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Fundamental Trading with a Directional Bias

  • #61
  • Jan 14, 2015 8:22am Jan 14, 2015 8:22am
I know people here listen to Jaratt Davis, but the problem with his approach is that the economy is more than the sum of what the central bankers do. Since 2008, and once the disaster was averted markets have hung on every word of the central planners.

Inflation data tends to give mixed signals, on the one hand people might enjoy that the fact that it's value is eroding less, yet on the other hand lowering inflation tends to indicate a reduced exchange of goods which often means a slowing down in the economic activity. The Davis crew will look to see what it means for central bank policy.

Interesting to see Osborn coming out and saying it was a good thing for British consumers, it might be in the short term, but if the trend is real then we could see growth come to some kind of halt. Most people are pointing to oil as being the reason why inflation is lower, but as you can see with growth figures, and other figures such as retail sales (just realised from US) and iron ore prices, it isn't oil that is causing inflation to drop - there also seems to be a weakening in demand.

Anyway, thought it was interesting to see GBPUSD end up pretty much where it left off yesterday after the news. I was short around, 1.512 and got stopped later that day. I should have just cut that position sooner, as price diverges away from news and expectations - often a good time to get out of the position. Nevertheless the position was small, pound doesn't tend to go straight down, so I was suspicious of taking a short at those levels anyway, rightfully so as it turned out.
  • #62
  • Edited 7:03am Jan 15, 2015 6:52am | Edited 7:03am
EUR/CHF floor lifted, I think that is as clearest indication that you can get that EURUSD QE is coming on the 22nd.

I have been short EUR/CHF for a while now, of course my broker isn't allowing my to close the trade

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Until I cover the position I'm gonna be crapping myself lol.

I'm still not making enough of these kind of historic moves, so much still to learn.
  • #63
  • Jan 15, 2015 6:55am Jan 15, 2015 6:55am
@Verv

I'll reply to your bigger post when I'm infront of a computer, but yeah, this was crazy today, I'll be looking for some decent levels to sell the Euro at...
  • #64
  • Jan 15, 2015 7:09am Jan 15, 2015 7:09am
Quoting jakeparkin
@Verv I'll reply to your bigger post when I'm infront of a computer, but yeah, this was crazy today, I'll be looking for some decent levels to sell the Euro at...
Hi Jake...

I didn't ask but I think I should... do you mind if I post ITT about my own experiences and trades? And continue to do so in the future?
  • #65
  • Jan 15, 2015 7:16am Jan 15, 2015 7:16am
@Verv

Yes please do! More positivity will be great!
  • #66
  • Jan 15, 2015 7:20am Jan 15, 2015 7:20am
@jake, thanks mate

Just wanted to be sure, and that you didn't feel I was ruining your thread.
  • #67
  • Jan 15, 2015 7:55am Jan 15, 2015 7:55am
Quoting verv
@jake, thanks mate Just wanted to be sure, and that you didn't feel I was ruining your thread.
No worries. It's not my thread, it's everyone's who contributes. Anyway, it sounds like we can learn something from each other!
  • #68
  • Jan 15, 2015 12:33pm Jan 15, 2015 12:33pm
Quoting verv
I know people here listen to Jaratt Davis, but the problem with his approach is that the economy is more than the sum of what the central bankers do. Since 2008, and once the disaster was averted markets have hung on every word of the central planners. Inflation data tends to give mixed signals, on the one hand people might enjoy that the fact that it's value is eroding less, yet on the other hand lowering inflation tends to indicate a reduced exchange of goods which often means a slowing down in the economic activity. The Davis crew will look to...
@verv

I'm in front of a computer now so I can more easily reply. Central banks are going to have such an effect, it's how people with the most money trade and what they look for. Most people here on FF, not to be funny, but they solely rely on technical analysis. And there are sooo many systems / methods / strategies on here what people use. I have NEVER seen people make a lot of money out of them, yet people still believe in them. If they were so good, why wouldn't people with a lot of money trade like that... Baffles me... In fact the only one I like is the Consolidation Zones one, that's good. Sure, breakouts work etc, but most people want an out of the box system, that's not what forex is.

Data doesn't in itself have a longer term effect, all data does is give indication to the bank as to when to move interest rates. It's supply and demand, and I prefer short term day trading to be honest. If we have some negative data due for the US, as we have had today, which is why USD/JPY fell and NZD/USD rose, then that negative data creates a short term bias. If there is some negative data expected, then the US Dollar for a short period of time, is going to less in demand than other currencies. It makes sense. And to be honest, if I trade 2 lots and make 30-40 pips in the space of just a few hours, based on this sentiment, then I'm more than happy with that.

Yes, with the Pound to be honest it's a bit all over the place at the moment, kind of in a good place to trade because it's going back and forth. I personally took some pips out of the Pound when the inflation figures were released, and was out before Carney spoke.

At the end of the day, this is the biggest market in the world, and it can change, as we have seen today with the Franc, in a matter of minutes. The Dollar is real strong at the minute, but if the Fed suddenly come out and say, we're not raising interest rates for a long time as growth and inflation isn't where we want it, that will change the whole market completely. We'll see GBP/USD fly up.

At the end of the day, looking at sentiment and fundamentals, when I wake up and have done my research the night before, I think to myself in my head that I know which way the currency is going to go, because I know the reason why. You'll not be wrong much...
  • #69
  • Jan 16, 2015 4:53pm Jan 16, 2015 4:53pm
Excellent approach Jakeparkin. I think we would be developing some complete strategy based on it: time&day to trade, pairs and news involved and their relationship, TP and SL in each of the combination of news/pair, etc... Thank you for your good analysis of the big picture.
  • #70
  • Edited Jan 17, 2015 2:37pm Jan 16, 2015 6:19pm | Edited Jan 17, 2015 2:37pm
Quoting jakeparkin
{quote} @verv I'm in front of a computer now so I can more easily reply. Central banks are going to have such an effect, it's how people with the most money trade and what they look for. Most people here on FF, not to be funny, but they solely rely on technical analysis. And there are sooo many systems / methods / strategies on here what people use. I have NEVER seen people make a lot of money out of them, yet people still believe in them. If they were so good, why wouldn't people with a lot of money trade like that... Baffles me... In fact the...
Late reply, but better late than never - as I'm sure you have noticed my broker has went under lol.

Not really much I can disagree with there. I have found much the same to be true through trial and error from my own experience.

A few comments: will be bullet points because I'm on a tablet...

-I have found is that longer term trading is easier because you give the market a chance to move in the direction of its trend.

-High reward multiples of risk is essential, the defining characteristic of winning traders is that they have bigger winners than losers. High win rates are difficult to find and tend to be low reward.

-Selecting the right markets to trade, and the correct direction is critical, technical analysis works best in these conditions.

-The main purpose of technical analysis is that it provides a set of rules which allows you to enter and exit the market with leverage, this gets you into the market when you need to and out when you need to thereby controlling risk.

-The member Hanover, who has coded over 500 eas has said that not one generates a profit when left to run 24/7 on its own devices. EAs require humans to make them work it seems.

-Let price confirm your bias, in other words find some alternative to fading price. If you have a conviction on the direction of a currency, price should move in that direction, if it doesn't don't fight it. This keeps you out of trouble because it keeps you from averaging down and ensures your winners small.

Edit - reading over some of my posts I feel that I can come across as a bit of a know it all - it's not my intention though
  • #71
  • Jan 22, 2015 3:19am Jan 22, 2015 3:19am
@Federicoo

Thanks for the kind words. Yes it will help.

I'll start by saying that we trade either at London open of at a previous support or resistance level. I favour the London open. As for TP, I prefer to be in and out. 20-40 pips. A lot of the time, this means we're out even before the news release. But in some cases pairs move over 100 pips.

As for the pairs, two things to look for.

1. Match strong with weak based on fundamentals.
2. Look for the best moving pairs over the past couple of months based on that event.

Apologies for the VERY late reply.
  • #72
  • Jan 22, 2015 3:26am Jan 22, 2015 3:26am
@Verv

Agree with those points you've posted too. I really do believe, and it continues to work for me, that the direction is clear. Forex is a game of anticipation.

Being confident in what you're saying isn't being a know it all. Maybe we just look at thing differently but if what we're saying works, then there's no harm in that.

The interest rate votes for the UK were a given yesterday, bad data it was clear people wouldn't vote for a rate hike.

Going to post next weeks analysis on Sunday.
  • #73
  • Jan 25, 2015 5:14am Jan 25, 2015 5:14am
Sunday again, so here's my outlook for the week ahead. Last week was a great week with the ECB decision, so let's hope we can pull some pips out of the market this week too.

Monday 26 January 2015

No trades to speak of on Monday, no news out, so no trading for me.

Tuesday 27 January 2015

On Tuesday we have some GDP data from the UK which is forecast to be weaker than previous. There's a little bit of talk around this data piece so I'm thinking it could move the market pre-news a little bit. We also have some positive news from the US, which normally we wouldn't be concerned with but it can only help to pair with the UK news. I'll be looking for a trade on GBP/USD. GBP/NZD might have a nice setup but we had some real bad inflation data from New Zealand last week, and the pair gained heavily even though we had the bad interest rate vote from the BoE so investors are obviously concerned with this NZ data.

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Here's the Cable chart. We have two nice areas of confluence above the current price. I think it's maybe likely that we'll see price move up towards that higher band and then pull down before the news is released on Tuesday. If we see a rise to that second confluence area, I'll be looking at our middle Blue band to take most of my profits and also move the rest to break even, but if we can only test the middle Blue band, I'll be looking to the orange area as a target for that trade. London open should suffice too, as long as there hasn't been a huge drop in the Asian session beforehand.

Wednesday 28 January 2015

Two important events on Wednesday. We have central bank events from both the US and New Zealand. The FOMC statement is likely to say that rate rises are still looking to the back-end of the year but with worse consumer prices it may need a bit more work before a rate rise. New Zealand are likely to leave their rates unchanged, although who knows. I personally won't be trading on Wednesday, unless we have some abnormal comments from either Central Bank I may get in after the event.

Thursday and Friday, 29 & 30 January 2015

On Thursday and Friday we have some weak CPI data from Germany as well as some negative Euro data on Friday in the form of CPI Flash Estimate. This should provide more weakness to the Euro.

Let's see how this week plays out.
  • #74
  • Edited 5:46am Jan 25, 2015 5:32am | Edited 5:46am
imo I would be running a short on the pound, irrespective of news. The pound and euro are highly correlated currencies, they usually move in lock and step with one another. Statistical correlations like that can be misleading, but in the euro/pounds case, there are several fundamental reasons why that might be true:

1. The first is that the britain is in the european union, what is good for europe is good for the UK generally, and vice versa. Europe is the UK's largest trading partner taking 45% of all UK exports I believe.

2. The second is that the euro flows often eventually spill over into the pound. The euro is obviously a much bigger market than the pound, but if people want to get out of the euro, most of that money will flow to the usd. That is a strong downward pressure on the pound, as anyone converting from the gbp to usd will find there are a lot less dollars to chase. Look at recent history, from the middle of last year, euro has broke lower before the pound did on nearly every occasion.

So my read on the situation is that the pound will come significantly lower in the coming weeks, to 'catch up' with the euro drop, with any negative news causing a disproportionately big down moves.

I would be trading short side of pound this week if my broker was working

Best of luck this week.
  • #75
  • Jan 25, 2015 5:41am Jan 25, 2015 5:41am
Quoting verv
imo I would be running a short on the pound, irrespective of news. The pound and euro are highly correlated currencies, they usually move in lock and step with one another. Statistical correlations like that can be misleading, but in the euro/pounds case, there are several fundamental reasons why that might be true: 1. The first is that the britain is in the european union, what is good for europe is good for the UK generally, and vice versa. Europe is the UK's largest trading partner taking 45% of all UK exports I believe. 2. The second is that...
@Verv

Yes, good points, I agree. Going to sell into those resistance areas and see where we end up when the markets open later. Have a great week!
  • #76
  • Jan 26, 2015 8:31am Jan 26, 2015 8:31am
Tuesday's Data - GBP/JPY

I thought I'd post this chart of the Pound Yen because we're heading up to some nice resistance levels ahead of that positive data for the pound.

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As we can see, this looks to be a great area to get a sell order in.

Let me know what you think, thanks
  • #77
  • Jan 27, 2015 7:30am Jan 27, 2015 7:30am
So even though GDP is worse than expected, pound still up for the day.

Still expecting more downside with time.

This is one of the reasons why I only sell when price is down, and only buy when price is up.

There is simplicity in this idea, and it disguises something very important that for a long time I didn't realize.

If your fundamental analysis is wrong, it keeps you out of a trade, but when your fundamental analysis is right it will get you into a trade. It has kept me out of trouble many time.

Buying on dips assumes that price is wrong, and your analysis is correct.

Are you in a trade jake?
  • #78
  • Jan 27, 2015 7:48am Jan 27, 2015 7:48am
@Verv

What do you mean by You only sell when price is down and vice versa? Also when fundamental analysis is wrong?

I actually suffered a loss today. Sold Cable too early and then got in again 1.5100. Larger position, closed both out for a small loss.

GBP strength because of some comments made by BoE policy maker yesterday, and USD weaknesss due to some negative news about bond yields.
  • #79
  • Edited Jan 28, 2015 3:38am Jan 27, 2015 8:42am | Edited Jan 28, 2015 3:38am
Quoting jakeparkin
@Verv What do you mean by You only sell when price is down and vice versa? Also when fundamental analysis is wrong? I actually suffered a loss today. Sold Cable too early and then got in again 1.5100. Larger position, closed both out for a small loss. GBP strength because of some comments made by BoE policy maker yesterday, and USD weaknesss due to some negative news about bond yields.

Hard to explain, better to give an example on how I personally would have played today - if I had a broker.

So for GBPUSD, my fundamental bias is short. This means I am only looking to sell, no buy positions at all for the moment.

I buy when prices are up and sell when prices are down, usually I take breakouts from weekly highs or low areas in the direction of the main trend.

I don't much like being stuck in the middle of a range, so often I'm buying at resistance and selling at support (I have data that says this is more accurate than the reverse, more than happy to share).

Because I only sell when price is down, and buy when price is up, my sell order needs to be activated as price moves down. So naturally my order needs to be below current price.

I would have placed an order to enter the market, using sell stop, around the weekly low of GBPUSD.

The out come of today would have been no trade, because price moved up, away from my order. If my fundamental view was correct, price would not have moved high. Price isn't moving according to my short bias, so I have no position.

That's not to say my fundamental bias is wrong, maybe it needs more time, or has to work through a few buyers clinging on to the 1.5 area. Either way, I've been kept out of a potentially losing trade
  • #80
  • Jan 28, 2015 1:43am Jan 28, 2015 1:43am
@Verv

Ah I see, you basically look for that break of support or resistance then. To be honest, it's something ive never tried. How's it been going for you?

Sounds extremely logical.
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