What are the types of analysis need to do in Forex Trading?

[dbphoenix]

Which in technical terms is near impossible. All a trader can do is employ inefficient strategies that are at the mercy of session scoped data releases. You might get a slight deviation in a number which is enough to take you out but doesn't in itself represent a change in the underlying move.

If you know the basis of change then you can calculate an estimate of the magnitude of a move. So for example if you determine interest rates are going to start rising then you can expect a 3% to 5% appreciation as an initial leg. You can determine further moves by tracking the labour market and inflation data points. When you see a slowdown then you can expect the trend to have less fuel and at this point you can start adapting your position and strategy. if these points show no sign of change then expect another rate rise and further appreciation (and so on and so forth)

Actually it's not near impossible at all. Depends of course on what one means by "technical terms".

 

[dbphoenix]

Actually, the first challenge is to know it is a trend. But after that nobody can know with certainty when a trend is about to end and/or reverse. The most probable outcome however is that it continues.

Certainty, no. Probable outcome, yes. Continuation is only one probable outcome.

 

[forker]

Actually it's not near impossible at all. Depends of course on what one means by "technical terms".

how is chart going to show a trader where interest rate rises start effecting the labour market and inflation?

 

[dbphoenix]

how is chart going to show a trader where interest rate rises start effecting the labour market and inflation?

If a trader cares chiefly about where price is going, he won't care. The reasons for any given price movement are not germane.

 

[forker]

If a trader cares chiefly about where price is going, he won't care. The reasons for any given price movement are not germane.

Traders need to care about where price has the potential to go and how to determine if that target zone is premature or an overestimate. The whole point of trend following is having a realistic expectation of the trend and not something plucked out of thin air or assumed from historical price.

 

[forker]

The reasons for any given price movement are not germane.

the reasons for any given price movement in forex is always driven by fundamental, political, or central bank intervention. The continuation of this determined by more of the same.

To say the reason for price movement is not important is like saying "f..it, price is going up and i'll buy and ill put my finger in the air (based on some chart structure) as to where i place my stops and targets"

good luck to the trader that operates in this fashion

 

[dbphoenix]

Traders need to care about where price has the potential to go and how to determine if that target zone is premature or an overestimate. The whole point of trend following is having a realistic expectation of the trend and not something plucked out of thin air or assumed from historical price.

But this is all guesswork. One needn't guess. All he has to do is trade price, i.e., follow the money.

 

[dbphoenix]

the reasons for any given price movement in forex is always driven by fundamental, political, or central bank intervention. The continuation of this determined by more of the same.

To say the reason for price movement is not important is like saying "f..it, price is going up and i'll buy and ill put my finger in the air (based on some chart structure) as to where i place my stops and targets"

good luck to the trader that operates in this fashion

The reasons for any price movement in any instrument is that buyers believe it's worth more and sellers believe it's worth less. Demand and supply.

 

[forker]

The reasons for any price movement in any instrument is that buyers believe it's worth more and sellers believe it's worth less. Demand and supply.

Thanks for highlighting the obvious which doesn't answer why the reasoning behind price movement is irrelevant when trading trends. If it was irrelevant then you wouldn't have trends and instead have more range bound properties because there won't be sufficient agreement on when to get out. You can't make a 1000+ pips trading a trend without knowing what's going on consistently. You might get lucky once in a while but that's about it.

 

[dbphoenix]

Thanks for highlighting the obvious which doesn't answer why the reasoning behind price movement is irrelevant when trading trends. If it was irrelevant then you wouldn't have trends and instead have more range bound properties because there won't be sufficient agreement on when to get out. You can't make a 1000+ pips trading a trend without knowing what's going on consistently. You might get lucky once in a while but that's about it.

The "reasoning" is irrelevant because each of the millions of traders trading that instrument may have reasons that are unrelated to all the reasons of everyone else who is trading the instrument, each of whom may believe that his reasons are far more important than anyone else's.

However, the fusion of all these reasons will of necessity be reflected in the price. If buyers have a greater commitment to their positions, price will rise. If sellers are more committed to their positions, price will fall. If the level of commitment is equivalent, price will move sideways until there is some change in those commitments, perhaps due to fundamentals.

 

[tomorton]

The reasons for any price movement in any instrument is that buyers believe it's worth more and sellers believe it's worth less. Demand and supply.

This is the heart of it. Its the buyers who are important, not my fundamental analysis. In fact, not even their fundamental analysis, if that doesn't convince them they should be buying.

 

[tomorton]

Traders need to care about where price has the potential to go and how to determine if that target zone is premature or an overestimate. The whole point of trend following is having a realistic expectation of the trend and not something plucked out of thin air or assumed from historical price.

But why? All I expect from a trend is that it continues. When it prints a pattern suggesting it has started decelerating I exit, but that's potentially also the start of a pattern that suggests it has started resuming so very soon I hope to be able to enter again. Etc. etc. Am I missing something?

 

[dbphoenix]

This is the heart of it. Its the buyers who are important, not my fundamental analysis. In fact, not even their fundamental analysis, if that doesn't convince them they should be buying.

A lot of deja vu here. I went through all this at length in '99, back when I was trading via CANSLIM. The fundamentalists insisted that their stocks were worth every penny being asked. I tried to warn them that the price of a stock had little to nothing to do with the value of a company. Different methods of evaluation. Some listened, most didn't, and a great many people lost a great deal of money just a few months later.

 

[forker]

But why? All I expect from a trend is that it continues. When it prints a pattern suggesting it has started decelerating I exit, but that's potentially also the start of a pattern that suggests it has started resuming so very soon I hope to be able to enter again. Etc. etc. Am I missing something?

Patterns in price are about 50% reliable. I can assure you institutional traders don't sit there determining trend based on patterns. Their formation is nothing more than circumstance on expectations of data releases and their outcome is nothing more than coincidental. How can you realistically determine a genuine trend is forming and give you an opportunity to get in with the most sensible risk. Furthermore, how can you determine when a trend is genuinely at risk when you are guaranteed deviations resulting in session reaction.

Trends are driven in forex by fundamentals, not price analysis. If it was that cut and dry then news terminals would be cheap, charting terminals stupidily expensive, and patterns would be constantly changing from being highly probable to coin tosses as more traders take advantage of traders trading them. You have to remember that institutions need liquidity and one way of doing that is taking advantage of traders trading patterns where they have large pools of orders to absorb to fill their clients orders. Why do you think you get false breakouts or random spikes. This is beyond the topic but you get the picture.

Show me a trader that can take 100 percent of a trend using charts. You won't find a single one. Why this is the case is obvious. They don't know when to get in at the right time and they don't know how to work a trend in their favour until its completion.

 

[forker]

Trend trading isn't the only way to make money in fx. You can make a ton intraday trading deviations. As for intraday technical analysis trading. In my experience it's difficult to absorb trading costs and losses on 50% success rates. I did this for years and maybe i don't have what it takes. I can't answer that. All I know is you don't see institutions trading that way for the reason I have described. They trade trends and deviations. I know this because in my career I have worked closely with them.

 

[dbphoenix]

Trends are driven in forex by fundamentals, not price analysis.

But price is driven by fundamentals. One can spend a great deal of time and money analyzing fundamentals or one can simply look at a chart. Trader's choice.

 

[forker]

But price is driven by fundamentals. One can spend a great deal of time and money analyzing fundamentals or one can simply look at a chart. Trader's choice.

Trading charts is like driving a car while staring in the rear view mirror.

 

[dbphoenix]

Trading charts is like driving a car while staring in the rear view mirror.

So is trading fundamentals, given that the fundamentals are known before the price movement.

 

[tomorton]

Patterns in price are about 50% reliable. I can assure you institutional traders don't sit there determining trend based on patterns. Their formation is nothing more than circumstance on expectations of data releases and their outcome is nothing more than coincidental. How can you realistically determine a genuine trend is forming and give you an opportunity to get in with the most sensible risk. Furthermore, how can you determine when a trend is genuinely at risk when you are guaranteed deviations resulting in session reaction.

Trends are driven in forex by fundamentals, not price analysis. If it was that cut and dry then news terminals would be cheap, charting terminals stupidily expensive, and patterns would be constantly changing from being highly probable to coin tosses as more traders take advantage of traders trading them. You have to remember that institutions need liquidity and one way of doing that is taking advantage of traders trading patterns where they have large pools of orders to absorb to fill their clients orders. Why do you think you get false breakouts or random spikes. This is beyond the topic but you get the picture.

Show me a trader that can take 100 percent of a trend using charts. You won't find a single one. Why this is the case is obvious. They don't know when to get in at the right time and they don't know how to work a trend in their favour until its completion.

I don't use the patterns from conventional TA, I agree, they're just not reliable enough, I could say not objective enough. But I'm trend following, I'm sure trend-leading is a conjuring trick, an illusion. I only join a trend that's what others would call mature. The risk in TA terms is the distance back to the last swing point - if price breaches that, the trend is more likely ending than continuing. I have no view as to whether I'm looking at a 3-day future for my trend or 3 months, I don't know of an objective way of forming such a view. The capital risked per trade will be pretty much identical, except that in a 3 month trend I'd hope to get in and out and in and out repeatedly owing to price fluctuation.

Maybe there are a lot of people laughing reading this but to me price behaviour in trends seems so unavoidable, almost a rule of nature, irregular but not chaotic.

Yes, FA creates trends if enough actors reach the same conclusions. But what advantage to me even if I had the ability to form such a conclusion a month ahead of the market or just 1 minute behind? There's nothing I'm going to do at these points anyway.

 

[forker]

I don't use the patterns from conventional TA, I agree, they're just not reliable enough, I could say not objective enough. But I'm trend following, I'm sure trend-leading is a conjuring trick, an illusion. I only join a trend that's what others would call mature. The risk in TA terms is the distance back to the last swing point - if price breaches that, the trend is more likely ending than continuing. I have no view as to whether I'm looking at a 3-day future for my trend or 3 months, I don't know of an objective way of forming such a view. The capital risked per trade will be pretty much identical, except that in a 3 month trend I'd hope to get in and out and in and out repeatedly owing to price fluctuation.

Maybe there are a lot of people laughing reading this but to me price behaviour in trends seems so unavoidable, almost a rule of nature, irregular but not chaotic.

Yes, FA creates trends if enough actors reach the same conclusions. But what advantage to me even if I had the ability to form such a conclusion a month ahead of the market or just 1 minute behind? There's nothing I'm going to do at these points anyway.

Sounds like you are spot on with your approach regarding the way you trade it. I do it in a similar fashion. I have a position size but I work it where half the total size is in until I see the trend being over. The other half I get in on pullbacks and out at logical levels or deviations on news where I would even open against my overall position for a session trade and then get back in the trend and a better price.