Fundamental Trading with a Directional Bias

It's part of the puzzle, its like having a good engine in a car, but an engine alone won't get you from A to B.
Sorry that sounds corny, but I think it is true.

There is an edge in breakouts, several people on the forum have said this, Petercrown, TheRealThing, Pipeasy. I didn't just take their word for it, I already had the data from my manual testing, so I know those guys aren't bull spitting.

I actually was testing an intraday strategy to use limit orders lol, my testing focused around looking to buy at support and sell at resistance, using previous daily highs and lows as objective levels, with a 1:2 risk:reward. Somewhere into the testing I realised that it wasn't working, and actually the reverse of what I was trying to do i.e. breakouts was better. I correlated breakouts with high impact news events for 2.5 years of data, and in the three currencies I tested results where clear - breakouts had a theoretical edge, fading did not.

The reason why I said theoretical edge is that slippage ruins the edge in intraday breakouts. If you have a great broker, that fills you exactly at the prices you want, you will make money, lots of it. This isn't an idea world, and my broker was slipping me 10-22 pips on big news which killed that system. But if you take that up to higher time frames, any slippage has much less impact on overall cost and profits. I found a better broker, that doesn't slip as much either, that broker which now is in administration - can't write this lol .

It's not intuitive to buy as price goes highers, or sell as it goes lower. You always hear buy low and sell high, but with leverage fading price can be a disaster. Fading without a trend filter doesn't work, I already know that, but based on what I have tested, it might with a trend filter, but I would argue that the breakout system would work even better.

I think of it as stacking as many small edges in your direction. Breakouts have an edge for a couple of reasons.

The other important thing is running winners. Last time I checked, my stats where 30% winners, vs 70% losers, but my average winner was 6-7 times my loser.

Nice thread IMHO. A very similar approach to that used by Jarratt Davis, who (if I understand correctly) has been consistently successful since 2008.

@Hanover

Thanks, yes it's fairly similar. I suppose people think it's similar because i focus heavily on central banks and market levels such as support and resistance, when in actual fact a large handful of the successful traders will use the exact same techniques.

Update

I'd like to post some trade examples from this week. Had some fantastic moves on some GBP pairs.

GBP/AUD


GBP/CAD


GBP/USD


You can see we've had some good data from the UK, most of which was forecast, plus there was obviously going to be no change in interest rates, played right into a support zone and flew up as we entered that zone. A great week...

Everyone,

It's a fairly quiet but busy week this week. I'm only actually looking to trade tomorrow based on the GBP Manufacturing Production data, looking for some levels of resistance to sell into before the data is released. We have to be really careful this week. We have the GBP BoE speech from Mark Carney, which we're expecting no real change from that as they've already told us they're not concerned with the low inflation figures. Wednesday is the big day to watch out for as we have Eurogroup meetings.

Eurogroup Meetings

There is a lot of talk about Greece actually leaving the Euro currency, which my initial feeling would be that it would be catastrophic for the Euro. With Greece's debt situation, them leaving could cause problems with that debt repayment, which we already know is around 175% of their GDP. I will definitely be out of all positions before these meetings to protect my account.

My initial feeling is that it would be bad for the euro as well, 80% sure it would go lower.

Longer term maybe this is exactly what the euro needs, so small chance that the news could be greeted well.

My gut instinct is that people will get their money out of the euro and wait until they see what happens.

i think the Greek exit is inevitable

Monday 2 March 2015

On Monday we have some stronger than previous GBP data forecasted in the form of Manufacturing PMI. We know the BoE is looking to raise rates either late this year or early next year so good data should more than likely provide a nice long setup against some weaker currencies such as the Australian Dollar which is forecast to cut interest rates again this week, and the Japanese Yen.



A pullback into the shaded area would be expected and if we do get that, should provide a great opportunity to go Long on this pair. If that fails, then I will be looking for a second long entry towards the bottom of the chart where we have the lowest support level marked out, if data is still in line with our forecasts.

We also have some negative US Manufacturing PMI data forecast which could provide a setup on Cable at any levels of support.

Tuesday 3 March 2015

On Tuesday the main event should be the Aussie Dollar interest rate decision which we're expecting a further cut to the one we have a couple of months back. This should tie in well with our GBP/AUD trade from Monday and should give it room to move up to that target area around 1.9800 / 1.9820. We also have Mark Carney speaking on Tuesday so this should be something to watch out for as, although we're not expecting it, if he does signal any changes in the BoE's rate decision then this could put some weakness on the Pound.

On Tuesday we also have some positive Canadian dollar news expected in the form of GDP. This could provide some opportunities to on the AUD/CAD pair. We have some short term resistance around the 0.9780 level, with further and stronger resistance around 0.9830 level. These could provide good opportunities to short this pair.



Wednesday 4 March 2015

On Wednesday we first have some GBP news which we expect to be better than previously. This is the Services PMI. If we don't get any negativity from Mark Carney, this should provide a good base to long the Pound against weaker currencies, screenshots to follow later in the week.

We also have some GDP data coming from Australia which is expected to be stronger. Now if on Tuesday the RBA do cut rates, I will be ignoring this, but if the RBA don't cut rates and say that they see no need to at this time, then that could provide a good long setup against some weaker currencies.

Thursday 5 March 2015

On Thursday we have the BoE rate decision which we're not expecting any movement on. We also have some retail sales data from Australia which is expected to be better than previous again, which I will only trade if the RBA don't cut rates.

We also have some IVEY PMI data coming from Canada which is expected to be stronger. Depending on what the BoC say on Wednesday, this could provide some long set-ups for the Canadian dollar against weaker currencies.

US Dollar

We have a lot of mixed data coming from the US this week in the form of NFP and employment data. I'd favour towards some weakness in the US Dollar this week although that could be short-lived with Yellen's speech on Wednesday.

Would love to hear some other views on the coming week.

Thanks

Last week we had a few great moves. We obviously had a large sell off in the Euro based pairs at the start of the week due to QE starting. This paired with the strong US Dollar because of strong NFP numbers the week before moved EUR/USD closer to parity. The Euro retraced back a little towards the end of the week due to the weak retail sales data from the US, and then weak PPI data on Friday.

Sterling posted nice gains against weaker pairs such as the Aussie Dollar and Japanese Yen due to being undervalued, and some positive data expected from Manufacturing data, as well as the speech from Mark Carney. Carney was surprisingly more dovish than we expected, and the weaker manufacturing data than expected caused Sterling to give back all of it's gains from the start of the week and break multiple support levels on many pairs including against the Japanese Yen and Aussie Dollar.

The New Zealand Dollar also posted strong gains ahead of Wheeler's speech. We know the RBNZ were concerned with the strength of their currency, so this was a given that there would be some weakness in the New Zealand dollar. Either the value had to decrease, or rates would be cut, either way sending the New Zealand Dollar down.

Monday 16 March 2015

On Monday we just have a speech from Mario Draghi as he is speaking at the SZ Finance Day. We can probably expect some information on how QE is going, as well as any advancements with the Greece situation. This could cause some volatility on all the Euro pairs.

Tuesday 17 March 2015

We have Monetary Policy information coming from both Australia and Japan so it will be a good one to watch for helping with deciding our trades throughout the week.

We then have some positive sentiment expected from Germany which could provide some reason for the Euro pairs to push slightly higher against weaker currencies. I'll be looking for support levels on these pairs to possibly get in the market.

We also have Manufacturing Sales data from Canada which is expected to be worse than previous and also fall into negative territory. This could provide a great opportunity to get into Canadian Dollar pairs against stronger currencies. Again, I'll be looking at any support and resistance levels. If we have a decent pullback on USD/CAD on Monday, then this could set up a great trade ahead of this event.

Wednesday 18 March 2015

The first event on Wednesday is Average Earnings from the UK. We know this is a focus of the BoE so this figure will be watched closely. It's expected to come in just slightly better than previously which could give Sterling a reason to bounce from support and resistance levels before hand. I'll be watching against the weaker currencies.

Canadian Wholesale sales are forecast to be weaker than previous which could help a sell-off of the Canadian Dollar from the start of the week.

We then have the FOMC Statement later on during the NY session. This is arguably the main event of the week and there have been discussions as to whether that all important word 'patient' will be removed. If it is removed, then that would signal that a rate hike is coming soon and we won't be waiting into next year. I personally believe that with the way in which reports have been talking, and with the recent strength of the Dollar and that all important NFP data, there is a possibility of the word being removed. This could provide a good trade setup to trade into from the start of the week from any technical levels, against weaker currencies.

We also have GDP data from New Zealand which is forecast to be worse.

Thursday 19 March 2015

There isn't much happening on Thursday. The main event is monetary policy assessment from the SNB. We could see them introduce that 1.10 floor on EUR/CHF that they have been talking about for a while, but that remains to be seen. I'll not be trading that.

Friday 20 March 2015

We have a speech from Stevens from the RBA which could provide trading opportunities afterwards.

We also have some Canadian data coming in the form of retail sales. Last time around these were negative and they're expected to move positive. If we see some positive data earlier in the week this could provide an opportunity to get Long in the Canadian Dollar against weaker currencies.

Summary

We have a fairly busy week this week which should provide plenty of opportunities. A weak Canadian dollar expected at the start of the week along with some strong US Dollar momentum expected. Also we could see some strength from the Pound ahead of that Average Earnings data.

I'm still long dollars, but I'm getting nervous that it has moved too far too fast.

I'm now live again on forex, still have not got my funds back from Alpari, but I'm confident I will.

@Verv

Wish you the best with your situation with Alpari. Fortunately I didn't have an account with them.

Yes exactly. I think if the Fed remove the word everyone's talking about and signal that rate hike then the Dollar has way further to go, but I think because of the recent strength, anything that may signal a rate hike being pushed back will cause the market to sell off US Dollars more heavily than they should...

Yes hopefully that will get sorted, but I am not to worried anymore. I'm sure I will get at least my initial deposit.

Re the dollar move. Yes, I agree completely, what worries me is the extreme positioning on the COT, and I have been asking Dunstan what he thinks on it.

Nobody can know the futures, all we can do is control risk and let the winners run.

Yeah to be honest a couple of people I know spend a heck of a time looking at the COT report but I don't find it helpful. That's only reporting what's already happened, and I've had the success analyzing how I do.

Changing what I said from my original post yesterday, I think I'll probably wait until FOMC statement is released because like we've said, if 'patient' isn't removed the Dollar's going to tumble!

Thanks for the update JP :-)

No worries mate, happy to help! Let us know how you get on!

A little late, but here's my analysis for the week ahead...

Last week was a very mixed week for the markets, with the highlight being the FOMC Statement from the Fed. This caused the US Dollar to lose a lot of value in the coming few hours, although it made most of that back by the end of the week. Although it made it back, this might put the Dollar on the backburner a little if we get some positive expectations and data from other currencies.

We also saw that the BoE said that a rate cut was as likely as a rate rise because of the recent slump in data, although markets didnt seem too concerned.
On an equities note, we saw the FTSE100 actually break the 7000 level, a key level which was the high of December 1999, and a couple hundred pips higher than the 2007 highs before the financial crisis.

Monday 23 March 2015

On Monday Mario Draghi is speaking before the European Parliaments Economic and Monetary Affairs committee. Im not sure whether therell be a live feed to this but if there is, any comments about the Eurozone situation regarding growth in the Eurozone and their QE programme is likely to move the EURO pairs. If there isnt a live feed, then just watch out for any headlines that are released

Tuesday 24 March 2015

Our first events on Tuesday are PMIs for Manufacturing from both France and Germany. These are both expected to be better than previous so if we dont get anything too negative from Draghi Ill be looking for a Euro long against weaker currencies at any support levels.

We then have Y/Y British CPI which is forecast to drop further. This should provide a fantastic opportunity to get in Short on Sterling against stronger currencies including the Japanese Yen. This is because we heard the BoE last week tell us that there is as high a chance of being another rate cut as there is being a rate rise so sentiment before this event should be very bearish.

Then into the New York session we have some CPI data coming from the US, although only m/m. One reading is expected to be better while the other worse. My view would be to look at Dollar longs here before the event against any weaker currencies as there is a much stronger deviation on the event which is forecast to be better than previous, as well as moving from a negative reading to a positive reading above 0.0%.

Wednesday 25 March 2015

On Wednesday we have some light Euro data coming which is German Ifo Business Climate. I wouldnt fancy a trade based on this data.
We then have New Zealand Trade Balance which has had a couple of good moves the last couple of months, and its forecast to be a lot better than previous again this month. This could provide an opportunity to get in long on the New Zealand Dollar against weaker currencies.

Thursday 26 March 2015

On Thursday we have some Retail Sales data coming from the UK which is forecast to be better than previous and move out of negative territory. This could provide a decent Long on GBP against weaker currencies but my view is that this will depend on the CPI data from the UK earlier in the week, as thats where the focus is.

Unemployment claims from the US are expected to be better, and we have a speech from BoC Gov Poloz. The Bank of Canada have been expected to cut rates again but with inflation data picking back up, this could be looking less likely and I actually believe that Poloz will be more hawkish than were expecting him to be.

Friday 27 March 2015

On Friday we have the BoE Governor Mark Carney speaking in Frankfurt. Although this is regarding regulations in the finance industry, we could see some Dovish comments again from Carney, especially if that all important CPI data is weak.

GDP from the US is expected to be better than previous although this is a Final reading so it tends not to have as much of an effect on the market, and Yellen is speaking about Monetary Policy in San Fransisco so the market will be focused on this from the US.

Summary

Again a busy week which should provide lots of trading opportunities. A weak Pound Sterling expected at the start of the week along with possibly some strong US Dollar and New Zealand Dollar. Watch for the CPI from the US as this will most likely set the tone for the Dollar for the rest of the week.

Many thanks again JP. Nice succinct summary as always.

USA core CPI better than expected (o,2% Vs 0,1%) -> Long USD till friday (see then GDP)
If GDP is better than expected too -> turning point in EURUSD and USDCHF will be consolidated

Hello all,


Great thread.

@jakerparkin ... deep thought bro. I use the same approach in my day trading. But never hold my position too long. and keep mainly my focus with USD pair. It's somehow easier to read base on the news feed and the fundamental event rather than cross pair.

Many pips to you bro. Amen

@bullbearies Sound good mate, how's your success with it?

Last week was pretty straight forward for the markets. There was a huge flow to the Japanese Yen due to middle-eastern tensions in Yemen, as the Yen is a safe haven currency.

Sterling lost a lot of value at the start of the week both before that negative CPI reading was released, but Carney gave the Pound some support by encouraging the markets that a rate hike was the most likely next move by the BoE.

Monday 30 March 2015

We have an extremely quiet day on Monday with just the Preliminary m/m CPI reading from Germany. This is expected to drop from 0.9% last reading to 0.4%. I wouldn’t expect this to have much effect on the markets beforehand, especially with it being a m/m reading.

Tuesday 31 March 2015

We’ve got a pretty busy day on Tuesday. We start with the Current Account from GBP. This usually won’t have much effect on the markets but with the General Elections coming in the UK, Sterling is much more volatile and risky. It’s forecast to come in better than the last reading but still deep in negative territory so I wouldn’t fancy a trade based on that.

Eurozone CPI flash estimate is then due to be released at 10:00AM UK time. This is forecast to come in the same as last month but still having a negative reading. Obviously with the fundamentally weak Euro, any Euro pairs coming to decent levels it could be a great area to get in short on the Euro, especially the Yen due to continued tensions in the middle-east.

Then later on into the New York session we had Canadian GDP reading which is forecast to come in slightly weaker. This could provide a good opportunity to Short the Canadian Dollar after it lost a lot of value last week after comments from Poloz. Matching it with any strong fundamental currencies such as Sterling or the US Dollar could be a great trade.

Wednesday 1 April 2015

On Wednesday we have the Manufacturing PMI from the UK which is forecast to come in slightly better than last month at 54.5. This could provide a quick opportunity to get in Long on British Pounds against weaker currencies such as the Canadian Dollar.
A big week for the US Dollar as it’s NFP week, and we have ADP Non-Farm Employment Change on Wednesday. This is forecast to come in better than last month but this reading is usually only a stepping stone for the actual NFP reading on Friday. We have some weakness expected in the form of the Manufacturing PMI on Wednesday too. It might pay to stay away from the Dollars on Wednesday.

Thursday 2 April 2015

Firstly on Thursday we can expect some strength in GBP as we have some positive Construction PMI data forecast. It is only forecast to come in slightly better but could provide some strength to Sterling.

We also have Unemployment Claims coming from North America but I highly doubt this will have much effect on the market with NFP coming the day after. This reading is also forecast to only be slightly different than the last, so I would avoid a trade based on that.

Friday 3 April 2015

It’s NFP day on Friday and readings will change depending on the ADP reading on Wednesday anyway, but I would only look to trade out of this event. It’s forecast to come in worse than last month which is no surprise as last month’s reading was incredible.
Summary

A week not as busy as last week but we can be expecting some GBP strength against weaker currencies, a very volatile US Dollar, and also more flows into the Japanese Yen if we have tensions building even more in the middle-east.