I traded EURGBP by opening a sell position because I suspected that the European Market would not be happy that its countries have actual adverse data when compared to previous statistics.
For example, Spain had adverse GDP growth rates, Italy’s consumer confidence diminished and Germany’s business climate had a small vote of non-confidence.
While I am sure that my mistake is a very amateurish one, I would be grateful if the community could advise me where my mistake is. Not only do I not want to repeat this mistake but I believe that other mechanics are at play, the catch is knowing what they are.
I don’t see forex as a medium for long-term fundamentals-based investing. I can’t fault your economic analysis, but that’s partly because I only look at price charts. If you find your analysis was faulty, and even if you are able to learn from this and conduct more accurate fundamental analysis of economics next time round, I am not convinced that this will make you money from forex.
@tommor, thank you for engaging. May I ask what analysis would be beneficial to earn from forex, please? Or should I invest in instruments other than forex? I wish to broaden my knowledge on the subject to reach more enlightened decisions, hence my askance. Thank you.
I agree with @tommor . Personally, I never try to predict the news or the response to the news. It can be v unpredictable and I’m not smart enough to do it. I use Technical Analysis and try my best to stay out of trades if there’s a particularly big news story breaking. I’ve tried trading with fundamental analysis and I get it wrong well over 50% of rhe time !! ( Try explaining that, statisticians)
In all seriousness, though, big news may not be the best indicator for opening a position because it becomes a hit-or-miss situation. Hence, I would better steer clear when such news is prevalent and instead use technical indicators. Therefore, my question is: how would I reconcile technical indicators when the occurrence of big news becomes imminent?
These statements are true, but your interpretation is wrong (in my opinion). GDP growth rate was only 0.1% lower than forecast. Other FA indicators were also insignificantly below expectation. This cannot move the market on the next day
Such insignificant differences could be discounted in the price earlier as well. I would say these are flat economic data - not negative. (still in my opinion) EURGBP right now is more driven by central banks decisions on how to deal with interest rates in euro zone and UK.
Thank you @wilczasty. From your comment, I have learnt to look at the forecasted data rather than focusing exclusively on the previous actual data. Therefore, when the new actual data is released and there is no significant difference from the forecast, I should still look at other signals to decide if to invest.
The second thing I have realised is that because fresh statistics are negative, they may not necessarily be a reason to open sell positions.
I also understand that all this is subject to interpretations, in the sense that what has applied today may and may not apply tomorrow.
Think of it this way. Forecast is what is expected by market and price already reflects these expectations. So when news come, price can be impacted only by difference between actual announced number and what was expected. Generally markets are good at expecting and that is why sometimes news won’t move price at all.
On the other hand, economic calendar is not the only fundamental. Other news such as interest rates change or gov decisions, global development etc. also have impact.
Recall what was happening at the begginning of ukrainian war. RUB went to garbage right after sanctions without waiting for them to be reflected in gdp and other indicators. So now when Russia will announce some bad data, RUB may not even react because we all know its garbage. In finance, if something is expected, it’s almost the same as if it would just happen right now.
Indeed, point taken on this matter. I have changed my perspective on how to interpret the economic calendar. Thank you very much for this.
Agreed, last week and I believe the week before, there was a rift in the relative currencies because of the news that the central banks of the US and eventually the UK would hike the interest rates.
All this leads me, in conjunction with the other comments above, that a mix of current affairs and technical analysis is needed rather than only relying on the hopeful swaying sentiment of the market.
I trade only forex, I don’t make long-term financial investments in the markets so I can’t advise on these.
My trading is purely chart-based. I let the international institutions in forex analyse the news. If they drive price up, I will buy as well: if they drive it down, I will go short.
On most price charts there is no clue as to what news emerged or when. Price moves in a trend or a range, until it starts to move in a range or a trend. When a pair is in an uptrend, almost all new news announcements tend to reinforce that uptrend: in a downtrend, most of the news is bad.
I ignore the news but if I was trading shorter time-frames, I would definitely be aware of the news calendar. I would then usually avoid holding across the news but I have bracket traded news announcements in the past when feeling aggressive - so your buy order is triggered if price goes up and your sell order is triggered if it goes down.
Be careful about " Forecast is what is expected by market and price already reflects these expectations
For a year before Brexit every one was saying same that Brexit already taken effect but when it did happen it went catastrophic.
In short there are multiple factors playing around and the net effect is hard to predict. But at least some predictions sometime work. You can wait for any news or figures and see trend then open a position.
@tommor, thank you, I understand what you mean. Rather than going fundamental on news and calendars, reading the technicalities would be more suited for trading currencies. I still believe that certain events are detrimental to the direction taken in the market but I have by far neglected going technical for far too long.
Agreed, @kadheim! Plans to exit a large body of countries such as the EU would be expected to show detrimental effects on the relative currencies let alone at the moment of truth (moment UK exit EU). This leads me to think that an event of a considerable magnitude would pull at the markets at various stages of its existence (initial news break → discussion → vote → action → aftermath).
This is generally how I trade. However, after today I believe that considering only fundamental analysis is not the way to go. A good mix of technical, fundamental and critical thinking should help me trade better then that display at the top of this thread.
Thank you, @kadheim for contributing your insight.
HI. Looking at your trending chart, what is the likely probability of a bullish continuation as against a sellling opportunity? What is key, is to open trades on the right side.
Retail traders are small beer, and any news item would have been swallowed up by the financial institutions and factored into their positions before you get your muddy fingers on it. Hence, for example, you would have seen a major spike if World War 3 had been threatened.
So, on that assumption I would have put in a buy order with a S/L that has enough space to ride the small retracements on the journey upwards. The only time you should sell is when there is a significant downward move.
So, to recap, FX trading is all about the probability of being on the right side when opening a trade. How you go about that is more of an art than a science, and it’s critical to be able to manage emotional control whether running a winning or losing trade, which is the downfall of 85% of unsuccessful traders.
Also, remember that price action movement is the result of millions of traders making decisions on trading up or down or sideways. No amount of technical analysis can forecast that accurately or we’d all be millionaires - hence it’s down to probabilities.
I’ve found that news events listed as medium or high very rarely affect the market unless it’s a US event. Occasionally there’s an unexpected announcement that does move a market, but most events just create a whipsaw and end up near to where they were before the announcement.
Fundamentally the expected outcome is already priced into the market. Usually these announcements also contain a forecast for the future, and that’s what price will move based on.
I’d avoid trading the news and look more for longer term trends and finding a good entry point. News isn’t FA, it’s not often the number announced that matters, but more the sentiment of what is likely to happen next
Thank you, @steve369 for contributing your knowledge. It really is impossible to predict the outcome for a particular market move after millions of traders and the many financial institutions have executed their positions.
The above are key points I took from your insightful comment.
Indeed, I agree. If I was observing such a spike I would definitely issue a buy order.
One problem that I am plagued with is that there are times where I issue the order at the very peak where it then starts to descend and I do not stop the loss thinking that it will resume its upward trend and resort to wait it out resulting in locking my investment for weeks.
This is a very bad trading habit. I definitely recognise this.
@chesterjohn, thank you for your comment, I appreciate you taking the time to do so.
To be honest, I have not yet observed these two trends. I will be on the lookout for this as I believe this is very important knowledge.
The gist of this comment is in parr with that of the other contributors above. And this is one of the main take aways, too. I have to understand that market values incorporate the sentiment of those trading there so that the news being disseminated becomes priced in immediately or nearly so.
In the end, yes, I believe that I should avoid trading on whims hinted by the news and the economic calendar and start looking more into Technical Analysis.
It sounds like you entered your trade based on your bearish bias on the news your read, having the bearish bias by itself isn’t a bad thing but by itself is only one factor for you to base your trade on. You can try to marry other factors like technical analysis to your fundamental analysis, is price action confirming a bearish bias? Is resistance being rejected? You can look for other supporting economic & fundamental factors. Being patient and waiting for market confirmations can also help to shift the odds in your favour.
It is indeed fundamentals that actually drive these markets in the longer term - and speculative trading adds the “noise” that creates all the fluctuations along the way.
I think there are important things to remember when reading fundamentals:
Economic releases are lagging data, and sometimes very lagging! The figures are usually based on the previous month’s data and often include updates to the earlier releases from the previous month. So trying to extrapolate forward from these releases is like painting your windscreen black and trying to drive by only what you can see in your reverse mirror. Which leads to the next important thing…
The markets do not actually trade the data alone. One has to remember that fundamental analysis is actually driven by forward-looking sentiment rather than backward-looking data. For example, what would the markets pay more attention to: a bad set of economic data - or the likely reaction of the government/Central Bank to improve the situation? The answer would probably rest on how credible the market will consider the proposed reaction from the authorities. Sentiment is more important than the facts from our perspective. Which leads to a third point…
One has to remember that when you trade a currency, you are actually trading two distinct products. In your example, both the Euro and the Pound Sterling. Your position is actually based on the relative movements of these two currencies and not just one of them. This means that a negative leaning on one currency might not have any weight if the other currency is feeling some greater positive factors.
In addition, negative/positive factors may often have already been anticipated by the market and “priced into” the current value. Therefore the actual official confirmation of the data will only shift the market’s current sentiment if it widely differs from the anticipated figures. It is worth remembering that all the financial institutions have either their own economic teams, or subscribe to external sources, and have an on-going assessment of fundamental issues.
An additional point is that the markets do not always react to fundamental issues in the same way all the time. There is always the “flavour of the day”. For example, currently the global economies and central banks are focused on inflation fears and any news on that front will be widely noted. Another time, like during the early COVID times, it might be interest rates or other economic stimulation measures. During the Trump era it was the US/China trade wars.
So, all in all, fundamentals are what make trading interesting - but they are not a good basis for selecting trades. They tend to be long term and difficult to select specific and efficient entry and exit levels.
