Lets Build A Fundamental Strategy Together

I like to skim read when I read other posts so I will cut straight to the point.

I will be using these tools to create a fundamental strategy:

1. ECONOMIC CALENDAR ANNOUNCEMENTS
2. CORRELATIONS MAINLY WITH:
   1. GOLD - POSITIVELY CORRELATED WITH: AUD, NZD, CAD
   2. OIL - POSITIVELY CORRELATED WITH CAD
   3. DOW (+VE) AND NIKKEI (-VE) CORRELATION WITH USDJPY

   
   
   

3. BOND YIELDS
4. CARRY TRADES
5. MACROECONOMIC NEWS
6. FOREX VOLATILITY
7. 25-DELTA RISK REVERSAL
8. COMMITMENT OF TRADERS REPORT
9. OPTION EXPIRIES
10. ORDER BOARD
11. MONTH END ORDER FLOWS

I aim with your help to create a strategy that will allow us to trade the markets consistently as fundamental traders, I will document my thought processes throughout and encourage input whether big or small

CURRENCIES WE WILL BE FOCUSING ON: USD, AUD, GBP, CAD, EUR, JPY, NZD, CHF

There is a US news announcement going to be released at 15:00 GMT+1

 

1. My weak currency for the dollar is: EUR
2. And strong currency: CAD

I will be making a reactive trade depending on the strength of the breakout if there is one

UPDATE: There was not a reaction to the news so no trade was made

CORRELATION

I will be going short the AUDUSD or NZDUSD and long the USDJPY

ANALYSIS

It is well known that in terms of correlation:

1. Gold +ve = AUD, NZD
2. Oil +ve = CAD
3. Dow Jones (+ve) = USDJPY
4. Nikkei (-ve) = USDJPY

So based on this information using (https://www.myfxbook.com/forex-market/correlation) correlation table and looking at the current momentum trends I have seen that

1. Gold is trending down and so is AUD, NZD
2. Oil is trending up and so is CAD
3. Nikkei is trending up and so is JPY

1. Technical momentum bias is based on 200,100,25 SMA looking at the 15M and 4H

UPDATE

1. I have gone short the NZDUSD with a 3:1 ratio

You are going to drive yourself nuts looking at all the variables you listed and trying to decide from your analysis of all the things that you listed as to which way a currency pair is going to go.

Good luck to you, you are going to need it.

Another correlation trade, long USDJPY (±short AUDUSD)

ANALYSIS

1. Gold, NZDUSD and USDJPY are all correlating well together
2. I am predicting that the USDJPY will go and test a weekly high
3. The AUDUSD is slightly off with the rest of the pack but it is approaching a resistance which may make it re-join the pack

UPDATE

1. USDJPY trade executed for a win

CARRY TRADE

I will be utilising the carry trade by finding a currency pair that gives the most yield, at the moment this is the USDCHF (http://www.global-rates.com/interest...ral-banks.aspx).

15M


The RSI will be able to indicate when the pair become cheap causing the price to go up

4H

COMMITMENT OF TRADERS (COT)

Attached is a document that I have created that allows for better visualisation of the COT data; using it I have shortlisted some potential trades:

LONG

1. AUDCHF
2. EURCHF
3. GBPCAD
4. USDCHF

SHORT

1. CHFJPY

N.B. Questions or suggested improvements on the PIVDOC are welcomed

UPDATE

1. Long: GBPCAD
2. Trade was a loss
   1. After doing some analysis on the trade I am still confident in the fundamental mechanics behind how I am using the COT

Post #3 Update

 

1. This trade ended as a win

OPTION EXPIRES

ForexLive produce a consice report on option expires

The fundamental understanding behind this is that the expires will make price gravitate towards the strike price because there is a chance that the order will be activated before it expires, therefore, the new influx of capital from the activated order will shift the price towards the strike price

If you did not fully grasp the concept click here:

1. Jarratt Davis Option Expiration Video
   Inserted Video
2. Forex Factory thread explaining the use of option expires (you really only need the 1st post)

Here are some examples of yesterdays option expires that would have provided an edge:

I will be attempting to take advantage of today's expires especially the ones that are over $1Billion

UPDATE

 

1. I have gone short the GBPUSD, this will be a perfect hedge to my other open trade that is currently looking like it is going to lose
2. This trade ended up becoming a looser

1st WEEK REVIEW

I have not been able to go through all the fundamental strategies in the first post, but for the week commencing I will be focusing on correlation, economic calendar, COT and general macroeconomic news to guide my trades. Reason being is that I feel these have the potential to be instantly turned in to profitable trading strategies as a stand-alone whilst the other indicators need o be combined with other indicators to make them profitable.

ECONOMIC NEWS

1. This is a big week for the calendar and I will be expecting to post some examples of trades taken

CORRELATION

1. I will be sticking to capitalising on the correlation with GOLD pairs (AUD,CHF, NZD, USD)

COT - Based on my COT analysis I will be trading in these expectations

1. BUY
   1. EURCAD**
   2. EURCHF
   3. EURUSD
   4. GBPCAD**
   5. GBPCHF
   6. GBPUSD
   7. NZDCAD**
   8. NZDCHF
   9. NZDUSD

2. SELL
   1. CADJPY
   2. CHFJPY
   3. USDJPY

MACRO NEWS

1. I will be doing a pre-market analysis to form a bias in the markets

@forexin101: Where do you get the COT data from?
Regards,
renko

I use the raw data from cftc.gov and put it into an excel spreadsheet to make percentile sense of the data, here is my latest sheet

A trader who understands the behaviour of pairs by watching screen for two to three years develops a sense of using fundamental triggers and news profitably for quick returns.

Ideal is to plan how the likely reaction of news will be in 15 days before.

Assume there are eight groups with 28 stage artists performing a dance show daily.

Example: Aud : look for all the known economic events related to AUD and NZD. on a monthly basis. Plan in advance how the AUD will move and what kind of market noise will be generated (obviously by big market makers) to confuse traders. And try to understand their motive.

Most of the statistics are known in advance . In journalistic jargon it is called embargoed news. Sometimes embargo is placed a couple of days before or a couple of hours before on the same day. In journalism and public relations, a news embargo or press embargo is a request or requirement by a source that the information or news provided by that source not be published until a certain date or certain conditions have been met.

Market makers map out a strategy on how to create noise and how to trade. It is your job to guess and predict on a daily basis which group and which symbols will be up or down or consolidate.

I try to focus on only two families and four symbols and map out what I feel is going to happen until the news event happens 2 weeks in advance, and just before the day the event happens and just after it.

AUD and NZD play hot potato party game and the news events play music.

You have to explore probabilities and perfect guessing game. The less the symbols you focus on and avoid market noise distraction you will start enjoying the game By regularly practising this technique, a stage will come when your strike rate goes up to 90% .

Political events can be considered Black Swan events but not the economic releases events. You can't deal with surprises caused by political events.

Fantastic thread!
do you have “live” risk reversals?
are you an intraday trader?

Thank you!

And no the only risk reversal data I could get hold of was from saxotrader so I am very limited in terms of how I am going to use it to generate fundamental signals, right now I am thinking of combining it with another fundamental tool but for this week I will be primarily focusing on news, correlation pairs and COT as they are good as a stand-alone tool by themselves.

And I am an intraday/swing trader, I would like to be primarily an intraday trader, but the way these methods are starting to develop I see myself becoming a swing trader in the distant future

Could you possibly go through your methodology behind how you plan for a move days in advance?

Off the top of my head using the weekly (maybe monthly) as well as checking the forecasts for the economic news releases can give an indication into where the central bank and various interested parties think the currency in question is heading. Also, I'm finding the use of treasury bond yield curves could play an important role in gauging where the market is heading

https://www.forexfactory.com/showthr...10925435#reply
I follow simpler ways. Nothing special.

UPDATE

This is an update for historical/journalistic purposes; right now my correlation trading plan is taking shape, after coming across some information kindly provided by an FF member.

Changes made to the correlation:

1. A more politically correct term ‘statistical arbitrage’ will be used to coin the strategy
2. Tables on CME group will be used for the Max pain and Settled contract to give an edge for determining a direction in the markets and plot S&R lines
3. Trading View provides a perfect way to correlate many fundamentally linked pairs (described below) on one chart simultaneously, there is also the Recent Strength Indicator which has potential to do the same job
4. In terms of TA for entries and exits (after establishing an inefficient mispricing), I will be using the following: market profile, volume, RSI, one MA and price action, it's not yet 100% clear how these will be used at the moment

DETERMINING RELATIVE VALUE FOR EACH CURRENCY

1. Based on fundamental knowledge theoretically, the currencies listed below should correlate well with their counterparts, in the event there happens to be a mispricing, through statistical arbitrage I aim to take advantage of the mispricing based on the knowledge that the correlation will resume
   1. US
      1. XAU (inverse)
      2. EUR (inverse)

   2. EUR
      1. XAU
      2. USD (inverse)

   3. GBP
      1. USD (inverse), EUR

   4. JPY
      1. USD (inverse)

   5. CAD
      1. XAU, Oil (and Natural Gas)

   6. AUD
      1. XAU
      2. China's stock indices (CN50)

   7. NZD
      1. XAU, Cattle, Dairy
      2. China's stock indices (CN50)

   8. CHF
      1. XAU
      2. EUR (inverse)

*Countires with XAU will have the following currencies assessed: AUD, NZD, CHF, EUR, CAD, USD
*For OIL (CAD)
*Also included for each country will be stock indices and bond yields

Right now I'm looking for 25 delta risk reversal data, preferably in chart pattern formation to further add an edge to this strategy, if not found I will be sticking to that found on the Trading Floor by Saxo Bank

Questions and most important pieces of advice is most welcome

Hi Forexin101,

Thank you for the great thread. I am learning a lot of fundamental trading from you. Please keep updating!

Lots of green pips,
Neo

I too have an excel doc with the COT data but I don't understand the logic behind your calculation for "NETOverall Both NonComm and Comm" as it seems to be the basis for your pivot charts and tables. You have it set up so that it is the net of Non Commercials minus the net position of Commercials divided by open interest of that week. Wouldn't it make more sense to convert that minus to a plus or comparatively use the short and long fields for total reportable positions to calculate this instead ?