Trading Economics

forker

Senior member
2,688 500
There is far too little about this topic on this forum. Come to think of it i have never seen anyone on this forum dive into trading using a pure fundamental strategy.

Thread rule:
1) Those of you who's veins are made from trend lines. If say something that challenges your thinking, your world, your anger (not this mug again); then come and chat - do keep it on the friendly side.

Quick note about me:
10 years using pure technical analysis followed by 4 years of adding fundamental analysis and the last 2 years focusing entirely on the fundamentals. Trading technically for me became frustrating working on tuning risk and filtering junk trades. I started adding fundamentals as an experiment to filter the junk. After a few years of getting a handle on it i started reducing my losers and discovering i could trade without technical analysis altogether. I took the plunge and have never looked back. These days i probably spend no more than a minute on charts to set an order or enter at market. I trade medium to long term catching shifting economies. I also trade intraday but only on specific events.

I am not sure what the general perception is of a fundamental trader. I used to think it was a ton of research and watching news all day and i was largely wrong. News does affect fx although it doesn't do so on a regular basis. I am not going to discuss news trading to keep the process clear for anyone wishing to give it a go.

I need to start with trades that are planned to last for months. The knowledge you need to know for trading this way gives strong foundation to trading intraday economic releases (covered later).

Economies have cycles and some cycles take longer through stress. The thing is there are only 4 phases ( trough, recovery, peak, recession) that rinse and repeat over and over but do take time to transition. There are lots of economic indicators for every country. You don't need to know them all just the ones that indicate how an economy is doing. This list is the grouping of importance (top is highest rank)

inflation
Interest rates, GDP
imports exports, labor, manufacturing, services, (oil,commodities)
debt, accounts

I wont go into individual indicators because i want to focus on the general approach. I use a site called tradingeconomics to study each area of the economy and note down a simple paragraph explaining whats going on and write a new one every month. Each paragraph is followed by a bullet list of the main measurements (GDP, interest rates, inflation, labour) because these are key areas i need to know offhand. These paragraphs i read at least once because it does instil an ability to know who is strong and who is weak. i can't stress the importance of this because it is where your trading ideas are born.

I read every central bank statement as it gives me an understanding where the bankers concerns are and how they might act. Most central banks are not in the business to spook the market although some are awful at it.

Using indicators and tracking central banks gives me a roadmap of who to trade against each other. When data starts giving several deviations to one side successively, at increased regularity, or gradually; then you have a trade opportunity. If you can match apposing economies then you will have a shift in price to what will become a trend (long or short term). I chose what to trade based on strength and interest rate. It is far more profitable trading when the rollover is in your favour or as small as possible. Shifts generally associate with interest rates and as such you need to be aware of what sort of target you are looking for. What has worked well for me setting an initial target of 4 to 5 percent change from current prices. As shifts take a long time, I review momentum based on the underlying economy and if there is room I will trade again at a better price.

So long term trading for me is getting into multiple positions that can last for months at a time and repeated until the cycle changes.

intraday trades:
I trade deviations in the major indicator groups given when news is released. So for example if PMI is expected to be 50, was last 49 and comes out 53 then i am a buyer against a weaker currency. Likewise if its 47 then i am a seller. I will even open a position against a long term trade (taking partial profits in the long term trade at the same time and get back in at a better price). These deviations do not change the status of overall health of an economy but do over time. These deviations will impact the session and i can make anything from 50 to over 100 pips. Sometimes I front run the release and do so when i know a shift is taking place and have a good understanding of the direction it will likely unfold. I don't front run on the day of the release but perhaps a session or several beforehand.

Commodity affecting currencies:
its worth a note that i do trade based on energy (oil) and commodity data such as milk (NZ) or metals (AU). When oil news or reserve data comes out i will be looking to trade deviations with CAD.

tools:
i do general research using Eikon and also use it for instant printing of a data releases. As i have stated earlier i also use a site called tradingeconomics which is a gem of a tool for historical economic data.

planning:
i will plan the week ahead in terms of major economic data points and also daily. Basically i keep track of release times and days. The reason i said it is so important to study the summary paragraphs is because i don't include them in my planning. That is just essential back-work. Planning is nothing more than the schedule. My day is light in terms of research which i tend to do at night. This makes the day extremely simply and really a case of sitting on my ar5e and waiting for events to happen. Some days and even weeks there might not be much on. These are coincidentally the same weeks that chew technical traders up as you have sideways action.


Well that's enough for now. I hope it gives some clue as to my routine. if there are typos in here i am sorry i will fix them if i see then. I can't be bothered to read all i have written so fingers crossed its not muddled.
 

counter_violent

Legendary member
11,266 3,005
Interesting thread.

Had a play with the tradingeconomics site, and it just confirms what I already know. Europe is screwed :LOL:
Thank goodness we voted for Brexit !
 

forker

Senior member
2,688 500
That's for sure. I see Merkel has hinted that immigration should be on the table. I think her party has realised their time is limited.
 

forker

Senior member
2,688 500
The nature of trading divergences is that you cannot call them in advance and therefor there can be no live intraday calls on this thread. If i find a medium term opportunity i will flag it. I did so already on another thread where i traded USDJPY for over 1500 pips. I am looking to get back in on that by the way but only when i get a better price. If the USA continue the path on the recovery phase then we will have plenty of trades to come.

Today @13:30 UK time we have:

Building permits (suggestive of retail market spending)
Core cpi m/m
Philly (also inflation indicator)
Unemployment claims

I will be watching employment claims foremost as it suggests the strength of the labour market and is key to the recovery phase. Housing starts is an anecdotal data point that will align with claims. The cpi data points need to be up to support a rate increase that's been looming in the USA. At this point the Dollar is on highs so my preference is to look for a divergence to the downside instead of buying into extreme highs on data points which on their own don't give enough support to buy further at these levels

jobless claims high estimate is 265k with the expected estimate being 256k. continued claims has a high estimate of 2.050 with the expected being 2.0421

cpi m/m low estimate is 0.1 with expected 0.2

potential pairs to trade on divergence include jpy,euro against the $ for a session trade for 30-50 pips
 
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forker

Senior member
2,688 500
No trade on the news- mixed bag of lower m/m inflation side-by-side with better than expected housing and better than expected claims. The labour market is looking good and if there is no Trump shock we should see a continuation of $ strength albeit modest.

next up is Yellen which has trade potential especially if she dampens the outlook on rate hikes.
 

tomorton

Legendary member
8,396 1,338
Well done forker, this is an interesting start. The tradingeconomics site is a great find. I have been swayed to add a couple of columns to my trades dashboard spreadsheet to see how my trading aligns with the FA. I'd say at this stage you can call me sceptical but not cynical.
 

forker

Senior member
2,688 500
Well done forker, this is an interesting start. The tradingeconomics site is a great find. I have been swayed to add a couple of columns to my trades dashboard spreadsheet to see how my trading aligns with the FA. I'd say at this stage you can call me sceptical but not cynical.

Happy to have sparked an interest. If I may ask why are you skeptical?

What are you tracking on your sheet?
 

timsk

Legendary member
7,599 2,374
Hi forker,
Great thread - as you rightly say, the funnymentals are rarely discussed on T2W. I'll keep an open mind but, like Tom, I'll take a lot of convincing to abandon my charts!

One of the great advantages of charts and TA is that - as you're aware - there are any number of simple cues to enter and exit trades, and close the losers before they inflict too much damage on one's PnL. My impression (which may well be wrong), is that this is tricky to do when trading using fundamentals alone. So, how and when do you decide your interpretation of the fundamentals is wrong, because the market isn't doing what it 'should' do? Perhaps you're interpretation is spot on - but your timing is off - and price powers away in the direction you thought it would just after you've closed out for a loss. I accept fully this is a problem for TA traders too, but it strikes me as being an even bigger problem for fundamentalists?

You may not want to discuss the specifics of trade entry, stop loss and exit etc., and just focus on the fundamental rationale for trades. If so, that's fine, obviously. However, if you are happy to share your approach on this front - that would be icing on the cake.

Hope all that makes sense!
Tim.
 

tomorton

Legendary member
8,396 1,338
Happy to have sparked an interest. If I may ask why are you skeptical?

What are you tracking on your sheet?


Well, I can't yet see a way that FA can be time-efficient. There is definitely a concern about timing as Tim has said - as, traditionally, FA identifies the share and TA identifies the time to buy it - and I think that's going to remain an issue. Buying on FA but ahead of a potential market move seems incredibly risky, tantamount to stocking up your shop with Christmas goods in January - could be the best deal ever made but it isn't a probable source of income until November-ish.

FA also seems so subjective. I might see that employment figures are better than expectations in South Africa, so I might short USD/ZAR, but then if the market doesn't agree with me what's the point. I might think the weaker employment totals in the US are a reinforcement of my conclusion but that could be wrong too. On the other hand, price is fact, price is objective, price trends follow predictable courses.

Meantime, I'm tracking TradingEconomics forecasts against the USD for this quarter and next quarter, plus long-term FA forecasts from DailyFX. Maybe I'll drill down to specific statistical themes at some point but using these as overview proxies for now.
 

forker

Senior member
2,688 500
I completely understand your timing concern. I thought of it the same way when i was trading off charts however i had run out of options with tuning. Fa started out for me as an experiment which took time to understand. When i started, i treated economic releases as another indicator. I would have my chart setup and if data points were worse or better i would make that my confirmation. This is completely the wrong way to trade using it. I learned to treat each economy like a character in a fictional book. I began really studying the economies which took time to understand the cogs i needed to focus on.

Every day part of my process involves reading all my summary notes. When you do it daily it becomes a natural understanding to the extent of knowing who is strong or weak and what could change things. Think of it as being like the understanding you have of trading charts and knowing what to look out for. The difference is this requires actual homework. I spend roughly 2 hours a day researching and updating notes but to be honest i could do it all day because i find it fascinating.

If you understand how an economy is doing, where it is in the cycle, what is the central bank doing, and the pressing issues are; then the subjectivity goes away. Employment numbers might be better than expected but that is just one piece of a cog. Why usd against zar for as an example? is usd the right counter pair to be trading because it might be stronger than say the uk or another economy so could gbpzar make more sense? It is in every forex trader's interest to know what the strongest and weakest currencies are. There are other dynamics at play as well. South Africa is a commodity associated currency and there could be slump in mining or agriculture has been hit by drought. If you know the economy you will know the pressing issues and would know what is a bull5hit number and what is going to make you money.

The way to interpret individual releases is directly associated with knowing whats going on. After all you are effectively trading one economy against another. Know it well and you will do well. Here is an example of timing and ill bring more up as they arise.

The uk has taken a hammering on its currency which has been nothing less than speculation and the slowing of investment. The economy has been resilient and the labour market is doing good. Exports have ticked up and so has inflation and on the 3rd the boe said they are ditching a second rate cut which was £ positive.

If there is no brexit news on then £ isn't bad to trade and you can look to trade it against a weak currency which in this case was the euro. On Tuesday german gdp was worse than expected and being the main economy in Europe it isn't good news. Remember central banks are there to protect and their job is to intervene to support the economy. If you have a good labour market and inflation is rising and you have plenty of interest rate hike room, then how do you help the economy with the pending inflation problems? you hike rates to provide a softening effect on inflation.

Now that you have some context. Later that day the uk released producer input prices which was previously 0% and forecast to be 2%. When it came out at 4.6% the data was in the right side of supporting a hike and its a deviation to be paired with news of euro problems. Notice how timing really plays no part anymore because you are not driving your timing on price but the driver behind the move that is about to unfold.
 

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forker

Senior member
2,688 500
just an fyi:

i haven't updated the thread in a while from being very busy. I am busy putting together my own database of economic indicators for the economies i track. 11500 rows later i am still building it. Should be able to throw up some cool correlation across economies and indicators. The plan is to update the database once a week and have dashboards of visualisations next to my summary data. ill post the reward of my labour when i get through more economies
 
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forker

Senior member
2,688 500
over 27k rows and i haven't completed what i need from the eu and still have apac and amer to do. Once I have the base data done then i'll look to start overlaying countries and mixing indicators. If all goes well it will become a valuable research tool that gives me full control to slice and dice as I please.

basic example:
 

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counter_violent

Legendary member
11,266 3,005
over 27k rows and i haven't completed what i need from the eu and still have apac and amer to do. Once I have the base data done then i'll look to start overlaying countries and mixing indicators. If all goes well it will become a valuable research tool that gives me full control to slice and dice as I please.

basic example:

Nice charts !

Sorry....my bad :LOL:
 
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Signalcalc

Veteren member
4,670 1,030
What timeframes do you trade? If you look at the dailies and above for forex, commodities and indices then it seems clear that it is one market, instruments either have positive or negative correlations but nearly all share the same pivots.
 
 
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