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Identifying Market Swings - Medium and Long Term Trading

  • #201
  • Edited 6:15am Feb 11, 2010 5:51am | Edited 6:15am
Quoting rac
Razor,
If i'm correct you see how prices react to the news in order to "feel" where the risk is going.
.......
I think you are focusing too much on the short term and need to get a bit more familiar with the medium and long term.

We had the AUD employment rate unveiled hour and a half ago and prices are moving like if risk of apetite is growing.

This just means there were good numbers and the Aussie economy is getting stronger. This doesn't mean that most investors will be willing to take on greater risk based on these numbers alone.

The RBA raised interest rates Dec 1, this should have been very good for the AUD, but take a look at what happened the next few days. The markets were in the process of shifting from risk appetite to risk aversion in the MEDIUM TERM.

Can you also see that the shift from risk appetite to risk aversion took nearly 2 months? (from mid Nov to mid Jan)

That's 2 months to shift from uptrend to downtrend. It took me awhile to adjust to this longer time perspective.

Is this reaction a small indicator that the risk of apetite is slowly taking over?
I know that there are much bigger things going on in Europe and Dubai, but the trends already changed direction in the short term.

Take a look at AUDUSD chart during the uptrend from Mar - Nov 2009, did you see any short term movements against the trend?

There will always be times where the short, medium and long term trends will be moving in opposing directions.

Our jobs as investors is to decide which time frame we want to trade and stick to it.

Also it seems that tomorrow they will be anouncing news about Greece and.
I don't know fundamental to read the market. I use a paid service to read where it is going and this paid service show that the momentum is definetilly going to risk of apetite. This momentum is about to take over on the medium term charts.

What you need to do is to ask yourself questions, don't just blindly go by what others / news are telling you.

For instance this POSSIBLE bail out for Greece. Remember it's only speculation at the time, this hasn't been confirmed yet.

When something like this happens, I start to ask some questions. If Greece gets a full bailout then what will happen with Spain, Italy, Portugal and Ireland? Can the EU / ECB bailout every European country with debt problems? And don't forget that the UK also has some debt issues.

And then if there is a bailout, what does it mean about the European economy? Does it mean that the European economy will be stronger or weaker? IMO, it means that the root problems weren't solved and it will only delay a blow up later down the road.

The proper way to fix this would be to let Greece take care of their own deficit with MINIMUM support from the EU. Whether this will happen, we'll have to wait and see.

You need to understand that what I'm doing is NOT news trading. I am doing FUNDAMENTAL ANALYSIS, there is a big difference. News traders REACT to the news, while my style is to ANTICIPATE market swings over a longer time perspective. This means that you have to actually look beyond the surface of what is being said in the news and ANALYZE the situation.

Having said all this, yes, you could be right, but I don't think prices have reached a low enough level to warrant risk appetite.

To get a picture of what I'm talking about. Look at your MONTHLY charts on AUDUSD, NZDUSD, USDCAD over 2009 to now. To me it looks like prices have reached exhaustion and are turning around to make a correction. And there is still a ways to go before a correction is complete.

What does it look like to you?

Of course I could be completely wrong, but I still think the odds are in favor of continued risk aversion over the MEDIUM TERM.
-Razorjack
  • #202
  • Feb 11, 2010 6:07am Feb 11, 2010 6:07am
Quoting rac
Increasing the risk of aversion makes the so called "safe heaven" currencies gain strength. JPY, USD and CHF go up and the "riskier currencies" loose strength, then EUR, CAD, AUD, and NZD go down. making pairs like AUDJPY go down by hundreds of pips very quickly.

Now, razorjak takes his time to answer our questions, but I don't blame him if he sees the same questions over and over and he decides not to answer them. He tries to help us all but some of this information was discussed in earlier post, it takes effort to go to previous posts...
Thank you, rac.

Yes, this is exactly what I meant.

The point of this thread is for traders to do their own analysis, NOT for me to give my analysis on every single news item that gets released.

BTW, yes, your analysis is correct. Well done!
-Razorjack
  • #203
  • Feb 11, 2010 6:22am Feb 11, 2010 6:22am
sorry, forgive a teenager :/. I need to get those books so i can do my own analysis....
  • #204
  • Feb 11, 2010 6:50am Feb 11, 2010 6:50am
Quoting rac
Just realized that I didn'r finished this sentence.

"Also it seems that tomorrow they will be anouncing news about Greece and... if the market moves towards risk of apetite after the news are released, are you going to build up your positions? (I remember that you want to catch the reversal as soon as possible)
Hi rac,

IMO, it's still way too early to say that there is a move towards risk appetite in the medium term.

My analysis is that the medium term risk aversion has just started and still has some more weeks and possibly months to go.

Before I look at building my positions towards risk appetite, I'd like to see AUDUSD first break 0.90 then I would like to see it make and sustain new highs above 0.94 before it changes my views.

Don't worry rac, the markets usually test and re-test highs and lows before shifting trends.

I'll give you an example. Take a look at the AUDUSD charts. On 16/11, prices made a new high, but couldn't sustain it above the previous high from 26/10. Which meant that investors weren't willing to buy at higher prices, reduced risk appetite. Then we had the Dubai debt crisis 26/11 - 27/11 that pushed prices down to test the minor low from 3/11.

Then the markets retested the highs but failed, but it has been making new lows. This is the MEDIUM TERM. Do you see how the markets test and re-test old trends before we see a full reversal?

You'll see the same thing in NZDUSD, NZDJPY, AUDJPY, etc. The difference is that the strongest trending pairs "consolidated" to the testing and re-testing areas later than the more weaker trending pairs. Compare EURJPY with AUDJPY and you will see what I mean. EURJPY consolidated much sooner than AUDJPY. So during the medium term risk appetite while AUDJPY was making new highs, EURJPY was swinging within a range. Then risk aversion over the medium term moved AUDJPY down and EURJPY broke out of it's range to the downside.

So IMO, before we see a move towards risk appetite again, the markets will test the lows and fail to sustain new lows. When this happens then I will look for building positions in the other direction.
-Razorjack
  • #205
  • Feb 11, 2010 7:00am Feb 11, 2010 7:00am
Quoting TGpop
sorry, forgive a teenager :/. I need to get those books so i can do my own analysis....
No problem.

Use this opportunity to LEARN to do your own analysis, then in the future you won't need to ask anyone else.

Then you should have a pretty good idea of where the markets will be moving without anyone else's help. This should be the goal of every trader.
-Razorjack
  • #206
  • Feb 11, 2010 7:58am Feb 11, 2010 7:58am
In anticipation of monetary tightening, there has been a record amount of loans in January, more than the 3 previous months combined. Real estate prices are also up close to 10% from the previous year.

This to me is a warning of an overheating economy and possible economic bubbles in real estate markets.

Anyone want to take a crack at how this can affect China's monetary policy and how it can affect the commodities and the forex markets?
-Razorjack
  • #207
  • Feb 11, 2010 8:51am Feb 11, 2010 8:51am
Quoting Razorjack
In anticipation of monetary tightening, there has been a record amount of loans in January, more than the 3 previous months combined. Real estate prices are also up close to 10% from the previous year.

This to me is a warning of an overheating economy and possible economic bubbles in real estate markets.

Anyone want to take a crack at how this can affect China's monetary policy and how it can affect the commodities and the forex markets?
if it's an overheating economy then this could be shown by rapid inflation-couldnt China want to raise rates to slow down? o i don't know
  • #208
  • Feb 11, 2010 9:08am Feb 11, 2010 9:08am
Quoting TGpop
if it's an overheating economy then this could be shown by rapid inflation-couldnt China want to raise rates to slow down? o i don't know
Well done!

It's a first step.

Remember that monetary policy is more than just rates. China may choose to not raise rates, but there could be other ways of tightening monetary policy, like letting the Yuan appreciate, tightening credit availability, etc.

So now the next step. What does this mean for the forex markets? Which currencies will be affected?
-Razorjack
  • #209
  • Feb 11, 2010 9:16am Feb 11, 2010 9:16am
To get a good understanding of how the developments in China can impact it's economy. Let's try a parallel exercise.

It's a high probability that China will need to cool the economy and there are several ways that they can do this.

1. Tighten credit availability - How will this impact China's economy?

2. Increase interest rates - How will this impact China's economy?

3. Letting the Yuan appreciate - How will this impact China's economy?

If you think in terms of the Chinese national economy, imports and exports and it will give help put the pieces in place.
-Razorjack
  • #210
  • Edited 9:35am Feb 11, 2010 9:20am | Edited 9:35am
Quoting Razorjack
To get a good understanding of how the developments in China can impact it's economy. Let's try a parallel exercise.

It's a high probability that China will need to cool the economy and there are several ways that they can do this.

1. Tighten credit availability - How will this impact China's economy?

2. Increase interest rates - How will this impact China's economy?

3. Letting the Yuan appreciate - How will this impact China's economy?

If you think in terms of the Chinese national economy, imports and exports and it will give help put the...
1. less GDP less investment etc
2.less buying more saving and less investment?
3.um, i dunno, perhaps too high a rise will discourage foreign trade? less demand for trade=job losses?

o yes, since china imports loads of oil, less demand for oil so oil falls and CADJPY falls too

new to this
  • #211
  • Feb 11, 2010 9:31am Feb 11, 2010 9:31am
if i can remember,
China has restricted loan to property related areas.

thus, there will be less demand for commodities
e.g. iron , oil , etc
AUD and CAD will drop

fyi, EUR/USD has dropped.
a news was released a while ago - European leaders ordered Greece to get the bloc’s highest budget deficit under control
The agreement, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou and European Central Bank President Jean-Claude Trichet, stopped short of offering concrete measures to help Greece handle a debt load that exceeds its annual economic output.
  • #212
  • Feb 11, 2010 9:54am Feb 11, 2010 9:54am
Quoting peter lee
if i can remember,
China has restricted loan to property related areas.

thus, there will be less demand for commodities
e.g. iron , oil , etc
AUD and CAD will drop

fyi, EUR/USD has dropped.
a news was released a while ago - European leaders ordered Greece to get the bloc’s highest budget deficit under control
The agreement, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou and European Central Bank President Jean-Claude Trichet, stopped short of offering concrete measures to help Greece handle...
if i can remember, China has restricted loan to property related areas.

Yes, this is correct. It was to reduce real estate market speculation. This lending was for other areas as well including real estate. When you have this much lending, it tends to lead to economic expansion (economic boom) but if the investments don't pay off before the cost of credit (interest rates) is so high that it's no longer sustainable then you get the downturn (economic bust).

In this particular case, with this much stimulus there needs to be some tightening soon.

thus, there will be less demand for commodities
e.g. iron , oil , etc
AUD and CAD will drop

Yes, there will be less demand from China. When you say AUD and CAD will drop, we need to be clear as to which time frame.

Remember that markets factor in future events into the prices. So when there are more clues about China's monetary policy, it will impact the MEDIUM TERM.

But in the LONG TERM, there should be a continued uptrend in commodities due to China, US and a global economic expansion.

Then the LONG TERM trend will change when monetary policies are so tight that they strangle economic development. But that is still a few years away.

Well done mate! Pretty soon I won't be needed here anymore!
-Razorjack
  • #213
  • Feb 11, 2010 8:36pm Feb 11, 2010 8:36pm
Hi Razorjack you must be joking, you will always be needed here.

I have the good fortune of reading this thread right from day one and it certainly opens up my eyes to the wonderful world of fundamental analysis.
I have been trading fx using TA for about a year without much success. I didn't use fundamental analysis because the thought of it frightened me to death. But since reading your thread, my view has changed as you make it easy to understand and it is not so life threatening as i once thought it was. I am still at the infancy stage and reading and rereading your thread to try to make it part of me.

BTW the Chinese will be celebrating their lunar new year this 14th of Feb and I would like to wish them a Happy and Prosperous CNY.


Regards
FXChew
  • #214
  • Feb 11, 2010 8:48pm Feb 11, 2010 8:48pm
Dear Razorjack ,

i appreciate your contribution.

you are always needed.

I have not learnt how to incorporate the fundamental and sentiment
of market in trading yet.

Do not know when to buy and what price to buy.

have a good weekend
  • #215
  • Edited 4:57am Feb 12, 2010 4:23am | Edited 4:57am
I love fundamentals, I believe it gives me an edge as to what's happening and what's going to happen in the markets.

The drawback with fundamentals, or maybe it's just me that hasn't figured this out yet, is exact timing.

For instance, the odds are in favor of MEDIUM TERM risk aversion. The uncertain part is when risk aversion will start to accelerate and really show in prices.

We can see that the EUR and to a lesser extend GBP have headed down to due risk aversion. But we still have the Chinese markets supporting the commodity currencies: AUD, NZD and CAD.

I also believe the odds are in favor of a major correction in commodities. When this will happen will depend on when China tightens it's monetary and fiscal policies. And this leaves a bit of uncertainty.

The commodities are at POSSIBLE turning points right now, AUD, NZD and CAD all fell from Jan 14 to Feb 5 and we saw a short term rally this week. Now what is uncertain is whether we'll see these currencies continue their fall or whether they will continue to rally to their previous highs from Jan 14.

The uncertainty is around the Chinese New Year celebrations all through next week, when businesses and banks will be closed. I hear that China may not do or say anything regarding monetary tightening to jinx the new year.

So will the commodity currencies turn and head downwards today and continue next week? Only time will tell.

This is one of the areas I'm trying to improve upon, I'm making progress but this is where technical analysis and risk management are KEY.
-Razorjack
  • #216
  • Feb 12, 2010 4:32am Feb 12, 2010 4:32am
China's central bank has just raised bank reserve rates by 50 basis points for the SECOND TIME.

This was the news I was waiting for. Let's see how the commodity currencies react!
-Razorjack
  • #217
  • Feb 12, 2010 4:47am Feb 12, 2010 4:47am
Quoting Razorjack
China's central bank has just raised bank reserve rates by 50 basis points for the SECOND TIME.
This was the news I was waiting for. Let's see how the commodity currencies react!
There is very nice reaction in risk aversion style, so all commodity based currencies are heading down :] (and I'm in!).
So the conclusion is that the short term risk appetite period has just finished, and it's changing to the short term risk aversion. The short term trend is equal to the medium term trend now.
Lot's of pips to you guys :]
Don't touch, just look...
  • #218
  • Feb 12, 2010 4:50am Feb 12, 2010 4:50am
Quoting Aqw3R
There is very nice reaction in risk aversion style, so all commodity based currencies are heading down :] (and I'm in!).
So the conclusion is that the short term risk appetite period has just finished, and it's changing to the short term risk aversion. The short term trend is equal to the medium term trend now.
Lot's of pips to you guys :]
I don't want to recommend trades to anyone, BUT yes, the odds are in favor of the short term trend lining up with medium term trend.

I love market reversals!
-Razorjack
  • #219
  • Feb 12, 2010 7:02am Feb 12, 2010 7:02am
I agreed that the "odds are in favor of the short term trend lining up with medium term trend".

by the way, based on the COT report for EUR/USD futures and options, it seems that the large spectator is heavily short .
I not sure whether it has reached the extreme level yet.

Can I deduce that if the position of large spectator has reduced drastically,
the EUR/USD will likely to U-turn for medium term?

thank you for any comment.
  • #220
  • Feb 12, 2010 7:14am Feb 12, 2010 7:14am
Quoting peter lee
I agreed that the "odds are in favor of the short term trend lining up with medium term trend".

by the way, based on the COT report for EUR/USD futures and options, it seems that the large spectator is heavily short .
I not sure whether it has reached the extreme level yet.

Can I deduce that if the position of large spectator has reduced drastically,
the EUR/USD will likely to U-turn for medium term?

thank you for any comment.
In general, you are correct.

However be very careful of trading by the COT report alone.

I use the COT to CONFIRM my views and analysis. I'd wait until the Euro debt crisis cools down and the markets move towards risk appetite before even considering going long on EURUSD and I think this is still a ways away.
-Razorjack
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