases, etc. That is neither fundamental analysis nor trading on fundamentals. That’s basically gambling."

I am guilty of doing this and I wish I knew how to break the habbit .

Topgun

Originally Posted by rhodytrader

Sounds like you might be confusing news trading and fundamental trading. There is a significant difference. Take a look at this piece.

[ahefner33]

Originally Posted by rhodytrader

You talked about intraday trading in your initial query. That, to me, implies news trading. If you were talking about a weeks to months projection, then you're talking fundamental analysis and trading.

Hey. Love the quick repsonses.
But what you said in the above quote. Don't a lot of traders (not sure) look at a higher time frame so to speak to get the overall trend and trade the lower time frames with that trend? So I'm asking wouldnt the speculation of interest rate hike (everything else held contant) want to make traders buy into the dollar, making long positions in the smaller time frames more optimal if you did not want to go against the trend? I get confused as to when observing people trade on smaller time frames they will say something like " Well, I have a long setup and the Fundamentals are looking good." So wouldnt they be saying since they are going long, use USD as example, that the USD is strong, hence higher interest rates make/could the USD stronger?

Don't get frustrated with me, Im just trying to get or understand the connection with trading. Thanks again!

Adam

[ahefner33]

Originally Posted by shadow

Remember there are two currencies at hand. Just because there is inflation in one there may be stronger in the other. The difference between fundamental and news trading is - you need an economic calender, fundamental - you need to study business cycles, past charts of the economic data, commodities that coincide with the currency, inflation with both currencies. To be honest, fundamental trading is quite tough, but that is not to say that it isn't profitable. anyways hope that clears up the difference between the two.

Shadow,

How would you determine which currency is stronger if both equal in there fundamentals? Thanks. Reps.

[shadow]

Originally Posted by ahefner33

Shadow,

How would you determine which currency is stronger if both equal in there fundamentals? Thanks. Reps.

Usually you would just look at a longer time frame to see the strength of the trend, but if your unsure stay out, believe me. If you can somehow find charts of the economic indicators, they can ususlly show which currency is greater, where one will usually be doing better than another. I used to just record it straight off the economic calenders and make my own charts, but it got too strenuous. Now, I get the idea that you trade intraday. In fact if you trade intraday it is tough to trade economic data unless they are the rate statements. Those are a pretty good indication of where the short term trend will go. Or, if things like the chinese market collapse occur, then you can get some cash from that. However, the fact that that market basically already adjusts to the fundamentals makes it even harder. Sorry, I'm not helping eh, I don't mean to discourage you, if you are comfortable with trading that way stick to it (in fact me telling you that it is tough should motivate you to rise above my statement). Ok, but in you example, raising interest rates right, sometimes you have to look beyond the indicator. For instance, the yen raised interest rates(ok, it was a litlle while ago, but still), but the statement during the annoucement was not bullish at all. All it did was put a dent in the other currencies which had a strong trend against it, and they went up a couple hours after the data was released. So, in this case, after all this occured , it would be a pretty good move to sell the yen. Waiting to see what happens after the fact sometimes is better than getting in before. Ask Questions like these:

1. What news/events came out today? How did the markets react?
2. What news/events are coming out tomorrow? This week?
3. How does the market feel about interest rates and monetary policy?
4. What does the market think the numbers will come out at? What will happen if the market is right or wrong?

(actually the "pick of the day" is determined through these)

Anyways I'm trying to help you out as much as possible, and I'm sorry if I failed to do so, if you have any other questions, just ask eh. Best trading to you and I hope you get something out of this post.

[mdetlh]

You sound like you are asking about the current situation. Am I correct? Without getting too long winded I think I can get you up to speed on some fundamentals here.

The most USD negative news in the last 2-3 weeks is the subprime lending market is having trouble with defaults on mortgage loans to less than prime credit worthy individuals. That is the background to the interest rate decision by the USA Fed this week. The other news in this regard is that the Futures market is pricing in another 3 interest rate cuts by the Fed, the Fed isn't obligated to do what the futures market is speculating that the Fed will do. However, other major currencies see the futures market speculating about 3 rate cuts and then the Fed doesn't sound as interested in raising rates as in previous months and so that's another reason to speculate that there may be an imminent cut as in within a month or soon. Hence you see the USD losing across the board in the last couple of weeks. Then the USD gains strength today, cause currency traders start to realize that maybe the Fed isn't all that interested in cutting rates soon after all. Now we wait to see what further reports will show if the housing market, a key factor lately, among others, on whether people speculate whether or not the USD will gain strength or not.
Thats why I panned this blogs decision to go short the AUD/USD, even though the AUD is rarely this high against the USD, cause there maybe AUD rate increases and everyone thinks that there is reason to believe that the USD will cut rates sooner or later.
Does that help?