I read a book from Jack Schwager called “The New Market Wizards”. A chapter of the book was about Forex trading and Bill Lipschutz. This guy was a fundamental trader who new the long term trend of the market so anytime there were dips or drawbacks he would just keep buying like crazy. Later in this chapter it said that he and a few others built up there trading and credit lines to 80 billion dollars. That was in the 1980’s.
Now I have been studying charts like crazy and been reading the school of pipsology. I was a technical trader but I am now switching to a positional trader. It just makes perfect sense to me that if you could see the long-term trend of the market you could just keep buying on downtrends and drawbacks and end up making a killing. I would really appreciate any hardcore fundamental trader to give me insights. I am an avid studier so if you point me in the right direction I will go to study!
But I really would love for someone to tell me some past history on fundamental so I can go to the affected currency and study the chart. Thanks!
I don’t think there are many out there who practice fundamentals. I myself am getting into this arena and will update you when I have some more insight and trading models.
fundamentals are great for understanding long-term trends, than using technicals to ride the trend and get the most out of it.
look at a chart of the yen, its decline has been forecasted by many fundamental traders and it presents a great opportunity for a trend to ride.
the carry trade works. sell currencies with low interest rates, buy ones with high interest rates. but, you have do to this when the low yielding currencies are overvalued relative to the high yielding ones. audjpy is a prime example of this playing out now.
The fundamental aspects influencing Forex are mainly:
Interest rates differentials : They drive capital inflows that seek yield
Expansions in monetary base: They make money less valuable due to increased money supply
The interest rate and changes in monetary policy are predicted in many ways by watching the economic health (from many parameters like employment, GDP consumer spending, investments, consumer confidence… etc) and inflation.
Also it is important to watch the Risk ON/OFF environment and how it affects the cross you work with and what are the main factors that influence the country you analize (whether it is a commodity currency, a risk currency, wheter it is dependant of other countrys like china… etc)
I think fundamental analysis for position trading requieres a very strong economics knowledge. I personally use fundamentals to help me in my short-term / swing trading.
You can find fundamental analysis bank reports in easyforexnews (dot) net . I find it of great help.
You can search for a 2yr swap interest rate differential and you will see that that currencys will move according to this differential with great correlation. But this is not going to directly help you as for position trading you need to PREDICT in advance what is going to happen in the future with the relationship of two economies (two countries) and in some degree also with the global economy. In my humble opinion only very good economists can do this (I studied economics and I’m confident I can’t even have chances of achieving this without a great effort and time of analysis).
Well, a fundamental play is ongoing right now! If you have been following the news on Japan lately, you should know that the newly elect Prime Minister Shinzo Abe is widely known to be extremely dovish. Since he came into office he has criticised Bank of Japan (BoJ) of not doing enough to steer Japan out of its current deflationary cycle. He has since put forth more monetary stimulus to aim for an inflation target of 2% this year (basically weakening the Yen).
So, knowing the above, if you look at the common JPY pairs such as USDJPY, EURJPY, GBPJPY, AUDJPY and NZDJPY, since last Dec they have all been trending up (that means JPY weakening). Why Dec? Because that was when Japan elected their latest Prime Minister.
This is just one of the most recent example on how to play long term fundamentals. Please also note that ‘long term’ means months and even years ahead.
Fundemental things are going on all the time and actually the market is quite simple, but there is a lot of noise. You are looking at the money flows in Europe/USA/UK/China/Antipodean areas and are thinking where would investment be going. If there is no clear move then there is no trend to buy/sell.