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How to use Fundamentals to make Money

  • #21
  • Jan 21, 2009 11:20am Jan 21, 2009 11:20am
Quoting fry2010
birdt that report was an interesting read certainly.
Though it apears to be quoting what has been said, not figures. How reliable is this source though because is it not from a broker?
Just like everything else, take it with a pinch of salt. I thought the article was quite apt because of what it said about economics and politics being given the oxymoronic title of 'sciences'. Sciences are consistent and are able to be formulated. Economic theory can be formulated, neatly packaged and explained perfectly by academics but it doesn't always work out like that in reality. So your idea of evaluating the components and in some way of quantifying them to derive a value of a currency is going to bring you to a subjective conclusion that may not be at all aligned with the reality of what the aggregate of market participants think. It's simpler than that though, you just need to match the strong with the weak, and studying the fundamentals is a way of doing that, but even then do you know how much of it has already been factored into a currency pair - does the market care about your theories? There is a dnager of falling into a trap of studying the numbers and looking at the market and coming to the conclusion that the market is 'wrong'. The markets are imperfect and people can be stupid but the market is always right, only a trader or the theory is ever wrong.
  • #22
  • Jan 21, 2009 11:25am Jan 21, 2009 11:25am
Quoting birdt
There is a danger of falling into a trap of studying the numbers and looking at the market and coming to the conclusion that the market is 'wrong'.
Just today I was thinking exactly that lol!!! 'The market has got to be wrong, it is not doing as I say it should!'
Quality line there.

I appreciate ur view on taking it as a pinch of salt, and also that there is a lot of truth in what its saying. Its a totally different view to what im used to reading, makes for a nice break.

Thanks for your further explanation on the subject as well. Today has been a gd day of learning.

Now to go find the financial times. Actualy any suggestion on good national newspaper here in the uk to read?
  • #23
  • Jan 21, 2009 12:27pm Jan 21, 2009 12:27pm
Forget fundamentals, they do not move markets, that is a myth that has been debunked often. There are 100's of economic stories each day, and assigning a meaning is about as reliable as reading tea leaves or astrology charts. As an economist I know.

What moves markets is mass psychology motivated by fear and greed at the extremes. Markets fluctuate in cycles and patterns as old as time, and proportional to the optimism or pessimism that exists.

As far as Jack Crooks/Black Swan goes, I have a lifetime subscription, but find he is a publisher - not a forex genius. He sells reports. Most often, I treat Jack as a contrary indicator, his track record is awful. Throwing darts is better. But he has made some right calls for wrong reasons, meaning the market moved as he hoped but not for the reasons he thinks.

If you try to trade by fundamentals you will blow your account out and be doing something else in short order. The market can be irrational longer than you can remain solvent.
  • #24
  • Jan 21, 2009 12:36pm Jan 21, 2009 12:36pm
i have a question for u fxoffshore, its not an attack but a serious question.
As an economist do u find it a lot easier to trade? Do u have an extra advantage that most traders do not because u have studied such a subject?

And also im a little suprised to hear an economist say that its not fundementals that drive the market.
I agree tht its mass phycology and decisions that drive the market, but maybe fundementals is how you can judge what that mass physcology will do?
i do not know what to think now.
  • #25
  • Jan 21, 2009 1:36pm Jan 21, 2009 1:36pm
The secret is that fundamental analysis is favored by people who sell information. There is not much to sell with TA or Sentiment, so the subscription business focuses on the mysteries of fundamentals and their interpretation of what is important. Most of the time, the news has already been factored into the prices well before it was announced.

My experience is helpful in small ways, it allows me to dismantle some arguments that are one-sided. I wish that analysts routinely stated if they currently have a trade open, because they nearly always are promoting their bias. Just ask a gold dealer where he thinks gold or the USD is going, and the answer is predictable. Stock promoters (including CNBC, FOX, and others) have an agenda to support their advertisers, they always say Buy Buy! - and select stories that support that bias, or change it to exclude any bearish facts. There are few independents that can be trusted to deliver the whole truth on economic issues. (arguably Marc Faber, Nouriel Roubini, Jim Rogers, Peter Schiff, Robert Prechter, as a partial list but not an endorsement).

The other things to consider is the source of fundamentals, and what their interest is in telling you their bias. Even Government figures are unreliable and slanted for political purposes. Unemployment is only half of the real figure; based on the method that I grew up with. Inflation is rigged to keep pensions and wages artificially low and hide real inflation. There are "lies, damned lies, and [economic] statistics".

My pet peeve are the advisors that use the News part of this forum to promote their business selling subscription to their insights, and post articles with misleading content and a title that forms a conclusion. They typically present a one sided arguement to support their bias, and avoid, or are unaware of other more important factors. It is NOISE - not news. It confuses more than it helps, and needs to be filtered out or avoided.
  • #26
  • Jan 21, 2009 1:45pm Jan 21, 2009 1:45pm
Do you know a mt4 indicator that mark a news event on the chart by a icon or vertical line ?
Rich is just a definition !
  • #27
  • Edited 3:25pm Jan 21, 2009 1:49pm | Edited 3:25pm
wow some people can be so narrow minded... I understand that you have your own approach but to say someone elses is 50/50 at best is just plain disrespectful... I don't think my account would agree with you there...

I have managed to grow my account quite impressively trading based on the fundamenatals... I agree that the mass move the markets but please tell me, do the mass simply imagine scenarios in their heads all at the same time? or would you imagine that economic indicators and news stories play a part?

I am sorry I do not want to argue but I find it completely disrespectful to argue such a point.

It is ok if you don't make money this way, it is ok if you don't see how it can work but please don't tell me that I don't. If it would make you happy i'll censor my trading account from private data and post it here for you to see that your 50/50 is seriously laughable.
  • #28
  • Jan 21, 2009 2:02pm Jan 21, 2009 2:02pm
I didnt mean to spur any arguement but each to thier own opinion.
My own opinion is that people can and do trade fundementals successfully, just as people trade TA successfully. Maybe the fact you have a more in depth view of economics actually hinders your mind into thinkin how everyone else wud interperet it and so actually its no good to you.
I have to say I am kind of shocked but not so shocked to hear that government lie to the extent you say here, but it is well believable, because the people in power are actually scheming devious pigs, only out to line thier own pocket and have power.
Im still gna look into fundementals cause it actually interests me strangly. It has never done before, i think that was because of my lack in understanding it.
Ill give it a try.
  • #29
  • Jan 22, 2009 3:48am Jan 22, 2009 3:48am
Yesterday we saw the EUR/USD mostly fluctuate in a range between the 1.3000 and 1.2800. The Euro rallied during yesterday’s Asian session only to give it all back as the USD stamped its authority amidst the negative Eurozone news. Fortunately the EUR recovered some of its losses from the past few days with a rally late into the US session that puts us back about the 1.3000 handle.

The Euro continues to get beaten down as concerns over the credit worthiness of some of the Eurozone’s peripheral countries heighten. In an unprecedented move we have seen the value of Gold (normally the offset to the greenback) rally alongside that of the USD. This indicates that the USD rally against the Euro is based on the fact that the majority of the data being released has worked out negative for Europe, combined with the lack of data being released for the U.S and we have a case of not so much Dollar buying, but Euro selling.

With Obama taking on his official first day as the president of the U.S it is important to briefly review his economic plan, and understand how the implementation of these policies will affect the currency market. His policies and plans will not guarantee a short term revival of the U.S economy, with some experts believing that only $100bn of the $500bn to kick in within the 1st 3 months of this year. The proceeds from proposed tax cuts will more than likely be saved as fear grips the economy, rather than spent in order to boost growth. The jobs created on the back of the stimulus package will not be enough to cover the losses suffered at the hands of growth contraction. Infrastructure projects will absorb workers from real estate construction, however, services and manufacturing in general will suffer due low demand and the economy slows. The investment in infrastructure, renewable energy and R&D will stimulate the economy and create jobs, but only in the medium and longer term. (RGE).

Also highlighted in the news today was the expected decline of China’s GDP for the 4th quarter of 2008. The economy is predicted to slow to a level of 6 -7.5%, well below the 9% for the 3rd quarter on 2008 and the 13% GDP for 2007. China is expected to approve their own stimulus package and aggressively cut interest rates in a hope of meeting their 8% target. You may wonder why this is relevant to the EUR/USD as an investment instrument. Well, as mentioned in previous reviews, China is the Major purchaser of U.S Treasuries and will need to keep on lending if the U.S wants to finance their rescue package. So, if China decides to keep money at home and invest in their own economy the U.S will lose their main source of finance. In the longer term this will decrease the demand for the USD as China will no longer have to buy the U.S currency in order to but U.S securities. However, in the short term with all the risk aversion in the markets there will be no shortage of takers for the U.S currency.

If we consider all of the above issues we can see that in the short term the USD is likely to profit as investors’ park capital in the safest place (U.S Treasuries). With the negative European data being released daily this trading theme may intensify. However, as the safe haven play loses steam and traders revert back to the fundamentals, the USD will be punished for their budget deficit and willingness to print there way of out trouble.
  • #30
  • Jan 22, 2009 1:33pm Jan 22, 2009 1:33pm
There are some key issues when trading news:
* - Backtesting and a strong Technical Analysis support must be needed. Here is a good example of that: http://expertsmt4.wordpress.com/2008...aims-strategy/
* - You must create a EA (a software) to avoid requotes and to enter at the right time.
* - Don't trade news has little or none influence on the market. That is news that affects the market in 10 to 50 pips are very difficult to make money with due to spreads.
* - Trade big news those that can move the market more than 100 pips. In order to avoid wide spreads you must trade long term movements.
* - Be sure you have the right source of information. You might want to check Reuters, DailyFX, and some blog about news: http://angelatrix.wordpress.com/
* - Find a good broker with a great bank support which would allow the broker to fix tight spreads. These brokers are difficult to find but if you check Oanda, Tradeview Forex, ACM, and a few more, you could find something good.
If any of these issues are missing you might stay out of the market during a news release.
Life is a party!!! will you seat or will you dance?
  • #31
  • Jan 22, 2009 4:26pm Jan 22, 2009 4:26pm
Thank you very much for that...

However I would just like to make it clear that I do not trade the news... I use the figures to help paint a picture of the market :-)
  • #32
  • Jan 23, 2009 11:01am Jan 23, 2009 11:01am
Hey Micardo great thread!

Interesting debate going on here…

I initially started out as a chartist and firmly believe that money can be made from technical analysis, but from a personal perspective I just was not comfortable trading blindly and unaware of the reasons behind market sentiment. Each to their own right! We all have the same objective, so finding an approach to FX market that works for you as an individual is the most important thing.

FXoffshore, understandably you seem to have a negative view on those selling bias fundamental opinions, but to write off fundamental analysis as 50/50 at best is possibly quite ignorant.
You argue that market movements are a result of “mass psychology motivated by fear and greed at the extremes”. Could it not be argued that the emotions of fear and greed are derived from one’s interpretation of the economic standing of a region? To understand the fundamentals of a region allows the “mass” to decide whether they should be fearful or greedy?

Just a thought?
  • #33
  • Jan 23, 2009 2:02pm Jan 23, 2009 2:02pm
Quoting sincronic
There are some key issues when trading news:...

Great information!
But how can you make an EA to enter at the right time?
If there is a requote it won't matter if it's an EA or yourself.
  • #34
  • Jan 23, 2009 2:36pm Jan 23, 2009 2:36pm
Micardo?

Whats ur opinion of the Usd/Cad for next week?
  • #35
  • Jan 23, 2009 3:36pm Jan 23, 2009 3:36pm
Quoting FXoffshore
Forget fundamentals, they do not move markets, that is a myth that has been debunked often. There are 100's of economic stories each day, and assigning a meaning is about as reliable as reading tea leaves or astrology charts. As an economist I know.

What moves markets is mass psychology motivated by fear and greed at the extremes. Markets fluctuate in cycles and patterns as old as time, and proportional to the optimism or pessimism that exists.

As far as Jack Crooks/Black Swan goes, I have a lifetime subscription, but find he is a publisher -...
i do strongly disagree with this opinion

there are 100 stories everyday but not all of them matter
markets do fluctuate in cyclical patterns but the direction can not be assigned based on some EW charts, guess how many time have they been wrong
from a 1 min chart point of view, you are right , fundamentals dont make sense, but look at H4, D, W charts
  • #36
  • Jan 24, 2009 10:24am Jan 24, 2009 10:24am
Quoting fugly
Micardo?

Whats ur opinion of the Usd/Cad for next week?

Hey,

I'm sorry but unfortunately I only follow and trade the EUR/USD so hence I do not have an opionion on the USD/CAD for next week.

I find that by concentrating on one pair and knowing that pair intimately I am better able to trade... looking at too many pairs confuses the situation... for me anyway...

Sorry!!
  • #37
  • Jan 24, 2009 10:26am Jan 24, 2009 10:26am
Quoting arthurb
i do strongly disagree with this opinion

there are 100 stories everyday but not all of them matter
markets do fluctuate in cyclical patterns but the direction can not be assigned based on some EW charts, guess how many time have they been wrong
from a 1 min chart point of view, you are right , fundamentals dont make sense, but look at H4, D, W charts
I whole heartedly agree :-)
  • #38
  • Jan 24, 2009 6:21pm Jan 24, 2009 6:21pm
Quoting Micardo
However, ironically the global financial crisis has led to slowed growth, and import demand has fallen more rapidly than export demand as the U.S economy stops spending. Essentially, so far the recession has produced the necessary current account adjustment removing one of the main sources of downward pressure on the greenback (Short term USD Strength).

Barack Obama becomes the official president of the U.S on the 20th and with him comes renewed optimism and hope for the U.S economy.

only read first post and would like to comment on that.

firstly, not really want to agree with import slowing more rapidly than export that causes the current USD strength. More like, massive money take-out from hedge funds, foreign investment and such meaning that all foreign currency be converted to usd thus more demand for dollar. Yes, falling equities and carry trades and of course the bubble burst of oil, all of those will only mean dollar strength...


barack obamas optimism will first be showed on equity markets and if that boost so will dollar fall...

i agree with all that treasury thing and that dollar is bound to take a deep slump in the future again if things start to look up.

or maybe obama will make history and start to cut spending...(nice going on the military spending by the way...why not put all the US dollars in the world to support US military...well i see why you need to finance the military so badly...your afraid that someday china will stop lending you money and demand the loan back...and US don't really want to do that so they need a heavy army to support that "not paying you back" idea )...and people stop taking multiple loans on their homes of course....interesting culture...not seen such a thing in europe...you got banks to thank for that...
  • #39
  • Jan 24, 2009 6:39pm Jan 24, 2009 6:39pm
Quoting FXoffshore
Forget fundamentals, they do not move markets, that is a myth that has been debunked often. There are 100's of economic stories each day, and assigning a meaning is about as reliable as reading tea leaves or astrology charts. As an economist I know.

What moves markets is mass psychology motivated by fear and greed at the extremes. Markets fluctuate in cycles and patterns as old as time, and proportional to the optimism or pessimism that exists.

As far as Jack Crooks/Black Swan goes, I have a lifetime subscription, but find he is a publisher -...

haha i even more strongly DISAGREE with that

seriously you can't think like that

fundamentals are the only thing that determines the market sentiment, direction or whatever you want to call it...trading based on technical analysis only couldn't be more blind...and by fundamentals i don't mean each single news event that comes out...the only thing that matters is expectations...and putting it all together....and that's the toughest part there is...because you have to know everything....trading technically is the easy way out for most...but most of them will quit trading too sometime in the future...a while ago i myself believed such a bullshit that everything is counted in price and a chart says it all...that's the whole idea of trading: to count everything in before the news event occurs...and then there is the play of fear and greed...more often than not, simply because of human nature things are over counted in price...that's where the real oppurtunity lies...

anyway if you don't believe me, just read what professional traders say...whether you read how jacko gets his reason to trade or go through the "no brainer trades" thread...all of them emphasize the importance...don't get me wrong technical analysis is vital....vital for trigger but the reason will come out of technical analysis for those people...

again, it's not the single event that matters...it's putting it all together.
  • #40
  • Jan 25, 2009 3:16am Jan 25, 2009 3:16am
Quoting lumesh
haha i even more strongly DISAGREE with that

seriously you can't think like that

fundamentals are the only thing that determines the market sentiment, direction or whatever you want to call it...trading based on technical analysis only couldn't be more blind...and by fundamentals i don't mean each single news event that comes out...the only thing that matters is expectations...and putting it all together....and that's the toughest part there is...because you have to know everything....trading technically is the easy way out for most...but...
sorry, you could not be more wrong. you already have been on a good way by judging everything that matters can be read on the price, time, vol.
too bad, that you came back to trusting fundies and did not develop chartreading skills. otherwise i have no explanantion for falling back. the oil price drop is just another example of the fundies at work to mislead you, whilst charts told a very different story. key is disregarding that informational noise.

do you believe what news tell you? then thats another misconception in thinking. even wise men said that news are just the opportuity of 200men to write and say what they want. period. news- and the news across the board are biased in the direction of the fundies are just a tool, not for your advantage and don't think any of us, who is not involved into professional trading or syndicates, is smart enough to read the news how they should be read. 90% have to lose to keep this game going. all retail traders around globe add up to about 2% of the whole trading volume. so the big losers are also many professionals, funds, banks- just to feed the few.
we are in a money game of sharks and there are no friends, so don't you think that news is just a pretty powerful tool? ok, trading by fundies and using 1000p stops is no magic and has nothing to do with trading skills...but just ot emphasize it again, fundies try to explain why something happened which was driven by pure speculation and nothing else.

supply&demand moves the markets. fundies can at max be the catalyst. the supply&demand situation ca be spotted pretty clear on the charts and that shows what big money is up to. so do you really think news or fundies do matter if you can read what the big money is up to instead of trying to guess? it can all be green from the "fundies" side and suddenly a bear market develops and vice versa. thats the way it goes. shorting during a bear market is no magic and has nothing to do with sticking to fundies. but during the bear market, when everything is at its worst, the bottom forms and when market begins to already go up fundies change.

not real world moves markets, professioanl activity. and if they are bullish they are bullish, even tough your fundies tell you meltdown mode.

i couldnt care less about any news around, really. and i couldnt imaging doing better.
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