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How do you handle fundamental analysis?

  • #1
  • First Post: Aug 13, 2009 9:59pm Aug 13, 2009 9:59pm
Hi,

Just out of curiousity, how do you guys handle fundamental analysis. For me, I keep with the news and have a few simple charts+smas of economic indicators. Do you guys do anything else? thanks
  • #2
  • Aug 13, 2009 10:21pm Aug 13, 2009 10:21pm
Quoting xxfunguyxx
Hi,

Just out of curiousity, how do you guys handle fundamental analysis. For me, I keep with the news and have a few simple charts+smas of economic indicators. Do you guys do anything else? thanks
Don't trade near tier 1 releases and trade the charts.

You know what they say about analysts... they are great at predicting past results.

Too many variables in fundie land.

m
  • #3
  • Aug 14, 2009 5:14am Aug 14, 2009 5:14am
Quoting acumen
Don't trade near tier 1 releases and trade the charts.

You know what they say about analysts... they are great at predicting past results.

Too many variables in fundie land.

m
What is meant byTier 1 releases? Is that the same as the "high impact" news?

Cheers
Time hides Nothing
  • #4
  • Aug 14, 2009 5:21am Aug 14, 2009 5:21am
Like hot potatoes...and with a BIG grain of salt!
  • #5
  • Aug 14, 2009 5:54am Aug 14, 2009 5:54am
its always safe to stay away while major market news are released...normally we cant understand greater impact of particular news on longer period of time.
  • #6
  • Aug 14, 2009 9:09am Aug 14, 2009 9:09am
Ok, before I answer your question, let me get one thing straight. Most people on this forum seem to be intraday traders, which is why you hear, "stay out of the market during news events." For people who trade on larger time frames, news is often the best time to enter because a lot of behavioral imbalances form. The market has the human behavioral tendency to attribute more weight to current happening instead of considering them in context with the "big picture." What this means is that even though fundamentals drive currencies over time, in the short term they contribute to intraweek randomness. Think about it- if you look at a time series of retail sales or manufacturing PMI it is almost as noisy as PRICE is! The news rallies thus yield many opportunities for fading the moves if you can stomach the volatility (hint: use lower leverage).

As for your question, I'm not sure if you meant what tools I use or what's my strategy. For reading material, I try to keep a big picture view by reading monthly bank reports by Scotiabank, HSBC, etc. (see links on my blog if you can't google it. It's sometimes difficult to find). Then I keep a pulse on what's going on by a couple means:

1. Read daily bank reports from Scotia, UBS, FT, Bloomberg
2. Watch currency price action to see how price reacts to fundamental events (indication of sentiment). Start trading in the direction of a sentiment change.
3. Watch price action in stocks commodities and futures (Oil, CRB index, Eurodollar, treasuries, gold, S&P500, VIX) and see if there's an imbalance between what they're pricing in vs. what currencies are pricing in. If there is, there may be an opportunity to make money

Hope this is useful info. There's a lot of money to be made with fundamentals, but in a sense it's just as random as technical trading for any given trade, so make sure you manage money wisely and have an edge.

All the best,

Kris Matthews
  • #7
  • Aug 16, 2009 12:41pm Aug 16, 2009 12:41pm
Quoting kristdm
Most people on this forum seem to be intraday traders, which is why you hear, "stay out of the market during news events." For people who trade on larger time frames, news is often the best time to enter because a lot of behavioral imbalances form.
Good post, it makes a change to see someone taking advantage of some of the most profitable market moving events instead of avoiding them!

I wouldn't limit trading on (reaction to) news just to positional traders though, a classic example was the BoE announcement on entending QE, totally unexpected, not priced in, and with a clear implication for sterling. A perfect scenario, even for an intraday trader there was plenty of opportunity.

Another example which you'll probably remember was the Fed cutting 50bp instead of the already priced-in 75, the forums were alive with puzzled traders who couldn't understand why the dollar rallied on a cut in rates but it was another near perfect scenario when the bell rang!

I think the unexpected, non priced-in data can present some great opportunities for intraday traders as well as longer term traders, even if it's just fading the initial knee-jerk reaction. Like you say, it does need a strong constitution sometimes but as long as risk is controlled I think they are great opportunities for profit.
  • #8
  • Aug 16, 2009 1:25pm Aug 16, 2009 1:25pm
Tier 1, I would imagine it means potentially market moving or trend/sentiment changing data, maybe acumen could confirm?
  • #9
  • Aug 16, 2009 10:48pm Aug 16, 2009 10:48pm
Quoting pipmutt
Tier 1, I would imagine it means potentially market moving or trend/sentiment changing data, maybe acumen could confirm?
Tier 1 releases are usually market moving type numbers but not always. Tier 1 loosely refers to economic data that are the most important (particularly to central banks) and are thus held up to the highest statistical standards.

At least in normal times, central banks are primarily concerned with inflation. In the most basic sense, inflation clues are provided by GDP estimates (higher production leads to higher inflation), whose clues are provided by retail sales (more sales corresponds to more production), whose clues are provided the employment report (if wages are high people can spend more), and the list goes on... Now, the closer in this chain the economic data release is to inflation, the more weight a central bank typically places. Thus, the data along this chain (i.e. the "credit cycle") closes to inflation are Tier 1 data. (All the ones I mentioned here should be considered tier 1).

Kris Matthews
  • #10
  • Aug 17, 2009 3:07am Aug 17, 2009 3:07am
Quoting kristdm
At least in normal times, central banks are primarily concerned with inflation....
Normal times, that would be nice

I notice you didn't reply to the other points, you don't think there are intraday opportunities then?
  • #11
  • Aug 17, 2009 8:56pm Aug 17, 2009 8:56pm
Quoting kristdm
Tier 1 releases are usually market moving type numbers but not always. Tier 1 loosely refers to economic data that are the most important (particularly to central banks) and are thus held up to the highest statistical standards.

At least in normal times, central banks are primarily concerned with inflation. In the most basic sense, inflation clues are provided by GDP estimates (higher production leads to higher inflation), whose clues are provided by retail sales (more sales corresponds to more production), whose clues are provided the employment...
Hi Kristdm,

I sent u a private message asking about ur blog and ur data for bank reports. Didnt know if u got it...but u can feel free to answer it here on this thread. I just didnt know if u were still checking it. Thanks
  • #12
  • Aug 19, 2009 1:53am Aug 19, 2009 1:53am
Hi funguy, I did get your message and ear-marked it for a reply later on in the week, as I thought it would take longer to solve our server upgrade problems. My tech guy just informed me however that everything should be functioning correctly now. The bank report and blog features look operational on my end, and I will post my weekly post by tomorrow night. Thanks for reminding me. (Those who don't follow, funguy asked me previously why some links to FX investment bank reports on my site didn't work).

Quoting xxfunguyxx
Hi Kristdm,

I sent u a private message asking about ur blog and ur data for bank reports. Didnt know if u got it...but u can feel free to answer it here on this thread. I just didnt know if u were still checking it. Thanks
  • #13
  • Aug 19, 2009 2:09am Aug 19, 2009 2:09am
Quoting pipmutt
Normal times, that would be nice

I notice you didn't reply to the other points, you don't think there are intraday opportunities then?
Hey Pipmutt! Maybe I'm missing something but I don't remember any other points- could you let me know which? As for intraday opportunities, sure there are. I'm just not an expert at most of them. The way I do make money with releases on the intraday scale a few times each month are two fold:

1. When a central banker or other official comes on the wires and says something unexpected, like when Bollard said the NZD is way over valued (a few years back- that's the most vivid example that comes to mind), or a surprise rate hike/cut. Many people say news trading is dead because everything is immediately priced in, there's too much competition, and the brokers like to play games, but let's think outside the box a little: The markets often don't have anything to price in for these events (unlike such events as NFP or GDP, etc.) and sometimes events are unscheduled, making it impossible to price in events ahead of time. The traditional news traders (whether institutional/individual) are slow to catch on to these surprise impacts, which means the net effect is that price has a LOT of follow through after the initial reaction.

2. I'll put on a trade before the release if I weigh the possible outcomes and the probabilities are skewed toward one direction or another. For example, I wouldn't know ahead of time whether an NFP release would turn out better or worse than expected, but I know the sentiment at the moment and if the release is better or the same then their might be a modest reaction to the upside, while a negative release would be devastating for the day. In addition to sentiment I may look at key technical levels and price action during the day.

In conclusion there are opportunities, but I only know a few that work well for me. My belief (rightly or wrongly) is that many of the inefficiencies used in traditional fundamental economic release trading have been farmed out, but trading is all about adapting anyway!

Hope this helps,

Kris Matthews
  • #14
  • Last Post: Aug 19, 2009 2:33am Aug 19, 2009 2:33am
Quoting kristdm
Hey Pipmutt! Maybe I'm missing something but I don't remember any other points- could you let me know which?....
Hi Kris, it was post #7 but no worries, I think we're pretty much saying the same thing (great minds think alike.....I conveniently forget the rest of that saying )

Nice site by the way, some very useful links and reports, thanks!
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