Should I Study Economics?

[dkoleary]

I am a newbie, have been reading forex stuff for about 6 months on a daily basis.

I am now interested in trend trading over timeframes of few days to a week or so. Where I can make a trade and come back when I need to close, without having to watch the charts all-day long.

After a lot of reading through the forums, I am not very interested in technical analysis or price action, but more on the fundamentals/news etc. Personally I believe most of the TA is bs.

So, should I start studying macroeconomics? I am already a university pharmacy student, but I would like to study economics on the side, out of interest.

Could anyone advise me on whether I should go ahead with this, and also whether there are any good books or resources I should go to for studying this subject matter.

The purpose of studying economics would be for me to have a deeper understanding of the world and of price moves in forex - since right now I'm not all that certain about many economic issues. Also so I can understand other markets like commodities etc.

Thanks.

 

[Rhody Trader]

If you want to trade forex from a fundamental perspective then you absolutely should study economics. Focus in particular on the macro stuff - subjects which are economy-wide or global. Ignore the individual or company related, or social stuff.

That said, fundamental analysis won't help you with week-long trends. The timeframe for fundamentals is more like months - even years. If you want to trade short-term term you'll need to use technicals.

 

[littlemog]

it's not a bad idea to pick up... even though i started trading and still do with a technical/quantitative approach, my course as a financial mgt student at school exposed me to some good ol' economics that broaden my perspective on things. in forex, knowing a bit on the economy and numbers helps a lot... (as opposed to those bozos who think trading ahead of news isn't a big deal)

but like rhody says... the timeframe is months. if you delve into forecasting, some authors say fundamentals need to be used in conjunction with something else to provide or pin point a more specific timeframe to be of use. otherwise you get very vague directions which gives you no edge in your trade. good luck.

 

[fibonelli]

http://www.trade2win.com/boards/news-current-affairs/39112-biggest-scam-history.html

 

[Atilla]

I am a newbie, have been reading forex stuff for about 6 months on a daily basis.

I am now interested in trend trading over timeframes of few days to a week or so. Where I can make a trade and come back when I need to close, without having to watch the charts all-day long.

After a lot of reading through the forums, I am not very interested in technical analysis or price action, but more on the fundamentals/news etc. Personally I believe most of the TA is bs.

So, should I start studying macroeconomics? I am already a university pharmacy student, but I would like to study economics on the side, out of interest.

Could anyone advise me on whether I should go ahead with this, and also whether there are any good books or resources I should go to for studying this subject matter.

The purpose of studying economics would be for me to have a deeper understanding of the world and of price moves in forex - since right now I'm not all that certain about many economic issues. Also so I can understand other markets like commodities etc.

Thanks.

I'm afraid you are in for a big dissapointment.

If you study economics you'll have Micro and Macro economics to study. These are more than likely to be compulsory. You'll get some options probably like International, Money & Banking or Quantitative Economics but you can't cherry pick once you are on the course.

You are very focused in on a selective area of Forex movements. However, to grasp forex you need to appreciation, inflation, interest rates, BoP as well as PSBR and governnment policy. There are also real and nominal rates to consider in determining exchange rates.

You are much more likely to benefit having an open mind than determining what you think you should be tought to understand forex imho.

Finally, that said, being an Economic graduate, I lost most money in the first two years using the FA approach. I too was very much like you are now with my post degree. You know how it is. You think life is a beach and then you drown... :cheesy:

TA is by far the superior approach to trading the markets IMHO.

Good luck...

 

[shadowninja]

Personally I believe most of the TA is bs.

Why?

I think FA is a load of bull. Then again, I've not studied anything related to trading. I did do a bit of microeconomics once. But, yeah, it's a load of bull so I'm not going to even read up on macroeconomics. I mean, the books are so heavy. What's that all about, eh?

 

[Jaydee]

Personally I believe most of the TA is bs.

Fundamental Analysis is built on Economics which is regarded as a social science. As such, much of the theories cannot be tested as rigorously as a pure science - a great deal of assumptions have to be made and something called reflexivity (read George Soros' Alchemy of Finance) causes an inherent bias in results. Therefore, Economics is relevent for normal trading periods but it is frighteningly imperfect for times like the present (the academics that school you will omit this point, however). All the world's top economists all seem to have conflicting views of what is the right thing to do at present - in truth, nobody has a clue how to get out of the current mess because the World's economic knowledge is so limited.

Some TA is BS - however, concepts such as Support and Resistance do have their merits. You should at least understand these basics before you trade.

 

[dkoleary]

Ok, when I say TA is bs, I am talking about things that have no clear explanation at all, things that people say they work but cannot offer any reasons as to why. And this is exactly why I don't like TA. I don't like making decisions when I don't understand why I am doing it.

Please keep in mind that my main focus is in FOREX swing trading, and I will probably never get into stocks.

Although theories of Economics cannot be proven as such, many TA indicators are even worse when it comes to fundamental theories. Support and Resistance, I have some appreciation for, but when it comes to MAs, and other indicators - it just gets ridiculous. And unfortunately, in FX, there are no information on trading volume.

The worst of them all, I believe, are price action / candle sticks. Especially when people use them in forex for a multitude of timeframes. Think about it - there is no closing or opening - therefore the candlesticks would look different just by changing the timeframe slightly.

Anyway - that's my newbie rant. Please destroy me into understanding TA or something.
Thanks.

 

[Jaydee]

Please destroy me into understanding TA or something.

No need, in my opinion, you've got it about right. Very refreshing to find a new person to trading who isn't obsessed with indicators.

Best

JD

 

[shadowninja]

Snag is, if they work, what does that mean about what you say?

 

[dkoleary]

Snag is, if they work, what does that mean about what you say?

Well I'm not saying they don't work. But I have yet to see proof that they do work.
When I say proof, I don't mean just someone's success, but I mean hard evidence of how and why they work.

Now, on the other hand, FA doesn't necessarily have much proof to back it up either.

I am simply choosing the one that makes most sense to me.
TA may actually work better than FA - and TA may actually have valid explanations for why it works, but all the explanations I have heard so far (for a lot but not all) are all bs and I just can't help but shake my head. Some make sense like support and resistance, but most others have not been explained without the usual dash of bs that gets added in.

Having said all of that, I still keep an open mind about TA and am willing to study it if I feel that it is worthwhile. But for now, I will be sticking to FA and studying that, as it's something I can understand the basis of.

I am highly interested in your opinions as well as others' as I truly am open about all ways of strategy in FOREX and I would rather hear the words of someone, such as you, who is far more experienced than I am, than not hear anything at all.

Thanks.

 

[littlemog]

dko, check out some good books on forecasting... i found it helps give TA a really good dissection... you'll find many common indicators nothing more than statistical methods applied to forecasting... with a bit of math you could see how indicators in ta operate... whether they work or not really boils down to the user and the market, data, timeframe etc. just avoid the camp online that looks to ta as some kind of magic balm. good luck.

 

[dkoleary]

could you please tell me a little more about Forecasting, and recommending me some books. Thanks.

 

[shadowninja]

When I say proof, I don't mean just someone's success, but I mean hard evidence of how and why they work.

Hard evidence won't explain how and why they work. The only way you can figure out if they work or not is to try them and then try to understand how they are calculated. Then, maybe, the penny will drop.

If laying an indicator over a chart doesn't give the right signals for you, it's down to understanding what an indicator actually indicates, the underlying calculation and what the best settings are for a particular instrument and timeframe. It's all on the web.

I suppose your statement about TA being bull is more a testament to the fact that "you don't know what you don't know".

 

[Jaydee]

Hard evidence won't explain how and why they work. The only way you can figure out if they work or not is to try them and then try to understand how they are calculated. Then, maybe, the penny will drop.

If laying an indicator over a chart doesn't give the right signals for you, it's down to understanding what an indicator actually indicates, the underlying calculation and what the best settings are for a particular instrument and timeframe. It's all on the web.

I suppose your statement about TA being bull is more a testament to the fact that "you don't know what you don't know".

The only issues I have with indicators is that they are only showing things I can already see - they are derivative. Also, they are seductive because you mainly notice them working on a historical chart rather than failing. This is a combination of the human eye/brain being good at spotting what it wants to see and post-dictive errors.

However, I do agree that many traders can and do use them successfully. That is more down to the trader as an individual and the methods (s)he manages their trade with, though and very little to do with the indicator IMO.

 

[dkoleary]

Ok, but say for candle-sticks, you honestly cant tell me that that is an objective indication. I have come up with a better graph:
- graph all the highs and lows for the period and also graph the median prices. You will end up with 3 lines on plotted. Clearly shows the volatility (space between the high and low) and also the median price.
You could possibly add-on more lines at Q1 and Q3 to further show the spread in prices - i see this kind of method far better than current candle-sticks as open/close price in Forex doesn't have ANY significance.

 

[Rhody Trader]

- graph all the highs and lows for the period and also graph the median prices. You will end up with 3 lines on plotted. Clearly shows the volatility (space between the high and low) and also the median price.
...
- i see this kind of method far better than current candle-sticks as open/close price in Forex doesn't have ANY significance.

Ummm....You do realize, right, that highs and lows can be looked at in the same way as opens and closes in forex? If you change when you consider the open/close for any period then you also potentially adjust where the highs and lows fall within the sequence.

Regardless of when you take your open/close/high/low, it's just a price point in time. No more. No less. It's all just a representation of price over time.

 

[shadowninja]

Check out the James16 thread on forexfactory.com... all about the candles.

 

[dkoleary]

Ummm....You do realize, right, that highs and lows can be looked at in the same way as opens and closes in forex? If you change when you consider the open/close for any period then you also potentially adjust where the highs and lows fall within the sequence.

Regardless of when you take your open/close/high/low, it's just a price point in time. No more. No less. It's all just a representation of price over time.

Highs and Lows actually show how volatile the market was between that interval, whereas opens and closes are merely just random trades at the start and end of the interval which don't represent anything significant at all.


I'm not saying that analysing candle sticks will not work at all. Of course they have some significance in the long run. What I am saying is, the only reason they work is because they show highs and lows and also two random numbers which have higher probability of being closer to the median trade depending on the variance at that interval - and this can be better represented by what I proposed above.

 

[counter_violent]

Ok, but say for candle-sticks, you honestly cant tell me that that is an objective indication. I have come up with a better graph:
- graph all the highs and lows for the period and also graph the median prices. You will end up with 3 lines on plotted. Clearly shows the volatility (space between the high and low) and also the median price.
You could possibly add-on more lines at Q1 and Q3 to further show the spread in prices - i see this kind of method far better than current candle-sticks as open/close price in Forex doesn't have ANY significance.

Where is this chart ? Can you post it as an attachment please.