Why are new traders obsessed with Technical trading?

I have been reading Babypips now for around a year and have never read anyone ask a question about interest rates, GDP, Quantative easing, Stock markets, Dollar Index etc.

All the posts are based upon fibonaci retracements, candlestick patterns and funky chart set ups. I was the same until I actually learnt what actually moves currencies.

These are not what drives the price. Forex is driven by the relative strength of one currency against another. Eg if Euro is stronger than USD buy EUR/USD. Commodity dollars, AUS/USD, NZD/USD USD/CAD tend to follow commodities and stocks. If stocks go up, USD goes down. This is risk on, people are selling USD to invest in, risky stocks. Risk aversion, stocks down, USD up is where people sell shares to buy USD as it is a safe haven. If you don’t believe me overlay the DOW daily chart on AUS/USD daily and you will see a very close match.

It also amazes me how many people on here show such contempt for interest rate announcements and speeches by Bernanke (who?) and Trichet (huh?). I suggest you google these if you dont know them. You should.

Technicals are great for getting good value for money on an entry. Trade direction should be based upon the underlying fundementals though. I bet 90% of the people reading this will ignore me as a fool. I can guarantee those who don’t will be the ones still here in a years time and not got bored because there charts dont show them the way to the money.

Also you wouldn’t become a surgeon without going to Med school so why think you can become a professional trader by simply going for it. Get an education. Save a grand and pay someone for a course, trust me there are very good ones out there if you do your research.

If you want to gamble go to a horse race. Trading can be very profitable but is very hard and cannot be learnt overnight.

Next time you read an article on forex trading, ask yourself who is writing it, is it a broker? Are they sponsored by brokers? They want your money right, so why would they tell you how to win at trading? They give you enough to going and think you know what your doing then let you drown in the real world.

…because big money traders have decided which news items to act upon and which not to act upon I suppose. And which news and in which direction is difficult to predict.

I can’t agree more!

I don’t agree that “big money traders” control the market. In a $4 trillion dollar market, who exactly are these traders and how much money are they trading to make it move so much. A good start would be forex factory. They have a red flag for all news items perceived to be important. Basically anything that involves interest rate changes or changes in key economic indicators such as GDP or mention of QE will move the market, but usually only if a release is better or worse than expected. An expected number will be priced into the market.

News is a small part of trading though. The stock market is far more important and understanding why the USD is strenghtening or weakening at anyone time. After all, every major currency includes USD. If the USD is flat, strenght or weakness of the other currency is causing the move.

If every new trader concentrated on just EURUSD until they are turning a profit they would do much better than trying every set up on every currency.

well, we all know that fundamentals move the market…but in what timeframe?? that is the question…

I’m new but I’ve come to the conclusion that I need to know WHY the market moves as well as technicals. But, newbies learn technicals because they are an easy 2D obtainable skill that will give you decent general results. And, because so many speculators use them they become a self-fulfilled prophecy. Just strech out a fib line and you can see it.

The how’s and why’s about the market is next level IMO.

They don’t control the market direction but they do control 50-100 pip moves over a 1hrly timeframe, and that is normally enough to hit people’s stops.

If you were once like that, then you should already know the answer…lol.

Further, if you’re not part of the solution, then you’re part of the problem meaning we get lots of those talking the talk about what’s wrong around here, but fail to step up and fill in the blanks. So how bout it…up to the task?

What do you think of Ed Ponsi’s Forex Playbook?

Great post. I hope to share ideas with people and talk about more than just fib numbers and how people intend to make $1m in a year. I don’t believe I am part of the problem and I do not have that big an ego to be the solution. The problem is people believe they can become Forex traders without understanding why currency is traded and what moves it. Unfortunately this is fuelled by brokers who encourage to undertake very technical trading based on nothing but chart patterns.

I haven’t read that book I will look out for it.

The reason newbies are drawn to TA is because of the psychological, although, erroneous promise of price prediction.
chart patterns, harmonics, oscillators, cross overs, fib levels, fans, spirals, etc.

the true reality of trading is that, there is no prediction, you can get a feel for direction, strength, conviction, velocity, momentum of price, but every tick changes the picture.

the truth is that there is NO time frames.
only quotes ask/bid, 1.4455 will be exactly that price on the minute, hourly, daily, weekly. the tick determines the monthly not the other way around.

i hope i made my self clear

The Ed Ponsi Forex Playbook.pdf - 4shared.com - document sharing - download

Great Stuff thanks. I see you have a lot of posts. Care to add to our discussion? What are your thoughts on fundementals vs technicals?

My thoughts on fundamentals is that I don’t really know how to take advantage of what I hear/read, but on the technical side I feel as though I know what to do (even if it doesn’t work out) because there is so much more info and examples of technicals in action.

However, these days I feel that I should know a bit more about fundamentals and to combine it [U]with[/U] technicals. Problem is finding out what the numbers mean … are they good or bad? :15:

I use to be big on watching Forex Factory news calender etc.

These days I glance for bank holidays etc. Other then that I dont think too much. I do keep out on days like NFP. I trade after the news event. Not before.

Finally there use to be a song some 15 years back…Cant recall the band or the name but the lyrics went something like " She said he said bull****".

It sort of rings true now.

Everything that you need to know is in the charts. It might not be a 100% predictable, but it fairs much better then trading fundamentals.

The reason being there is so many unknowns in Fundamentals. We only assume that its all well and only get to know how deep is the rot once the **** hits the fan.

A good example would be the experts on say CNBC Squakbox. Everytime a news comes out you will have 6 guys talking about 6 different takes on the same subject. Its pure and pure speculating what this or that means.

Thats all it is.

oh and as a post script… I really dont see whats the point of knowing why this is so and why that happened.

I just want to know where to buy and sell. The rest I dont bother with.

Makes trading much more fun.

Pardon my noobishness here, but isn’t it a principle of technical analysis that price already reflects all economic factors before investors are even aware of them? There are also a lot of profitable chartists out there whose primary concern for news releases is when to avoid them, so it goes to show that either trading style works. Besides I have always been given the impression that fundamentals are only useful for position traders who have deep pockets.

I agree with Nikita in the sense that charts already reflect too much data, why would i want to go to college or spend hours learning how interest rate changes affect the market and what QEs and GDPs mean. Truth is even the good news precedes a drop in price action. Simply put, the chart is sometimes too much info (ie 5m, 15m charts) why look for more confusion.

I think that news reports, economic forecasts even government intervention just affect the liquidity in the market. As long as the currency and the country exist and there are on going international business transactions the market will continue to do what it does. The recent BoJ intervention went back to previous values “fair value” in a short period of time. Or even the flash crash in the stock market is not completely explained in fundamentals. I believe it is reflected more in TA and orderflow

i believe that an understanding of the market
the structure
how currencies are quoted
who the big player are
how the ask/bid is reflected in the chart
the number of call and puts
the correlation among currencies
the correlation of USD and comodites
the affects of the STOCK markets in currencies
monetary policies
fiscal policies
open market operations
treasury yields
current events,

are things that can give us an idea of fundamental direction as technical analysis gives us timing
direction + timing = profit
and that is why the market is so complicated yet so simple, there is no secret to success
it takes, skills, money management, psychology, luck, intuition, objective market analysis, and using tools correctly that can provide information and not PREDICT price

My view on the market is that it is set up to take your money. Often times you see prices reacting in the opposite direction of the report results or the speeches that are made. Trade the news, take advantage of the liquidity, but dont trade the results that are posted - rubbish.