Hi everyone! As some of you might know, I’m a newbie trader trying out the 3 Ducks System. I’ve had very little success in that I can’t find a lot of valid trades. Though I must admit it has only been a couple of months and I’m only trading EUR/USD.
My friends who have been trading for years told me that pure technical analysis and focusing on a system doesn’t really work. They said that I should focus on Fundamental and Sentiment Analysis. I’m starting out with the first book they told me to read but I feel like having to go through everything everyday will be too time consuming. But they said that when I get used to knowing what to look for it will be easy for me.
Is this true? Not that I don’t trust them (haha) but of course I’m hoping for an easier way. I’ve finished the school and I’m just starting to familiarize myself with TA through demo trading. I know it’s discussed in the school that it should be a combination of the three. But what my friends are saying is that it should be Fundamental and Sentiment and then just use Technical for knowing the entry, exit, invalidation points, etc.
In principle, I would agree that fundamental issues and sentiment are very relevant to trading - but in practice how does one personally really evaluate these? You can obtain regular data updates on selected economic issues, for example, but is a retail trader really in any better position to interpret these than the ranks of highly-paid analysts in the professional sector that don’t always get it right either?
In my opinion, the problem is (are!) quantifying these issues bearing in mind that:
currency pairs are two sets of fundamental issues, working either with or against each other - which one happens to be the current flavour of the month?
date releases often come with corrections to the previous months, which is really lagging info!
how much of actual data is already priced into the market?
fundamental info is not always in the same “direction”. How much does a negative release reverse a current positive mode (and vice versa)?
although fundamental/sentiment are generally a long term influence on markets they can also turn things around in a day, such as last week’s Brexit comments on the GBP.
there is a huge volume of data and info available for fundamental analysis, much of which is, independantly, irrelevent to price movement. How do we sift through so much and decide what is actually relevant to our trading?
if we listen to commentaries, then we are listening to second-hand opinion with its own motives
if we react to each piece of info independently then we are really just news trading, which is not the same thing.
To a large extent, these issues are long term. Government policies, economies and central bank objectives do not change every hour or daily or even monthly. Therefore, apart from maybe sentiment, they are not very useful for a short-term trader.
Personally, I prefer to think that my daily chart TA reflects the positioning, and resulting direction, of those longer- term interests without me having to try and outsmart them. That chart contains all I need to know about where current, valid, and relevant fundamentals and sentiment are pushing the price.
Then, if I wish to trade on a lower timeframe, I would look to build a strategy that functions within that daily framework.
Thanks so much for your detailed reply @anon46773462.
I agree with everything you said and this is my main issue. I feel like there’s just too much information about everything. Then of course these are different interpretations of what’s going on.
The reply of @anon46773462 is very comprehensive and I totally agree with him.
First of all, you must bear in mind that there is no easy way to learn forex trading. You have to do hard work in learning forex and building your own trading system as per your personality/trading style after so much testing (trial and errors) on it.
That is not true. There are so many successful traders who solely traded based on TA, one of them is Ed Seykota - Wikipedia.
In my opinion, you should first concentrate developing a TA based trading system on Keep It Simple KISS) method. You may add one indicator to identifying a Trend along with an Oscillator. And when you feel comfortable with your system then you may consider taking help of Fundamental or Sentiment Analysis.
As pointed out turtle traders used a pure technical system and became millionaires. Not sure what three ducks system you’re using. Thursday just gone had a nice long trade using that system. If there are no trades in eurusd then you should be looking at other charts. Having said that if you’ve traded 30-50 times and are not profitable then stop and go back to demo and try it again or other methods.
Fundamentals and sentiment are important and easy to analyse. E.g. Friday there’s may will do a speech… market thinks (sentiment is thoughts/feelings) it will be bad news on brexit. So sell gbpusd on sentiment. When she does the speech and not any good news then sell gbpusd on fundamentals as it has happened. You can also take trades on technicals when you knew it would be bearish price action.
If you are trading a technical system then fundamentals and sentiment have no relevance. Only trade the system don’t worry about anything else. Then analyse the winners and losers and optimise.
I know what you are saying here and would agree to the extent that anything that fundamentals and sentiment are going to contribute to price are, by definition, reflecting within the price action that our TA is monitoring.
However, I would add that fundamentals/sentiment can and will affect price action both prior to, and after, releases. So at a minimum a trader should be watching the calendar and be aware of forthcoming events such a central bank meetings and market-sensitive releases such as NFP, CPI, Retail sales or whatever happens to be the focus at the present.
These can have a relevant input to decisions regarding timing of entries in spite of the TA setup and whether to keep open positions fully or partially open.
So I wouldn’t say these issues are entirely irrelevant,at least in this sense?
Agreed. That’s why I said analyse your winners and losers and optimise. When you first have a system you must trade it all the times regardless of news. Then review to see if news affects trades or not. As it may positively affect the trades and you could be missing out on a profitable system.
Sure…while one is still trading on demo. By the time one is trading live these issues should surely have been sorted.
Once one is trading live then managing your equity becomes much more relevant and I don’t think testing whether news releases are going to have a positive or negative impact is as important as assessing whether the potential negative impact of sitting through a release with an open position is going to acceptable…unless, of course, news trading is what one actually does!
I think it was Jim Rogers who said "I buy my straw hats in the fall " ! - Is that “Fundamental” or "sentiment " - it could be “Technical” if you loooked at “support and resistance”
Many years ago, I had a second hand shop and found I could buy LPG heaters (with enclosed bottles) around £4 - £5 in june , july and August. - Come November, I could sell them all day long at £30 - £50 depending on things I am not going to divulge here !
So when you speak of “Fundamentals” and “Sentiment” - we may be being taught things which are not Truly “fundamental” - Look to wider definitions
As newbie i still doesnt fully understand about fundamental so i will not use it as my trading decision
Because From starts i was wrong so is the end results
I think there is some overlap between FA, TA and sentiment, and so what is driving the other? Someone like me would say sentiment and technical’s.
What I have witness is that trading purely from technical indicators is not profitable. I have never done it myself but I have watched others and it doesn’t seem to yield much. What I have witnessed people have the greatest success with is sentiment + technical’s. That would be price action, harmonic, elliot wave, and other sentiment based types of analysis. This type of trading can be subjective and is more like an art than if-then logical statements, which is why it is difficult to teach and to learn.
There are also famous fundamental traders out there that prove fundamental trading is successful, but rare do I see price align with fundamentals on the short term, outside of happenstance. I think fundamental based trades requires plenty of time, require the trader to actually be right, and requires price to eventually align with your thesis, for that to play out profitably.
Me thinks that most of the time sentiment is moving the market and the reporters/columnists reach into a hat of headlines and randomly grab one to explain the movement. It gives an appearance that fundamentals are at work. I’ve seen stellar earnings reports and the stock craters instantly, and I have seen terrible earnings reports and the stock immediately rallies 50%. The fundamentalist would have a hard time explaining that, except I am sure they could reach into their hat and find a random headline to explain it.
While there are some very experienced traders on this thread I would like to point out the the fundies create sentiment and sentiment creates momentum the technicals represent the sentiment of the price action. Thus as traders all we need to know is the trend and momentum and if you a 1 or 5M scalper not even that.
If your not using any indicators ie. trading a naked chart the candles and slope tell the picture of the sentiment and volume. As it is cyclical the price action can be boxed out with price and time cycles between supply and demand zones or support and resistance pivot points quite readily.
Let’s suppose you’re the fastest and most accurate analyst of market fundamentals in the world. And these are all definitely positive for that market. So you go long immediately and heavily.
But price is not rising. So all you’ve achieved is to tie up your capital and risk it against a new and unexpected change in fundamentals or sentiment. Why?
Absolutely! And there can be various reasons for that. One being that there are countless participants in the market all with varying objectives, time horizons, and activation criteria. Which means participants do not all enter at the same time, or even in the same direction (such as a large company simply hedging its future business receivables).
But another reason is that fundamentals in currency pairs are relative to each other and not absolute. Therefore the impact from a certain identified fundamental issue may well be simultansously good for both currencies or just one.
One example of such a situation could be seen in the current Brexit negotiations between the EU and UK. Both sides actually want an agreement and a satisfactory agreement would be good news for both the Euro and the Pound. But which currency will benefit most from the agreement will depend on the actual terms of that agreement and how it eventually impacts on their respective economies. That kind of relative impact is impossible to assess beforehand and yet is a major fundamental issue. After the initial reaction there will be all kinds of opinions about how the relative economies are going to move forward and any consensus could take a long time to evolve.
I heard the exact opposite. Literally evry profitable trader I’ve met and follow is alllll about TA and price action. You can’t be profitable if you;re not an expert in TA
