This thread will focus on Fundamental and Sentiment analysis. I have tried to trade the forex markets using pure technical analysis and like many retail traders, i have made some, lost some. I am not an expert at Fundamental analysis. My heart felt thanks to Davit, Samson, Neil and many other folks, websites and resources that helped me gain knowledge.
This thread is for folks who are interested in Fundamental analysis and would like to contribute in a respectful and constructive manner.
Any posts that are not related to this subject will be removed and the posters will be blocked without any warning. I need to do this to stay on course – Thank you for understanding.
If you are not interested in Fundamental analysis or do not believe in it, please skip the thread.
I will post my understanding of the Fundamental / Sentiment for the following currencies:
USD, EUR, JPY, CHF, CAD, GBP, AUD, NZD
Please refer to the following google spreadsheets link for details of the analysis.
Most importantly – Market reaction to news – moves the currencies
(Economic news, Geo political announcements, Change in governments etc… There are many reasons for the currencies to move. This is not an exhaustive list but i will update this list eventually)
Forex markets are future markets and anticipation of future growth or the lack of – leads the investors to buy or sell currencies.
The most important economic news events in the order of importance are listed below –
1. Interest Rate Decisions
2. Inflation Data (PPI, Core PPI, CPI, Core CPI)
3. GDP numbers
4. Employment Data
5. Manufacturing readings
6. Trade balance
7. Consumer Confidence
8. Retail Sales
There could be other indicators but i focus on these..
I use www.forexfactory.com to understand the “trend” of the important news results for various currencies. You can use the filters to limit the results to just one currency and also include the timeframe ( few weeks ) to check the economic indicators / news results.
I use google search, and also use www.forexfactory.com, www.bloomberg.com, www.forexlive.com and other websites to gather the latest information. It is very important to keep track of the geo-political events that can impact currencies and commodities.
A news event that happened most recently can have maximum impact (again depends on how long the effect of the news event will last). Usually Central bank decisions like Quantitative Easing tend to last much longer.
Central bank divergence is another important piece we can use.
A simple announcement or a seemingly harmless tweet from folks who are considered important by the markets, can swing the direction of prices. It can lead to “Risk On” or “Risk Off” sentiments.
“Risk Off” – When this happens, safe haven currencies like JPY and CHF will strengthen. There was an announcement recently that talks with China are not going well. After the Asian forex markets opened, JPY and CHF strengthened across the board. To make things worse, talks with North Korea were cancelled and this further fuelled the “Risk Off” sentiment.
It is very important to pay attention to what the central banks are paying attention to in terms of news events and the central bank stance on economy, rate hikes, monitary policy.
I strongly believe that Fundamentals / Sentiment need to be taken into account along with any Technical system you may use.
I have also given in the second tab of the spread sheet, what i believe are the high probability trades based on Fundamental Analysis. These are not trade recommendations. If you decide to use these as part of your trading, please do not blindly place trades. It is very important to understand Price Action / Consolidation zones, Reversal Zones etc. Never sell into support and buy into resistance.
If you do not know the basics of Forex trading, please spend considerable time – There are a lot of free resources. You don’t have to pay a dime
Use Google search to understand : Price Action, Support and Resistance levels, Candlestick patterns etc.. Lot of information is available online for free.
I lost a lot of money by using the $99 click bank products and others – years ago. I believe, you can learn all of this information for free but you have to put in lot of time commitment to learn and practice again and again.
I have tried many systems that use lagging indicators – These only tell you what happened in the past. They do not tell you why they happened. You need to use leading indicators like support and resistance (technical) and fundamental / sentiment direction.
The fundamental question to be asked when looking at charts is –
What is the fundamental (sentiment / announcement) reason for price movement?
Is it a change in Monitary policy? Did the Central bank announce a long term strategy (Example: Quantitative Easing)
Did some one important announce something to which the market is reacting?
Smart Money can make false moves to take out stop losses of retail traders and then continue in the direction they decide. It is important to not use tight stop losses. Some folks use no stop loss but use a % of account as the point to exit if trades do not go in the expected direction. Please use what you are comfortable with. You have to work hard and learn and practice to use a system / set of rules that works for you (a.k.a. your holy grail).
As long as the reason that started the move is present, the market is likely to continue in that direction – of course no currency will continue to move in one direction without corrections / exhaustion – That is very important.
Another very important aspect of trading is psychology. You are not going to find a system that is going to be 100% accurate. You need to make sure you have the right psychology or develop the psychology by using some wonderful resources / books. The two books by Mark Douglas are very important in developing the right mental / emotional approach for trading. You may have the best possible system that combines Fundamental and Technical analysis but without proper trading psychology and money management, you cannot win in the long run.
1. Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude – Mark Douglas
2. The Disciplined Trader™: Developing Winning Attitudes – Mark Douglas.
If you need help P.M. me 🙂
If you like to follow Fundamental trades published by Samson, please feel free to look at Samson’s thread – very useful.