How important is fundamental analysis to trade FX?

[Alexander0884]

Dear Community,

Today at work I have been secretly scouring reuters headlines and various other financial newspapers such as the Financial Times.

My god I have never been overloaded with so much information and in such contradicting ways.

Besides newspapers are irrelevant IMO as I dont particularly take to "financial advice" from a journalist. Besides by the time it is published, is it not utdated as everyone else will move to take advantage of so calld advice?

IN any case my question is what are the relevant items I should be using in my analysis.

I am looking to trade GBP, perhaps GBP/JPY or GBP/EUR. From the top of my head I understand britain is somewhat of a heaven for EURO investors if they want to secure their money in light of the crisis. Also I guess CHF/EUR.

Question is where do I begin to look for info that may affect the outcome of the market? SHould I read newspapers or should I concentrate on government announcements/official websites? If the latter, what is a great example?

PLease also recommend a timeframe, I am looking at the moment on daily/hourly. I want to trade mini amounts and on a demo account hence why the shorter timeframes. I want to be able to see results and access/evaluate my decision making. I have previously only traded 1hour or less timeframes so daily is a step up and a bigger risk I suppose.

Finally, anyone recommend a good mentor on these boards who would guide me in my developement i.e: I have finished profiting with forex, looking for my next book and anyone who has gone through the self-study route, their insight as to what to read next wouldbe v helpful.

 

[Shakone]

I think it would be wrong to recommend timeframes and so on, that is stuff you need to figure out for yourself. In terms of announcements which affect price, you should look here:

Forex Calendar @ Forex Factory

as a starting point.

 

[Alexander0884]

I think it would be wrong to recommend timeframes and so on, that is stuff you need to figure out for yourself. In terms of announcements which affect price, you should look here:

Forex Calendar @ Forex Factory

as a starting point.

Gold Star, exactly what I was looking for, and it has further details breaking down the importance of the news.

Assuming I trade daily to weekly, I shall schedule my month to do necessary technical analysis prior to main dates;

1)On the day after coming home from work I will watch the market like a hawk to see how it reacted to the news to see if there is now a trend forming as a result. 22)Once the trend has formed and If I can associate it with the news, and there is nothing scheduled till later...
3)I look for the technical indicators such as the fibonacci and RSI and candlestick patterns for confirmation. I put in a contract following the trend with stops loss and exits based on the fibonacci technical indicator for support/resistance lines.

4)From there, I monitor the news for any relevant announcements that may have an impact/bearing on my contract.

Does that sound like a reasonable strategy? For a beginner?

 

[Shakone]

Does that sound like a reasonable strategy? For a beginner?

Honestly? No. It sounds like a useful exercise for your learning. It doesn't sound like a strategy.

 

[Alexander0884]

Honestly? No. It sounds like a useful exercise for your learning. It doesn't sound like a strategy.

Thats understandable, It is indeed set out for me to learn the basics. However I am unsure as to what people refer to as "strategy".

I thought the concept of creating a plan, was considered a strategy. For example I am going to follow the steps above risking 2% of my portfolio per trade at a 1:3 ratio of stop fail to exit. So I am looking for my technical indicators to se when an opportunity presents for entry, I look at the fibonacci to confirm a price adjustment/reversal and I use it to project potential earnings.

I await for confirmation through candlestick patterns, i.e I wait for the candlestick to start and END above the indicator line, or a classic reversal pattern such as the "hammer" etc. I look to see if there is a potential for X amount of pips profit and I set my stop loss at X/3 accodrdingly.

Now I understand it will not always go to plan, I have experienced movements in the amrket that dont justify analysis. However I understand that with my current ratio and slight care I should be able to offset my losses at the least with a sucessfull trade every few unsucessfull trades.

I understand at the ebginning it may even not offset my losses entirely but it is ok as I will learn from my mistakes.

Does the above form a strategy? Or am I missing a link somwhere?

 

[Shakone]

A strategy should not be vague, especially so for a beginner. It should tell you exactly what to do in every situation. It should also tell you what not to do, how much to risk etc, when you trade when you don't, what you trade, and it should also be based in reality of what can be achieved.

Why not go here

Trading Plan Template

And read the PDF

 

[Alexander0884]

Thank you

 

[The Leopard]

Have you thought about what a market actually is?

Let me ask you an easy question. What causes price to move? If you fancy a discussion, pick any market you want and give a brief list of the factors that cause price to go up or down in your opinion.

Then we can knock the topic around and see if it turns into something useful or at least interesting.

 

[Alexander0884]

Well in my view a Market is an intermediary where goods are exchanged. I have been to a real market stall when I was 5 years old with my grandmother where she would sell fruit and vegetables she had grown on her Cottage. Havign said that I understand the concept of pricemovements and investor psychology.

I know that buyers and sellers drive the market price and that understanding their reaction to various events and news is the key to predicting movement. WHich is enarly impossible as human behviour is not predictable enteirely. However Iknow that I can make educated guesses with reasons behind them and more or less if the guesses are correct I will end up right more than wrong.

I understand in the financial markets I may be more wrong than right, but if I have solid money management skills and pick trades that faivour my ratios I will come out on top.

HOWEVER:

I notice that a lot of books and strategies cover fundamental analysis when they look at mid-long term charts and Technical analysis when they look at short term charts. I thinkin general this is a good ceoncept as short term not everyone may or may not have heared the enws yet and hence we see mixed reactions within the market.

I also understand that people are people and if they recognise a reversal pattern or a trend reaching the 31% fibonacci line and bounce back off that they will likely assume there has been a price reversal and will no doubt fuel the downtrend that will follow.

For me this is the idea of a gravytrain, the first one on and the first one out walks away with the money, the last one on and the last one out is stuck in the gravy.

One of the most important concepts I know is that the financial markets are a zero sum market, emaning that someone has to lose for someone else to gain. Havign said that nobody is STUPID, everyone wants to gain, therefore everyone is on the same boat. Its a matter of seeing where the heared is going, jumping in for a short ride and bailingout before the ehared walks off the cliff.

Thats my philosophy and its comes through observation, not experience. I noticed this is reflected more and mroe in technical analysis, I found that I can easily describe events using technical analysis and where fundamental analysis almost becomes insignificant.

SO question was is Fundamental REALLY necessary? UNLESS you are going to be predicting the actual movement BEFORE the enws is released?

Say Fundamental is telling you that there should be an uptrend but the technical indicates its a downtrend. Which one do you follow? DO you take a leap of dfaith and assume a price reversal to come? Or do you follow technical and look out for psychological factors such as "indicators" warning of a reversal before you jump out with your profits?

 

[The Leopard]

There are quite a few interesting questions in there, for example about predicting price movements. Can you do it? Should you even try to do it? Or zero sum markets. Are they really zero sum (or negative sum). Are we talking theoretically, practically? Are they the same? Does it matter in any case?

The post kind of makes things so broad it's a bit difficult to have a meaningful discussion, because we'd have to go all over the place.

But you haven't really answered the question - in your opinion, in any market you like, what causes price to move?

Another question, since your thread is about fundamentals:

What is the single most important fundamental? Again, your opinion, any market you want to choose.

 

[Alexander0884]

I think the most important fudnamental is the news. Not because it indicates what will hppen (on the market), but because it indicates that something WILL happen (on the market) (assuming the news is significant).

To answer the second question; speculation causes price movement. Purely in my opinion, since investors hold the key and pricemovement depends entirely on their move.

So speculation can be fueled by the news ofc and vice versa. However when i think about it both speculation and enws are high risk factors because it is hard to react to either in a positve manner.

Speculation can also be a result of technical analysis, when we perform technical analysis we speculate. SO having said that I know for a fact it causes price movements in the majority.

 

[The Leopard]

I think the most important fudnamental is the news. Not because it indicates what will hppen (on the market), but because it indicates that something WILL happen (on the market) (assuming the news is significant).

To answer the second question; speculation causes price movement. Purely in my opinion, since investors hold the key and pricemovement depends entirely on their move.

So speculation can be fueled by the news ofc and vice versa. However when i think about it both speculation and enws are high risk factors because it is hard to react to either in a positve manner.

Speculation can also be a result of technical analysis, when we perform technical analysis we speculate. SO having said that I know for a fact it causes price movements in the majority.

OK.

In my opinion, what you are saying about the news is completely wrong. The most important fundamental to my mind is money. How much there is and where it's going.

"Speculation causes price movement". What do you mean by that? Only speculation? What about investing? What about forced selling due to redemptions, or forced buying due to in-flows? What about panic events where huge numbers of people rush to dump their holdings at once. Do they not cause price movement?

I've got an opinion, obviously. You're wondering whether fundamental analysis is important. There isn't a right answer - some very smart, profitable people will say yes, some equally smart, profitable people will say no.

But to decide for yourself, I think it would be helpful to think more simply and more literally. What really causes price to move?

 

[The Leopard]

Speculation can also be a result of technical analysis, when we perform technical analysis we speculate. SO having said that I know for a fact it causes price movements in the majority.

TA literally cannot move price. It is a physical impossibility.

 

[Alexander0884]

Offcourse TA can not do it by itself but consider an example:

Sitting there across the globe are hundreds of thousdands of traders.

They are all performing TA on USD/EUR (for examples sake).

There has been a long uptrend over the past few weeks and the trend has finally been hitting a fibonacci resistance level in the past days; now at this moment the trend gather momentum and hits the resistance line: what hppens?

Well imagine the psychological impact on the traders, many of them have been trained and use the fibonacci levels as indicators and natural stops. Many of them will automatically exit the trade. On the other hand many other traders will look at the resistance level and wait for confirmation before going to short.

IN theory, not in practice TA does influence price movement. I dont think people are chasing "figures" I believe people are chasing patterns and set ups.

If they see a pattern or a situation they recognise, and the indicators point in the right direction they are more liklely to enter/exit at the opportunity and no other enws in the world would change that. Besides if you have already made your profit, why risk more by waiting around to see how trend reacts to news? High risk IMO.

Also following on from there, assume confirmation has been made on price reversal when the trend hit the resistance line, and say a good piece of news broke out. Will that change anything? IN my experience there is an X amount of LAG. And also because of all those traders shorting the trend is SURE to go down.

This is just my 2 cents, I guess my real question is is it possible to trade effectively without much fundamental analysis.

 

[ChocolateDigestive]

TA literally cannot move price. It is a physical impossibility.

whilst this is an extreme example and on the whole you are correct some TA can move price imo. For example the 200ma is looked at by big institutions and can have a self fulfilling prophecy to it.

 

[The Leopard]

whilst this is an extreme example and on the whole you are correct some TA can move price imo. For example the 200ma is looked at by big institutions and can have a self fulfilling prophecy to it.

No "on the whole" about it CD. TA literally cannot move price. Neither can news, interest rates, the state of the economy, a nuclear war or anything else like that.

 

[The Leopard]

This is just my 2 cents, I guess my real question is is it possible to trade effectively without much fundamental analysis.

Sure. So in my opinion the answer is yes. More than yes, you can trade effectively with no FA. But that's not particularly interesting or helpful.

 

[The Leopard]

Offcourse TA can not do it by itself but consider an example:

Sitting there across the globe are hundreds of thousdands of traders.

They are all performing TA on USD/EUR (for examples sake).

There has been a long uptrend over the past few weeks and the trend has finally been hitting a fibonacci resistance level in the past days; now at this moment the trend gather momentum and hits the resistance line: what hppens?

Well imagine the psychological impact on the traders, many of them have been trained and use the fibonacci levels as indicators and natural stops. Many of them will automatically exit the trade. On the other hand many other traders will look at the resistance level and wait for confirmation before going to short.

IN theory, not in practice TA does influence price movement. I dont think people are chasing "figures" I believe people are chasing patterns and set ups.

If they see a pattern or a situation they recognise, and the indicators point in the right direction they are more liklely to enter/exit at the opportunity and no other enws in the world would change that. Besides if you have already made your profit, why risk more by waiting around to see how trend reacts to news? High risk IMO.

Also following on from there, assume confirmation has been made on price reversal when the trend hit the resistance line, and say a good piece of news broke out. Will that change anything? IN my experience there is an X amount of LAG. And also because of all those traders shorting the trend is SURE to go down.

This is just my 2 cents, I guess my real question is is it possible to trade effectively without much fundamental analysis.

It is something of an unrelated question, but since you brought it up, do you really think the people that move the markets care about price hitting a fib level? Or seeing a pin bar or some common pattern or set up? Are Goldman Sachs or Vanguard or Fidelity or central banks selling because they see a head and shoulders on a chart, or buying because they see price hitting the 50 EMA?

But that's another question. What causes price to move?

The answer is buying and selling. Orders in the market, being placed and pulled. Nothing else, and none of the things that you have been talking about.

Let me demonstrate. Say the US declares war on China. Does price move? Nope. How can it? It is impossible for that event to move price.

Now say bugger all happens, but a ton of people decide to buy all at once, and there are virtually no sellers. No reason, nothing behind it, no cause at all. They just do. Does price move? Yes. It goes through the roof. It keeps going until buyers and sellers reach a rough equilibrium.

It is literally that. More bids than offers, price goes one way. More offers than bids, price goes another.

There could be an alien invasion tomorrow, the sun could rise in the West, and Tony Blair could not tell a lie. If nobody does anything in the market, no matter how extreme the events (of course the first too are possible, even likely, while the third will never happen) price will not move.

It will not move, because it cannot move. It is literally impossible for it to do so.

Unless someone does something in the market.

 

[scose-no-doubt]

Unless someone does something in the market.

Computer says "no".

 

[The Leopard]

Computer says "no".

Call Dell.