Fundamental + Technical Analysis Trading System

I have been trading forex for the past 10 years. In the early years, I have attended many trading seminars, courses, read more than 100 technical analysis trading books. using technical analysis indicators in my trading such as Elliot waves, moving averages, stochastics, ....etc (anything you name it). Over the years, my perspective of trading have become more mature and less impulsive of making profits. I come to realize that trading is similar to profession like Law, Medicine, Accountancy which requires many years to training before you become a professional in the respective field. Even if you are equipped with the relevant knowledge, you still need many years of practice to hone your skill to the professional level.

How I wish someone can advise me in my early trading years that technical analysis only constitute less than 20% of what a aspiring trader need to know. The rest depends on risk management, trading personality, trading psychology. Even if you have equipped with the relevant knowledge, you still need months or even years of demo practice to hone your skill before you can become a confident trader.

Afterall, forex trading is a probability game. The more homework we do, the higher probabilty that the trade is in our favour. I have been reading FF forums for quite a number of years but I observe that most of the discussion are mainly about technical analysis. Fundamental analysis is a subject that is often ignore by many traders. Why is this so? Well, the former is taking the quantitative approach while the latter is an qualitative one which is more difficult to apply in trading and hard to grasp in terms of concept.

The reason why I am spending time to understand and apply Fundamental analysis in my trading is because I have come to realize that most of my profits tend to reverse in direction when news was announced. Since I tend to hold my positions for a few days to even a few weeks and months, it is important for me to know that market sentiments have not changed in a big way or opposite of my positions.

I will talk more in details about how I apply Fundamental Analysis in my trading later ........ Stay tune.

I begin to study Fundamental Analysis seriously in May 2017. For the first 3 months, I was overwhelmed by a lot of technical jargons and often mixed up the hard sentiments (affecting the long term trend) with the soft sentiments (short term trend lasting for hours to a few days). It is no wonder this subject is not popular among the traders. Nevertheless, as I spend more time on this subject, it becomes clearer to me. Anyway, I am still learning ............

In Fundamental Analysis, this is what we attempt to know:

 

1. What is the overall economic outlook for a country (GDP, employment data, inflation)
2. What is the stance of the central bank (Easing, tightening, normalizing or easing)
3. What is the most important policy decisions as viewed by the central banks
4. Market Expectation
5. Geopolitical Development
6. Hard sentiment vs soft sentiment

The above topics will be covered more in details in the coming days.

In my opinion, the following technical analysis is found to be useful when applying together with Fundamental Analysis:

 

1. Support and Resistance
2. Fibonacci level
3. Candlestick chart pattern
4. Pivot points
5. 200 SMA (optional)

The following is the important news release for 1st wk of 2018:

Jan 2 Manufacturing PMI GBP

Jan 3 Construction PMI GBP
ISM Manufacturing USD
FOMC meeting minutes USD

Jan 4 Services PMI GBP
ADP Non-Farm Employment Change USD
Unemployment Claims USD

Jan 5 Trade Balance AUD
CPI Flash Estimate EUR
Employment Change/Trade Balance CAD
Unemployment Rate CAD
Non Farm Payroll USD
ISM non-manufacturing PMI USD

Update on Jan 2 for UK manufacturing data:

 

1. Although UK Manufacturing PMI data misses market expectation, it does not affect most of the GBP currency pairs (having going south shortly after the news release but recovers quckly).
2. UK manufacturing ended 2017 on a positive footing. Though the growth output and new orders were moderated during Dec, rates of expansion remained comfortably above long term trend rates.
3. The sector has broadly maintained its solid boost to broader economic expansion in the fourth quarter.
4. The outlook is also reasonably bright, with over 50% of companies expecting production to be higher one year from now.

In view of the above, my short term trading bias for the next 12 hours is to long GBP until the next data released on 3rd Jan. Long term bias for GBP remain neutral until the Brexit negotiation saga is over.

I am currently holding the GBPNZD long positions until the market sentiment for GBP has reversed. Do note that my trading bias for the past few weeks was shorting GBP due to PM May losing the voting right and let the House decide the details of the Brexit deal. Profit trades were all close after Christmas Day. The attached image is self-explanatory.

This is a typical example of closing the trades in profit too early in 2nd - 3rd wk Dec . It does not help when I have done all my homework. All the facts are pointing to selling the USD since the market has already priced in that Fed is going to announce the 3rd rate hike in mid Dec. At that time, USD was well supported as the Tax Bill was speculated by the market to be a done deal before Christmas.




What puzzled me was the fact that Republican was promoting slashing the corporate and personal income tax as this help to create more jobs and boost the economy. Ultimately, this is only going to benefit the rich and maybe the upper middle income group according to economists and expert in this field. From the laymen point of view, it does not make any sense to expect the dollar to appreciate since the Tax Bill is going to add another 1 - 1.5 trillion dollars to the national debt.
How do you make a country great again when she is so heavily in debt? Time will provide the answer to this question.

In hindsight, I wasn't firm in believing all the homework that I have done. But on the other hand, I was also in doubt where the market was actually going as the market apparently buy the Tax bill idea then. So I close all my trades with some profits and hope I can re-enter again with a lower price at a later time. Well, I guess I have missed the big boat as I normally add more positions when it is going in my direction.

Trading is just a probability game. It does not matter whether you are right or wrong, it will go where it want to go. Having said that, I still did not expect EURUSD to head north on the last week of 2017 which was characterized by low market liquidity and volatility. Usually most USD dominated currency pairs tend to go sideway in the week where NFP is to be announced on the last day of the same week. So the current EURUSD movement is rather unusual.

Great information. Keep it coming.

Hey guys am a bigginer here. My first time trading even though I haven't started yet I'd say but I'm not precise where to start or how to start.

Congratulations @patguay on your 1st thread based on Fundamental analysis. Subscribed to it and looking forward to your posts

Thanks for dropping by. I will provide updates on the important news release and share my opinions on it if I have the time. I hope all of us can learn from the information sharing.

Patquay, well done. with this FOMC MEETING MINUTES of 03.01.2018, is it good to LONG or SHORT Dollar against other currencies ? My Regards. Oyebobo.

There are some website that offers free information on forex trading for beginners, for example: www.babypips.com It should provide you all the necessary info you want to know about trading.

Just some word of advice:

 

1. Learn to trade properly right from the beginning. Otherwise, you will spend years unlearn all the bad trading habbits.
2. You have to access your trading personality which will determine what time frame to trade: scalper, swing or position trader
3. Don't switch from one trading strategy to another strategy to pursue the so called holy-grail trading strategy. You need to spend enough time to understand under what market condition will certain strategy do well and whether it suits your trading personality or not. Only when you have master it before you move on to learning the next strategy.
4. You need to bear in mind that trading psychology and risk management are very important subject that you cannot afford to ignore it if you are serious about trading. The earlier you start learning the skill the better.
5. Don't pay for all those courses, EA or technical indicators that promise you to become a millionaires within a few weeks and spend your time cruising Caribbean islands. You will save a lot of money by ignoring all these websites.
6. Start with demo trading and apply whatever trading strategy you are comfortable with. Determine your trading expectancy by collecting sample data, say 30 - 100 trades. Keep a trading journal on all your trades and analyze what you have done well and those areas that need improvement.
7. When you think you are ready to start trading live, open a $1000 account and trade 0.01 lot with minimum leverage. Go back to trading demo account again if you fail to achieve break even for the 1st year. You have to hone your skill until it become auto pilot. Be prepared to spend more months or even years to achieve acceptable returns before you trade live again. This will save you the possibility of burning your account which will have a great psychological impact on your trading performance.
8. If you are not committed to spend a lot of time and patience to master the art of trading, then don't waste your time.

A few years from now, you will thank me if you heed my abovementioned advice. Good luck trading.

Fundamental Analysis is a new frontier for me. I am still learning it. I will share what I have learned and hope it will offer some reference to your trading decision.

Here are the highlights of US ISM Manufacturing PMI (Jan 3):

 

1. Manufacturing activity unexpectedly strengthened in Dec, boosting optimism over the American economy.
2. Index of manufacturing activity increased to 59.7 last month from Nov reading of 58.2
3. Overall economy had grown for the 103rd consecutive month

Interpretation:
The ISM reading shows that manufacturing sector is in great shape

Note: A reading above 50 indicates expansion in the manufacturing sector, below indicates contraction.

Thanks for the advice.

Dec 13 FOMC meeting minutes does not offer any surprises to the market although it carries a slight hawkish tone. I would wait for ADP Non-Farm Employment Change, Unemployment Claims and NFP data to be released in the next 2 days before deciding on my trading bias for US dollar. So far, we have 1 positive datapoint for Wednesday.

The FOMC meeting minutes released a few hours ago contain both hawkish and dovish elements but overall, it carries a slight hawkish tone. The highlights of the minutes are as follows:

 

1. Several officials were concern about low inflation expectations. Still, the majority expected inflation to rise to 2%. (mixed views on inflation)
2. Most of the members backed gradual rate hikes.
3. Optimistic assessments of the US economy and higher projections for GDP as the new US tax policy will boost consumer and business spending. (hawkish view)

The minutes seemed to suggest that the central bank will continue to raise interest raise gradually but the pace could pick up if inflation rises.

Note: I have omitted a lot of details as I do not want to bore the readers.

Very well said.
Thank you for your advice.

You are most welcomed.

The following are the highlights of Thursday US data:

 

1. US private sector added 250k jobs in Dec, at the fastest pace since Mar, well above economists expectations of 190K. (positive news)
2. The Markit PMI Service sector came in at 53.7, also surpassing expectations. (positive news)
3. Weekly unemployment claims, however, jumped to 250K, well above the expected 240K. (negative news)

We have a mixed bag of US employment data on Thursday.