After watching the charts for a few months I am coming to the conclusion that the predictions from the fundementals are second best (poor second best?) to predictions from technical analysis when following short time frame charts.
To add, the intitial price dynamic as news reports break is often nothing more than a spike that quickly settles. This makes me believe that the market makers already know what is going on and the price has largley been adjusted anyway.
I personally think both are just as important as each other.
The main thing you should make sure you are paying attention to is when the important data is going to be released: unemployment, trade balance, retail sales, GDP, interest rates etc.
I only say that because what if you were in a lovely uptrend and horrible unemployment data came out and it dropped down very quickly? Sometimes the technical analysis won’t account for that info, so it’s good to be paying attention to it.
If you know when data is going to be released, you can make a judgement of what the data will be and how the market will react and exit/entry accordingly.
I believe that the economic news, such as interest rates, non-farm payroll, etc are the most important. They drive the currencies direction. Technical analysis indicators are only lagging indicators. You can be ‘enjoying’ a trend but that changes abruptly at issuance of economic news. So which is most important? (though i agree that technical analysis plays an important part in forex trading…
I agree that the important new releases such as you both have mentioned do need to be taken into account, but often a calendar check will avoid risking trades around this time. Are’nt the short term effects of such reports short lived however?
The effects of such reports are indeed short lived, you can tell that just by looking at the Daily Chart, however it doesn’t mean that these announcements can’t be used and taken advantage of for trading, but the effect an announcement mostly has no bearing on the effect it has on the currency.
I don’t use fundamentals as a signals that much…
economic situation can change, I use signals and technical analysis…
if you don’t know where to find these kind of things you can google “forex signals” or you can go to websites I know, dailyforex.com and pipsadvisor.com .
The average time I hold my trades are around 2-6 hours. So these announcements are important to the way I trade. I use both 1 minute and 1 hour chart.
But yes, a quick calendar check should do the trick.
I think if you were to go off the hourly, then it wouldn’t matter so much to look at the announcements. But if you are doing very short trades (1-3 at a time) off the 1 minute time frame, then I think it’s important.
But yes, you can get by being completely technical without even looking at any fundamentals, but it doesn’t really take that much effort to have a little look.
That right there is a sure fire way to make a lot of pips in a small time period. I call it the rubberband theory. Price pushed contra to Bias or Direction will always come back to that point. So I trade economic news not by analysing what the data is going to be or how its going to affect the market etc etc etc. Honestly, I think the market reacts to the news announcement on a purely speculative basis. I let the gamblers do their bit and than go in if they have pushed the price in the other direction compared to trend.
With that being said, you are right when you say that Fundamentals play a secondary role when it comes to trading smaller TFs and leveraged accounts. My max SL on a given compound is 100 pips. That is like a drop in the ocean when you are leveraged 1:200. And most of my SL is about 10 to 20 pips. So reading and trading into fundamentals does not help.
I mean is a gun good or bad? Depends who is using it.
It depends on your trading style. If you wanted to make it profitable i’m sure you could. I’m sure that you could sit there for months or even years until you found a way to do it and you will eventually find a way.
For me I follow the major macros such as employment and non farm pay rolls, and i read the same news report every day to bring me up to speed in what happen in the other trading sessions around the world.
Has it helped me?
Yes it has. It keeps me in tune with the market. I don’t know your level of competence in trading but you might have heard about traders being in tune with the market. Well keeping in touch with the fundamentals keeps me in tune. It is very reliant to me since I trade end of day charts and my trades last 3-4 weeks on average.
I’d agree with most of the comments above - it’s useful to know when (or if) things are happening.
I think trying to predict interest rates or payroll numbers can end you up in a world of pain - investment banks have teams of analysts working on all available data full time to price the effects of news, there’s no way a retail trader can compete with that. Hell, “professional” opinions on payrolls can be way wide of the mark too!
If you’re on a longer timeframe, you might need wider stops to incorporate the aftermath of big news. I don’t really trade shorter timeframes, but perhaps in this case you would want to wait until the dust had settled a bit after the news. Just my 2 cents.
I am new to trading. I like what you say about being in tune with the market and would like to hear more. I am reading a lot on forex. What is your observation about the direction of the Euro from 16 January up until the recent correction, (if it is a correction). It would say it has been showing a middle finger to the fundamentals
I am still trying to develop a trading style and looking at end of day trading and develop to position trading. I am experriencing that this can be tougher than intraday trading. I am interested in the following information and much obliged.
Which currencies do you trade,
what timeframe do you trade,
what is the average size of your stop loss assuming you trade off key horizontal support/resistance levels and given varying ATR scenarios,
what is the average duration of your trade. Wide stops do require a big account if you risk risk manage your trade to 1%, 2% of your account size
Still very much learning myself, but for what it’s worth:
eurusd, usdchf, usdcad, eurgbp (occasionally other crosses like eurcad, gbpcad)
Mostly 4h, sometimes 1h, very occasionally 1d
Stop size varies a lot depending on market conditions or the reasons for a trade. I use Fibs a lot, base stops around important levels; on a break of these, my idea is probably invalid.
My trades are usually open for several days, I don’t like to swing trade over weeks since I don’t like weekend risk. If you think a big move is coming, you can widen your stop but reduce your position size to still risk 1/2% of your account
This is what I find most comfortable to work with, but if your temperament is different it may not work for you. Hope this helps anyway
In fundamentals only the major news is important. if you check yesterdays tread (march 16) lot’s of low impact and medium
impact news are there but this thing only able to move the price max 20 to 30 pips and then going with the 1h trend again.
and suddenly the news form usa with high impact change the trend. so after watching the fundamentals form last few months i can say that only high impact news and some important braking news is able to change the rate or you can easily use the
technical analysis to earn pips.
If you trade short term then you need to ignore the news… by that I mean don’t trade it. Smart money have many tricks to fool us into buying and selling at the wrong time. When good news come out its generally at the peek of uptrends and vice versa for bad news. Why? Smart money needs to sell/buy to someone right? when is best for them to release a bulk of there profits? when all the noobs jump into news trades expecting a huge thrust up or down. Well obvcourse Smart Money wont let the market price thrust just because good news came out… They will be selling into our buying and perhaps their selling will swamp the buys and price will go “down”, on good news… thats how it works. Smart money dont wait until we have all made a million from news. They need us to trade the wrong way so they can release profits against us, which is often why you get in a trade jut to see it take you out pretty quickly.
You need to remember that the news releases are a tool that Smart money uses to their own benifit. They invite us to trade during news. They make it look inviting. Only to obtain orders from us.
You need to trade with Smart money, not against it. When they buy u need to buy. When they sell you need to sell. Do you know who buys and sells to the Smart money? 95% of traders do.The ones who lose money over time…
When your buying you should probably looking to sell… When your selling you should probably be looking to buy.
This is the way it goes im afraid if your using these crappy indicators.
The only way to no which way Smart money is bias is to learn how the market works with Accumilation,markups and distribution. Also Volume spread Analysis. This way you will trade with Smart money, not against them.
Let me explain to you in a way that will make you see most people are ignorant traders.
The market runs on Supply and Demand. Just think… If the majority of trading is done by Smart Money, then the Supply and Demand lie in their court not ours… If 95% of us traders are buying/selling opposite to Smart money then what does that tell us about our systems?
It essentially says we are trading the wrong way to supply and demand.
Its the imbalance between Supply and Demand that makes price move. Remember for every buy there has to be a sell. So you would expect price to never move based on that assumption. If there is demand with no supply, price rises. If there is supplywithout demand then price falls.
Were doing the opposite. Were doing the opposite of what the main principles of economics tell us. That is how important it is to not trade by stupid indicators or during news.
Well, Retail Sales is one of my favourites reports but i don´t do news trading, instead i make technical analisis first givin a max value of 5, then stock analisys a max of 1, later economic calendar a max of 3 and news a value of 1. If the item show bear is a negative number if it´s bull is a positive. I sum all numbers and it gives me a probability being 10 or -10 the highest probability on going in thtat direction and 0 the probability of doing nothing, that is how i mix fundies with indis. BY the way economic reports, the most important such as GDP take effect next day and it might last for two or three days.
The Market runs off supply and Demand. VSA entails looking at strength and weakness, cause and effect, effort and results. along with Candlestick “sequences” , a chain of events signalling weakness in the market or strength. Combining this with Support resistance and fibonnacis you WILL trade WITH smart money, not against it.
You need to understand what phase of the Market life cycle you are in. Are you looking at accumilation, markup or distribution…
Without learning these things, do you no what you are doing? the same as the other 95%… the same as the herd of traders… What are they doing? losing money.
to add. Fundamentals may work but only the the longer term. can assure you that the market is manipulated and good news comes out on market highs before a fall… and why? because the smart money needs idiots like you n me to buy just so they can sell for profit release.
I can prove it if you wish. I can link you to a you tube video where the Market peaked in stocks 2 times in the year before crashing down. You know what new came out on the same day this happened? GOOD news… everyone baught the stocks and got mugged off by the smart money.
Its easy to see. you only need to research it online to see that trading news is a very bad idea, especially short term. Its a Smart money tool, nothing more.
You need to learn supply and demand and to use VSA to know what the SM is doing. Its very powerfull… If you see stopping volume then theres a high chance you have hit the market bottom or at least for a while. If you see accumilation then you know the market will rise.
And people say volume cannot be used in FX but that is totally wrong. Many studies have been carried out between real volume and tick volume. the correlation is around 90%. So it works. Its been proven.
VSA takes time to learn but its worth it.