I’m trying to draw an analogy to stock trading. Please help me to it!
In my world (in stock trading) volume is very important. I suspect there is no institutional buying and selling in currencies. But maybe volume is still important, right?
Then, regarding fundamental analysis, should I watch the reports about interest rates, inflation, credit, GDP, unemployment, etc? Can this be similar to earnings/sales/new products in the stocks world?
As a CAN SLIM-er, they taught me to pretty much ignore the news (and I think it makes sense for stocks). To what extent is it true here?
Then, which tool should I use? Meta-Trader, or Forex Tester, or e-Signal?
I want to back-test my strategy (hopefully I’ll have one soon).
If you are using the word institutional the way we use it, then your suspicion is wrong.
The institutional forex market is 10 or 11 times the size of the retail forex market (our little portion of the market). Here is a post you might want to read —
Pay special attention to the second portion of this post, titled FX Market Turnover.
As for volume in the forex market, many traders use volume in their trading. Some traders trade primarily off of volume. And other traders (possibly the majority of traders) ignore volume most of the time.
But, volume in this market — which is a decentralized, off-exchange market — is unlike volume in the stock or commodity markets (or in any other market traded on an exchange).
In the stock market, the standard unit of volume is the share, and all shares of a particular stock are the same size. In the commodity futures market, the standard unit of volume is the futures contract, and each particular commodity is traded in contracts of specific sizes
In the forex market, there is no standard unit of volume, other than the dollar-value of the turnover in a given currency pair. Furthermore, in a decentralized, off-exchange market, trading volume is dispersed over a huge number of market-makers and brokers, and there is no central clearing-house to total the individual volumes flowing through these market-makers and brokers.
The Bank for International Settlements (BIS) surveys the central banks of the world every 3 years, to measure aggregate total dollar-volumes of turnover country-by-country. But, the statistics they gather are not useful data for trading.
The result of all these factors is that there is no mechanism for capturing — in real time — all the dollar-volumes traded, in all the currency pairs, through all the market-makers and brokers in the world.
As a proxy for actual dollar-volume, retail forex traders rely on a sampling of tick-volume. Tick-volume is a count of the number of price-changes which occur in a given time-frame; and the sample typically comes from a single large retail market-maker or broker.
Most retail forex trading platforms have a single icon that you can click on, which will plop a tick-volume histogram on any chart. The histogram bars each represent the number of ticks which took place in one unit of time, at that retail forex market-maker or broker.
There is endless debate about whether a sample of tick-volume can be relied upon as truly proportional to actual worldwide dollar-volume. Obviously, those traders who use tick-volume must think so.
If you want to incorporate fundamental analysis into your personal methodology, then you want to watch all of the above.
This article by Kathy Lien, published in Currency Trader magazine 11 years ago, is still worth reading —
Obviously, price levels and many other aspects of the market have changed since that article was written. But, you should be able to get the gist of Kathy’s advice.
News is essentially the vehicle for fundamentals in this (or any) market. And there are basically two types of news: scheduled news and unscheduled news.
Scheduled news consists of economic reports (GDP, NFP, FOMC minutes, etc.) which we know in advance are coming and can, therefore, trade around or avoid, depending on our personal methodologies. At various online sources, you can find reliable and comprehensive lists of upcoming “news” releases for the pairs you follow. So, there is no excuse for being blindsided by these releases.
Unscheduled news consists of everything else, whether good or bad for your particular situation: political events, analyst interviews, terrorist attacks, new discoveries, natural disasters, etc. Obviously, we can’t plan for these things; we can only react to them.
MT4 is the common standard of the retail forex trading world. If you use that platform, you will be part of a large community of users, with whom you can share information, trouble-shoot problems, etc.
But, it’s not a lifetime commitment — you can always switch to something you like better in the future.
Not much to add after Clint’s answer. As far as trading platforms, it is as much an individual decision as when it comes to trading stocks. In case you already have an eSignal subscription then I would recommend you stick with it unless there is really something bothering you. Alternatively you can try the others and see which one suits you best.
Thanks, LastBear.
How’s esignal compared to MT4? Esignal is more than $100 a month, right? I have a friend who is using it for stock simulation.
Is anyone using Zulutrader? It seems like a good tool to learn from others.
Then, is there a Trend following source where I could learn from?
