Ameba PRO Strategy -|Trading as Investing|- 3 birds of wisdom

This thread will contain one advanced trading strategy,my favourite.
Three powerful ways of trading,connected into one big trading system.
First is so called -"Long term macro trading"
Second - "Free flow trading"
Third - "News [data] trading"
Those three segments represents structure of one big and nice working system,which I call "AMEBA PRO".

The most important thing in trading with this approach is to use correct money managment but I will write about that by the time.
"Long term macro trading - LTMT" will be the hardest part for newbies (since it is 99% economy related) and those who are not familiar with economy will need to learn a lot .
Second Free flow trading FLT is not complexive at all,it uses inter market correlations and exploit that.
Third NT as well is not that complexive but it is fast. (who says that man can't be algo )

I will use philosophy of old investing school (stock market),searching for real valuation,investing rather than pure speculation.
Of course in FX (and other markets as well) speculation is the biggest part but in the long run it evaporate slowly.
I will represent this really profitable way of trading (for those who are ready to read and learn) and I'm sure that this cognition will lift your trading on next level.

Don't expect to learn all this in short period.
It is not easy at all .
Most important is experience.
Even if you learn how this works ,it will need some time to test it.
So no need for rush.
I'm doing this because of various reasons.
I learned basically here on FF to trade and this is gift to community.
I'm steping into 5th year of trading now and I want to leave something behind me ,because if I don't do this now it is likely that I won't be able to do so in the future (already I have bunch of obligations).
Anyway I wish you to endure this long journey ,it will pay off.
Most things we fail to realize at first so easily.

As always we have GOOD and BAD things.

Good thing is that you will be able to learn here a lot.
And BAD thing is :WE ARE STARTING AFTER HOLIDAYS!
Since I'm KINDA orthodox christan (start will be after 10 January) LOL
I will finish here,for NOW!
Salute ,happy holidays.
I'm on vacance for a while.

I will leave you with big Ben Graham quote - "In the short run,the market is a VOTING MACHINE but in the long run , it is WEIGHING MACHINE!".

Starting from tomorrow thread is ONLINE!

First of all welcome to this long journey .
On this thread you are all more than welcome.
Feel free to comment to ask anything (despite you think that you might asking a stupid question,because there is not a stupid question,only learning).
PLEASE step away from our fellow primates and behave polite ( )

The main point of this thread is to represent my trading strategy to you,which is almost all fundamental (95%).
Structure of this strategy is visible on picture below.


So as you can see,more than half of the strategy success and asset allocation is based on long term trading.
I will pay most attention on this part of strategy [LTMT].Since it is biggest and most complicated.
I would try to explain it as simpliest as possible,so newbies can as well benefit and learn (both pure technicians and non-economic folks).
The reason why I'm doing this is because I want to help people and partly because I'm represented here really bad,due to some technical issues.
And I'm not really a person alike (Why are you mad on me if I want to made millions ).

You must know that this thread will contain a lot of different stuffs (that I consider valuable to know).
Not just strategy ....sometimes philosophical stuff as well.
I don't want to teach you just how to trade with some strategy I want to make you able to create the strategies.

If you are new to FX,this will be totally different approach to you than usual education that brokers offers and most websites about forex.
I'm on the first place economist and than trader.

Enjoy and invest your time in reading and learning (testing) things here and it will paid off for sure.

The philosophy that lies behind this strategy is very important.
It is not forged just in currency market but as well in other markets.
So let's start this first part of strategy so called L T M T ( long term macro trading).
And before start bear this quote in the mind : " Nobody knows nothing!" - Boggle (in the markets).

[LTMT] Long term macro trading

As mentioned before this is the hardest part,so be fully concentrated.
The better you are in long term trading,the better and profitable will be this strategy for you.
You can look at this strategy as long term trading in general with hedging on the short run (via NT and FT).

On long run we are looking for big moves starting from 200 to 1000 pips.
Short run is there to take advantage of corrections or possible temporary oscillations (as well to resume the trend sometimes).

So how to make good long term trades ?

Well it depends at how good you are in analyzing the economy in general.
I will start from basics and then we will go forward and forward.
If not already,you will need here to start watching central bank meetings,follow various different markets,analyzing economic data and so on.

I will split this into three categories (three chapters).

1.Central banking system
2.Economic data (fundamental data)
3.Other markets

(Stay tuned)

very interesting

Following with great interest,may be this is the first of its kind explaining Fundamental trading on Forex factory.Looking forward to learn may things.
Thanks for your kindness to share things.

It will be more and more interesting

You are on the right place to learn about fundamental part of trading.
You are welcome ,enjoy.

Let's start with Central Bank system

First of all you need to know that every country have central bank (at least normal country LOL).
Every central bank is responsible for monetary policy.
From other side government take care of fiscal policy (but it is not important at this moment,stay focus at central banks and monetary policy)
Central banks ( CBs) as well participate in forex (currency market or cash market).
They are bigger individual buyers and sellers in the market.

Now take a look at this little example of one free market.


[supply and demand picture]

Market consist buyers and sellers , those who are willing to sell at some price and those who are willing to buy at some price.
When they reach agreement on price (equilibrium),transaction is done.
On micro level that is true and as well on macro (if the market is regular,without monopoly and such).
So we have buyers and sellers , in the economy SUPPLY AND DEMAND.
Supply - those who sell ,offer products.
Demand - those who buy,searching for products.

Have this picture in the mind , because is it very useful to map it visually.

NOW here comes the new thing,that you must understand.
CB controls the money supply!
All supply of money that circle in the economy is dictated by CB! That is very important to know and to fully understand.

Here is the picture again of supply and demand of money market in the one economy (country).


[supply and demand picture ,central bank control supply of money]

You can spot the difference now,because supply is dictated by CB,supply line is horizontal!
I think it is much easier to understand this concept through this economic model of supply and demand.
Bear this picture in the mind,it would be useful for later.

Major and most important task of every CB (as monetary policy) is to reach price stability, on the first place.
That means to take care of general level of prices,in economy so called INFLATION!
On your economic calendars it is marked as CPI , Consumer Price Index.
Most CB's have target inflation rate (at least those normal,again,advanced economies) and it is set at 2%.
Close to near 2% inflation target.
With that rate of inflation economy could reach their maximum .. good growth and not to damage economy.
For now it is enough to know that much about inflation , there will be words later about it .

Another key element is unemployment rate!
For example Federal Reserves have duo amandman , to reach price stability and reach maximum sustainable employment.
The falling of unemployment rate is key for growth , because there is more people that work and more country produce.
More families have income.
This is clear.

Speaking about growth ,there is one of the most important indicators for economic health,GDP ,Gross Domestic Product.
GDP reflects whole production of goods and services in the country (region or so).
We will closely monitor those three economic data,economic indicators,ebcause they are crucial for tracking of economic performances.

Let's go back to CB's.

How Central Banks take care of of money supply ?
BY PRINTING MONEY!

How so , they just print and everything is completed?
Well,not really.
CB increases money supply by buying financial asset (like for example government bonds)

Take a look at picture


[central bank and money borrowing]

On this little ilustration you can see that CB buy asset from financial sector.
The key point is to understand when money finish,the transmission of money.
When CB buy bonds for example,money goes from CB hands to the bank (financial sector).
By that supply of money is increased.
(Imagine the supply and demand model ,supply (horizontal line) moves on the right side).
CB print money (increase supply) when the economy is on the bad path,with low growth (usually on the crisis),it boosts economy with more money,to help economy to again reach growth.
That helps economy,because money goes through financial sector (banking channel) to other companies and industries and at the end it recover damage caused by crisis.

This state (part) of economy ,where CB print money to boost economy is called "EASING" cycle!
State where economy is improving and when the printing and stimulus are ended is so called "TIGHTENING" cycle.

There are various tools which central bank uses to stimulate the economy and control money supply.

FIRST LINE OF DEFENSE are always INTEREST RATES!

Rate by which CB usually borrow money to banks (financial sector).
When we are in the EASING mode (cycle),interest rates are LOW!
Like today,interest rates are near all time lows , close to zero percent.

With low interest rates it is cheaper to borrow money from CB and that is good stimulus of the economy,fast and effective.
I want to write on economic terms and I want from you to learn those terms,so I will put always economic terms and explain them.

When central bank decrease interest rates,they CUT INTEREST RATES.
And on contrary,when CB increase interest rates,they HIKE INTEREST RATES.
When start to HIKE interest rates,borrowing from CB becomes more expensive for banks (financial sector).
And it is TIGHTENING mode (cycle).

Enough for now.
Stay tuned

BY THE WAY.

Did you see today move on CHF pairs ?

400 pips move in 1 hour

You have no power here technicians



WOW !

You mean 4000 pips....
and the real move was another 1000 pips more...

Sorry 4000 pips

Now you know (if not already) who is the biggest seller and buyer in the FX market.

This is important to know because of the upcoming articles and this strategy .
There are two things that we need to know,as we know now who is the biggest player (because we want to follow that,right? )

What cause CB to act ?
and
How to track that ?

Bear in the mind that we are still away from pure trading (so be focused on theory) .. we are dealing with economy.What is more important to know that just to enter sell or buy .

So what cause CB to act ?
The shortest and simpliest answer is the economy,in general.

How to track that ?
This one is a little bit complicated and there is no simple method.
Since economy is very complicated (as people psychology and needs right),we need to monitor various econmic indicators.
Starting from classic raw fundamental data,our HOMEMADE indicators (that we should made later) to various other markets.
The good things about markets are that they are like SERNSORS! Risk sensors.
But the bad thing is that they also fail to detect big "bubbles" on the time,when they occurs.

As FX traders we still have good benefit from them,althought they have good delay from real bubble ,real crisis.
With combination of various different markets and with fundamental it is easier to know what possible could turn bad or good.

In this thread I need to ome accross a lot of things,because there is hell of stuffs that are waiting to be TOLD!
I will try to write at the same time things for LTMT that we would use later in other two parts of this system.

Let's back to the CB and relationship with FX,now.

On the long run what is the most influential aspect for large traders in the currency (FX) market are INTEREST RATES.

There is a rule:
When CB HIKE (increase) interest rates,currency tends to appreciate (to go up ).
And oppossite,when CB CUT (decrease) interest rates,currency depreciate (go down).

Big companies,countries,industries ---> INVESTORS take care of interest rates as major indicator of where currency (exchange rates) could go be in the future.
Because of trading plans among them it is important to know where exchange rates will be in the future.

CB hold meetings every month (essentially),when central bank president share to public opinions about economy and further EXPECTED path of interest rates.
You probably know about that,because during those meeting we have a huge volatility.
Markets are sensors ,right,especially those algos,LOL.

You need to start watching every central bank meetings (and sometimes central bankers speeches) to get idea what the heck they think about current economic state.
Doesn't matter if you at beginning don't know what is happening or what something means,by the time you will learn all terms and you will know to translate that language.
I will help you with my summary of some meetings sometimes.

On that meetings ,mostly on quarter basis (every three month ) we have economic projections and that is a really good thing.
We will use it in the NT part of this system.
But there will be more words later about it ,we need to say a lot of things about fundamental data and so on .

Back to the main point.

SO,ALL IS ABOUT interest rates expectations and path of interest rates in the future! (During the normal period,of course,if there is no some big crisis or so ).
Interest rates are major source of movements in the FX on the long run (of course supported by economic conditions).

And for the end (today) you must know one important thing,that there is no 100% certainty about path of the economy,because of the nature itself.
Job of analyst , economist is to track all fluctuations and solve the puzzle.In the name of future and better tomorrow.
From other side job of trader is just to take advantage and earn money on that.
But you shouldn't be feared by uncertainty because with this approach ,risks are limited and you will spot the upcoming changes way before the usual (oridnary) people.

Salute

Later new article .

Pay attention at this .

International Monetary Fund again cut global growth projections

I think that it is maybe better to wait ECB meeting,

Because we will have real- time experiment for this trading system.

And we should monitor ECB decision and impact on EUR on long term.

To take care about interest rates, new EASING announcements and for newbies to look how all this looks like.

Bank of England just lose two HAWKS for hike rates.

Now we don't have two hawks (bulls) that want to hike rates.



Interesting thing (surprising a little bit) is that MPC sees inflation could go below 0% in the first half of 2015 .

Tomorrow ECB,today I could write a few words ,non-related with strategy and system

Bank of Canada cut interest rates.
That should be your long term short of CAD .

USD/CAD buy for example

I start writing something .. but it turns to be really long haha.

So I will post it edited in the upcoming period.
Focus on ECB tomorrow.

https://www.ecb.europa.eu/press/tvse...150122.en.html

We got today ,big thing.

ECB announce QE (quantitative easing),so we are in EASING mode now.

I hope that you all watched ECB meeting ,it is really what you must if you trade on FX.

Now ECB is going to buy 60 billions euros every month .. till 2016 .So it will reach 1 trillion euros during that period of time.

The good thing is that this is a real - time test for this trading system.

We base our long term trades on interest rates decisions ,easings (tightenings) and later monitor economic development (through fundamentals) and economic indicators.

Today we sell EURO.

I don't know if it is right time to speak about trades since we need to come through a lot of things till that but let me just say one think about it.

It is very important to make a good asset allocation!

If you want to trade long term ,you need to do that,to reduce risk.

We will come to that part ,but you bear in the mind that I made for example three trades on EURO today.

On three different pairs and they are all long terms.

Please ask anything about this part, about central banking system (surely we wil come again later on this part) but it need all to be clear.

Next is about economic data.

Nice information Nikola,Thank you for all the efforts,this thread does not seem like attracting lot of people as in the case of technical systems,but please don't stop posting.There are very few people willing to share about fundamental trading.Please share if there are any resources to read about the economics over the internet.