So far in my journey i have bascially analyzed the markets from a TA viewpoint. After all the charts reflect everything, the news, fundamentals, hype, fear, emotions and TA of other traders.
My system is simple… find the trend and ride it. I have used the charts to indentify trends (on a day and 4 hour chart) and then placed the order on a 1 hour chart for a good entry. I use no indicators and on occasion fibonacci for entry and exit. However to predict the future price it is clear to me that you need some grasp on the fundamentals. For example i shorted the pound yesterday and woke up this morning to see a sharp rise. What in the world happened? The pound was clearly trending down and we were in a down wave to boot.
Well i try and find some news and i see that they are meeting about raising interest rates and the market sentiment is that there are rate raises coming (as far as i have found out). So as far as i can tell TA and ignoring the fundamentals alltogether is wrong. I still plan to major in TA however i will need a basic grasp of the fundamentals before i place my order.
If you’re trading intraday, what you’re doing has very little to do with fundamentals. What you are describing is a news item, even though it is related to fundamentals. The prices were reacting to it based on the psychology of the market at the time driven by expectations for what was going to happen. Data releases are quite volatile and often revised. Very few of them actually represent a change in the fundamental situation of the market in any meaningful fashion.
For example, let’s say that US Non-Farm Payrolls comes out at 100k. That might be a generally positive number from a fundamental perspective. Let’s say under normal circumstances you would call that USD positive. If, however, the market expectation was 150k, then chances are the USD would come under pressure because the figure was worse than expected. The reaction, though, is probably only going to be relatively short-lived.
Fundamental analysis (and therefor trading) takes a longer-term view based on the aggregate of those data releases, policy statements, etc. It seeks to identify value and the longer-term direction of prices, practically speaking.
Of course you can use the longer-term fundamental analysis to bias your short-term trading.
rhodytrader raises a good point, if you are trading intraday then you need to put you stop loss at a level that is greater than the daily swing of the pair. Example EUR/JPY can swing 200-300 pips in a day. If you want to hold on to that trade and ride the wave for a few days to weeks it would be sucide to put your stop loss at 100 pips. And don’t worry if it goes down 60 pips for a few days just take the ride most of the time it will come back around your way.
I am a swing trader. Sometimes i close out within minutes but usually after a day or two. On occasion i will have trades open for over a week, i think this indicates i am swing trading?
Thx for the comment on news being related to fundamentals but it is somewhat confusing. To my understanding if you wish to study the fundamentals of a particular currency you would read all the news releases you can get your hands on to formulate a direction of that particular economy and then the currency itself as it compares to the alternate in the pair. So would not news = fundamentals?
My plan right now is to try and find a comprehensive list of news releases or possiblly find a website that evaluates them and writes their opinion of what they mean. If i can get a short term (like the news release happening this week) outlook and long term (fundamental compliation of news releases) to give me an opinion then i can either choose to stay out of the market around the news or atleast know kinda what to expect.
Good explanation of the pricing in the news before it happens however.
Data releases and interest rate announcements are definitely fundamental information. That’s certainly true. And you absolutely need to pay attention to them to develop a fundamental view of the market.
Here’s the thing, though. Any individual data release or fundamentally related news item is generally meaningless to the fundamental picture at the time of its announcement. Yes, sometimes there are those that provide immediate insight in to the fundamental situation, like the central bank moving rates. The problem with trying to use every data item (and there are many) to tell you what is going on fundamentally is that, as I noted before, the releases are volatile, often contradictory, and usually revised. They need to be taken all together over time to get a real view on what’s going on.
…If i can get a short term (like the news release happening this week) outlook and long term (fundamental compliation of news releases) to give me an opinion then i can either choose to stay out of the market around the news or atleast know kinda what to expect.
Not sure what you mean when you refer to the short term outlook and how that relates to the upcoming news releases and then how that ties in with a decision regarding being in or out before a news item.
If you are trading short-term, having a position before a major data release is basically gambling. When the numbers are about as expected, the market often won’t move. If worse, they sell-off. If better, they rally. The size of the deviation from expectations and the importance given to the data determines the size of the reaction moves. None of that, though, has anything to do with whether from a true fundamental view the data is good or bad.
You noted that there is a down trend when you traded short GBP/USD. However, the long term trend is up, and shorting in the midst of a continuation pattern to the up side, see weekly charts. There is no sign of a classic on the reversal pattern here. Ignoring technical indicators are just as bad as ignoring fundamentals, I like knowing why the charts look the way they do as much as any die hard fundamentalist forex trader. Just in my reading of TA books, indicators are used to take the emotion out of the equation, and my favorite indicator, shows that this pair crossed the SMA 20, day, in the last couple of days. In fact there is five days of bullish sentiment coupled with crossing the 20 day SMA, so I don’t know why you thought stuff was trending down.
Looks like you missed all the TA indicators thus set up a straw man so you could beat up on it, but then talk about how you didn’t know the fundamentals either.
TA is easy, it can be all visual. Fundamentals require reading and searching boring sites like bloombergs, reading the analysts sections and knowing the rate differentials.
