Part 5: What is Fundamental Analysis?
What is Fundamental Analysis?
• Fundamental Analysis
Fundamental
analysis is the study of how global economic news and other news events
affect financial markets. Fundamental analysis encompasses any news
event, social force, economic announcement, Federal policy change,
company earnings and news, and perhaps the most important piece of
Fundamental data applicable to the Forex market, which is a country’s
interest rates and interest rate policy.
The idea behind fundamental analysis is that if a country’s current or future economic picture is strong, their currency should strengthen. A strong economy attracts foreign investment and businesses, and this means foreigners must purchase a country’s currency to invest or start a business there. So, essentially, it all boils down to supply and demand; a country with a strong and growing economy will experience stronger demand for their currency, which will work to lessen supply and drive up the value of the currency.
For example, if the Australian economy is gaining strength, the Australian dollar will increase in value relative to other currencies. One main reason a country’s currency becomes more valuable as its economy grows and strengthens is because a country will typically raise interest rates to control growth and inflation. Higher interest rates are attractive to foreign investors and as a result they will need to buy Aussie dollars in order to invest in Australia, this of course will drive up the demand and price of the currency and lessen the supply of it.
• Major economic events in Forex
Now, let’s quickly go over some of the most important economic events that drive Forex price movement. This is just to familiarize you with some more of the jargon that you will likely come across on your Forex journey, you don’t need to worry too much about these economic events besides being aware of the times they are released each month, which can be found each day in my Forex trade setups commentary.
Gross Domestic Product (GDP)
The GDP report is one of the most important of all economic indicators. It is the biggest measure of the overall state of the economy. The GDP number is released at 8:30 am EST on the last day of each quarter and it reflects the previous quarter’s activity. The GDP is the aggregate (total) monetary value of all the goods and services produced by the entire economy during the quarter being measured; this does not include international activity however. The growth rate of GDP is the important number to look for.
Trade Balance
Trade balance is a measure of the difference between imports and exports of tangible goods and services. The level of a country’s trade balance and changes in exports vs. imports is widely followed and an important indicator of a country’s overall economic strength. It’s better to have more exports than imports, as exports help grow a country’s economy and reflect the overall health of its manufacturing sector.
Consumer Price Index (CPI)
The CPI report is the most widely used measure of inflation. This report is released at 8:30 am EST around the 15th of each month and it reflects the previous month’s data. CPI measures the change in the cost of a bundle of consumer goods and services from month to month.
The Producer Price Index (PPI)
Along with the CPI, the PPI is one of the two most important measures of inflation. This report is released at 8:30 am EST during the second full week of each month and it reflects the previous month’s data. The producer price index measures the price of goods at the wholesale level. So to contrast with CPI, the PPI measures how much producers are receiving for the goods while CPI measures the cost paid by consumers for goods.
Employment Indicators
The
most important employment announcement occurs on the first Friday of
every month at 8:30 am EST. This announcement includes the unemployment
rate; which is the percentage of the work force that is unemployed, the
number of new jobs created, the average hours worked per week, and
average hourly earnings. This report often results in significant market
movement. You will often hear traders and analysts talking about “NFP”,
this means Non-Farm Employment report, and it is perhaps the one report
each month that has the greatest power to move the markets.
Durable Goods Orders
The durable goods orders report gives a measurement of how much people are spending on longer-term purchases, these are defined as products that are expected to last more than three years. The report is released at 8:30 am EST around the 26th of each month and is believed to provide some insight into the future of the manufacturing industry.
Retail Sales Index
The Retail Sales Index measures goods sold within the retail industry, from large chains to smaller local stores, it takes a sampling of a set of retail stores across the country. The Retail Sales Index is released at 8:30 am EST around the 12th of the month; it reflects data from the previous month. This report is often revised fairly significantly after the final numbers come out.
Housing Data
Housing data includes the number of new homes that a country began building that month as well as existing home sales. Residential construction activity is a major cause of economic stimulus for a country and so it’s widely followed by Forex participants. Existing home sales are a good measure of economic strength of a country as well; low existing home sales and low new home starts are typically a sign of a sluggish or weak economy.
Interest Rates
Interest rates are the main driver in Forex markets; all of the above mentioned economic indicators are closely watched by the Federal Open Market Committee in order to gauge the overall health of the economy. The Fed can use the tools at its disposable to lower, raise, or leave interest rates unchanged, depending on the evidence it has gathered on the health of the economy. So while interest rates are the main driver of Forex price action, all of the above economic indicators are also very important.
• Technical Analysis VS. Fundamental Analysis
Technical
analysis and Fundamental analysis are the two main schools of thought
in trading and investing in financial markets. Technical analysts look
at the price movement of a market and use this information to make
predictions about its future price direction. Fundamental analysts look
at economic news, also known as fundamentals. Now, since nearly any
global news event can have an impact on world financial markets,
technically any news event can be economic news. This is an important
point that I want to make which many fundamental analysts seem to
ignore…
One of the main reasons why I and all of my members prefer to trade primarily with technical analysis is because there are literally millions of different variables in the world that can affect financial markets at any one time. Now, Forex is more affected by macro events like a country’s interest rate policy or GDP numbers, but other major news events like wars or natural disasters can also cause the Forex market to move. Thus, since I and many others believe that all of these world events are factored into price and readily visible by analyzing it, there is simply no reason to try and follow all the economic news events that occur each day, in order to trade the markets.
One of the main arguments that I have read that fundamental analysts have against technical analysts is that past price data cannot predict or help predict future price movement, and instead you must use future or impending news (fundamentals) to predict the price movement of a market. So, I thought it would be a good idea to give my response to these two arguments against technical analysis:
1) If fundamental analysts want to try and tell me that past price data is not important, then I would like them to explain to me why horizontal levels of support and resistance are clearly significant. I would also like to ask them how myself and many other price action traders can successfully trade the markets by learning to trade off of a handful of simple yet powerfully predictive price action signals:
Looking at the daily spot Gold chart above, we can clearly see that support and resistance levels are important to watch. Any Fundamental analyst, who wants to say that charts don’t matter, is simply wrong, and you will come to this conclusion on your own when you spend more time studying some price charts.
2) The next argument that Fundamental analysts use is that you can more accurately predict a market’s price movement by analyze impending forex news events. Well, anyone who has traded for any length of time knows that markets often and usually react opposite to what an impending news event implies. Are there times when the market moves in the direction implied by a news event? Yes, absolutely, but is it something you can build a trading strategy and trading plan around? No.
The reason is that markets operate on expectations of the future. This is actually an accepted fact of trading and investing, so it’s a little strange to me that some people still ignore technical analysis or don’t primarily focus on it when analyzing and trading the markets. Let me explain: if Non-farm payrolls is coming out (the most important economic report each month, released in the U.S.) and the market is expecting 100,000 more jobs added last month, the market will likely already have moved in anticipation of this number. So, if the actual number is 100,000 even, the market will probably move lower, instead of higher…since there were not MORE added jobs than expected. So, while 100,000 new jobs might be a good number, the fact that the actual report did not exceed expectations is bad for traders and investors (can you see how this junk gets confusing now? I almost confused myself writing this…).
AND NOW FOR MY FINAL POINT: Since all of the preceding expectations of a news release have already been carried out and are visible on the price chart, why not just analyze and learn to trade off the price action on the price chart?? What a novel idea! You see, even after the news is released we can still use technical analysis to trade the price movement, so really technical analysis is the clearest, most practical, and most useful way to analyze and trade the markets. Am I saying there is no room for Fundamental analysis in a Forex trader’s tool box? Absolutely not. But, what I am saying is that it should be viewed and used as a compliment to technical analysis and it should be used sparingly, when in doubt consult the charts and read the price action, only use Fundamentals to support your Technical view or out of pure curiosity, never rely solely on Fundamentals to predict or trade the markets.
Jump To Next Chapter – Part 6: What is Price Action Trading Analysis?
Jump Back To Start – Forex Trading University
Syllabus Of All Chapters
Part 1: Introduction – What Is Forex Trading ?
Part 2: Forex Trading Terminology
Part 3: Long or Short ? Order Types And Calculating Profits & Losses
Part 4: What is Professional Forex Trading?
Part 5: What is Fundamental Analysis?
Part 6: What is Price Action Trading Analysis?
Part 7: Introduction to Forex Charting
Part 8: What Is A Forex Trading Strategy?
Part 9: Common Forex trading mistakes and traps
Part 10: What is Technical Analysis
Part 11: How to Make a Forex Trading Plan
Part 12: The Psychology of Forex Trading
Part 13: Professional Price Action Forex Trading Strategies
• Fundamental Analysis
Fundamental
analysis is the study of how global economic news and other news events
affect financial markets. Fundamental analysis encompasses any news
event, social force, economic announcement, Federal policy change,
company earnings and news, and perhaps the most important piece of
Fundamental data applicable to the Forex market, which is a country’s
interest rates and interest rate policy.The idea behind fundamental analysis is that if a country’s current or future economic picture is strong, their currency should strengthen. A strong economy attracts foreign investment and businesses, and this means foreigners must purchase a country’s currency to invest or start a business there. So, essentially, it all boils down to supply and demand; a country with a strong and growing economy will experience stronger demand for their currency, which will work to lessen supply and drive up the value of the currency.
For example, if the Australian economy is gaining strength, the Australian dollar will increase in value relative to other currencies. One main reason a country’s currency becomes more valuable as its economy grows and strengthens is because a country will typically raise interest rates to control growth and inflation. Higher interest rates are attractive to foreign investors and as a result they will need to buy Aussie dollars in order to invest in Australia, this of course will drive up the demand and price of the currency and lessen the supply of it.
• Major economic events in Forex
Now, let’s quickly go over some of the most important economic events that drive Forex price movement. This is just to familiarize you with some more of the jargon that you will likely come across on your Forex journey, you don’t need to worry too much about these economic events besides being aware of the times they are released each month, which can be found each day in my Forex trade setups commentary.
Gross Domestic Product (GDP)
The GDP report is one of the most important of all economic indicators. It is the biggest measure of the overall state of the economy. The GDP number is released at 8:30 am EST on the last day of each quarter and it reflects the previous quarter’s activity. The GDP is the aggregate (total) monetary value of all the goods and services produced by the entire economy during the quarter being measured; this does not include international activity however. The growth rate of GDP is the important number to look for.
Trade Balance
Trade balance is a measure of the difference between imports and exports of tangible goods and services. The level of a country’s trade balance and changes in exports vs. imports is widely followed and an important indicator of a country’s overall economic strength. It’s better to have more exports than imports, as exports help grow a country’s economy and reflect the overall health of its manufacturing sector.
Consumer Price Index (CPI)
The CPI report is the most widely used measure of inflation. This report is released at 8:30 am EST around the 15th of each month and it reflects the previous month’s data. CPI measures the change in the cost of a bundle of consumer goods and services from month to month.
The Producer Price Index (PPI)
Along with the CPI, the PPI is one of the two most important measures of inflation. This report is released at 8:30 am EST during the second full week of each month and it reflects the previous month’s data. The producer price index measures the price of goods at the wholesale level. So to contrast with CPI, the PPI measures how much producers are receiving for the goods while CPI measures the cost paid by consumers for goods.
Employment Indicators
The
most important employment announcement occurs on the first Friday of
every month at 8:30 am EST. This announcement includes the unemployment
rate; which is the percentage of the work force that is unemployed, the
number of new jobs created, the average hours worked per week, and
average hourly earnings. This report often results in significant market
movement. You will often hear traders and analysts talking about “NFP”,
this means Non-Farm Employment report, and it is perhaps the one report
each month that has the greatest power to move the markets.Durable Goods Orders
The durable goods orders report gives a measurement of how much people are spending on longer-term purchases, these are defined as products that are expected to last more than three years. The report is released at 8:30 am EST around the 26th of each month and is believed to provide some insight into the future of the manufacturing industry.
Retail Sales Index
The Retail Sales Index measures goods sold within the retail industry, from large chains to smaller local stores, it takes a sampling of a set of retail stores across the country. The Retail Sales Index is released at 8:30 am EST around the 12th of the month; it reflects data from the previous month. This report is often revised fairly significantly after the final numbers come out.
Housing Data
Housing data includes the number of new homes that a country began building that month as well as existing home sales. Residential construction activity is a major cause of economic stimulus for a country and so it’s widely followed by Forex participants. Existing home sales are a good measure of economic strength of a country as well; low existing home sales and low new home starts are typically a sign of a sluggish or weak economy.
Interest Rates
Interest rates are the main driver in Forex markets; all of the above mentioned economic indicators are closely watched by the Federal Open Market Committee in order to gauge the overall health of the economy. The Fed can use the tools at its disposable to lower, raise, or leave interest rates unchanged, depending on the evidence it has gathered on the health of the economy. So while interest rates are the main driver of Forex price action, all of the above economic indicators are also very important.
• Technical Analysis VS. Fundamental Analysis
Technical
analysis and Fundamental analysis are the two main schools of thought
in trading and investing in financial markets. Technical analysts look
at the price movement of a market and use this information to make
predictions about its future price direction. Fundamental analysts look
at economic news, also known as fundamentals. Now, since nearly any
global news event can have an impact on world financial markets,
technically any news event can be economic news. This is an important
point that I want to make which many fundamental analysts seem to
ignore…One of the main reasons why I and all of my members prefer to trade primarily with technical analysis is because there are literally millions of different variables in the world that can affect financial markets at any one time. Now, Forex is more affected by macro events like a country’s interest rate policy or GDP numbers, but other major news events like wars or natural disasters can also cause the Forex market to move. Thus, since I and many others believe that all of these world events are factored into price and readily visible by analyzing it, there is simply no reason to try and follow all the economic news events that occur each day, in order to trade the markets.
One of the main arguments that I have read that fundamental analysts have against technical analysts is that past price data cannot predict or help predict future price movement, and instead you must use future or impending news (fundamentals) to predict the price movement of a market. So, I thought it would be a good idea to give my response to these two arguments against technical analysis:
1) If fundamental analysts want to try and tell me that past price data is not important, then I would like them to explain to me why horizontal levels of support and resistance are clearly significant. I would also like to ask them how myself and many other price action traders can successfully trade the markets by learning to trade off of a handful of simple yet powerfully predictive price action signals:
Looking at the daily spot Gold chart above, we can clearly see that support and resistance levels are important to watch. Any Fundamental analyst, who wants to say that charts don’t matter, is simply wrong, and you will come to this conclusion on your own when you spend more time studying some price charts.
2) The next argument that Fundamental analysts use is that you can more accurately predict a market’s price movement by analyze impending forex news events. Well, anyone who has traded for any length of time knows that markets often and usually react opposite to what an impending news event implies. Are there times when the market moves in the direction implied by a news event? Yes, absolutely, but is it something you can build a trading strategy and trading plan around? No.
The reason is that markets operate on expectations of the future. This is actually an accepted fact of trading and investing, so it’s a little strange to me that some people still ignore technical analysis or don’t primarily focus on it when analyzing and trading the markets. Let me explain: if Non-farm payrolls is coming out (the most important economic report each month, released in the U.S.) and the market is expecting 100,000 more jobs added last month, the market will likely already have moved in anticipation of this number. So, if the actual number is 100,000 even, the market will probably move lower, instead of higher…since there were not MORE added jobs than expected. So, while 100,000 new jobs might be a good number, the fact that the actual report did not exceed expectations is bad for traders and investors (can you see how this junk gets confusing now? I almost confused myself writing this…).
AND NOW FOR MY FINAL POINT: Since all of the preceding expectations of a news release have already been carried out and are visible on the price chart, why not just analyze and learn to trade off the price action on the price chart?? What a novel idea! You see, even after the news is released we can still use technical analysis to trade the price movement, so really technical analysis is the clearest, most practical, and most useful way to analyze and trade the markets. Am I saying there is no room for Fundamental analysis in a Forex trader’s tool box? Absolutely not. But, what I am saying is that it should be viewed and used as a compliment to technical analysis and it should be used sparingly, when in doubt consult the charts and read the price action, only use Fundamentals to support your Technical view or out of pure curiosity, never rely solely on Fundamentals to predict or trade the markets.
Jump To Next Chapter – Part 6: What is Price Action Trading Analysis?
Jump Back To Start – Forex Trading University
Syllabus Of All Chapters
Part 1: Introduction – What Is Forex Trading ?
Part 2: Forex Trading Terminology
Part 3: Long or Short ? Order Types And Calculating Profits & Losses
Part 4: What is Professional Forex Trading?
Part 5: What is Fundamental Analysis?
Part 6: What is Price Action Trading Analysis?
Part 7: Introduction to Forex Charting
Part 8: What Is A Forex Trading Strategy?
Part 9: Common Forex trading mistakes and traps
Part 10: What is Technical Analysis
Part 11: How to Make a Forex Trading Plan
Part 12: The Psychology of Forex Trading
Part 13: Professional Price Action Forex Trading Strategies
About Nial Fuller
Nial Fuller is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught 20,000+ students since 2008. Checkout Nial's Professional Forex Course here.Warning: Beware Of Trading Forex News And Fundamentals
In
case you’ve been living under a rock for the last 50 years, you know
this blog is about price action trading. However, what you might not
know is that I pay little to no attention to Forex news and
fundamentals. In fact, I believe that focusing too much on Forex news
and fundamental variables has a negative effect on a trader’s
performance. It is my belief that price is the ultimate “indicator” and
that it reflects every variable that affects a market.I know that many of you try reading numerous Forex news articles to “figure out” what price is likely to do next, or even try to “trade the news” each week, I know this because I get emails about it every day. So, in today’s lesson, I am going to explain to you why you are wasting your time when you follow the news too closely, and why you should stop this counter-productive habit right now.
“Buy the rumor, sell the fact”
There’s a reason why the saying “Buy the rumor, sell the fact” has been around on Wall Street for over a hundred years. Generally speaking, the reason is because the big players in the markets; the guys who REALLY make the market move, mainly trade based on their expectations of the future, NOT so much on facts that have just been released.Thus, upcoming economic news releases are almost always factored into the price of a market. If this month’s Non-Farm payrolls report is expected to show that 200,000 jobs were added last month, then traders are currently trading the EXPECTATION of 200,000 new jobs and their beliefs on how THAT EXPECTATION will affect a particular market. Now, unless you are an illegal insider-trader, you won’t have access to the actual jobs number until after it’s released. What’s the point you ask?
Well, in short, the actual economic number is almost totally irrelevant. Why? Well, because by the time the number is released, all the big boys have already traded their beliefs of how the expected number will affect the market. For example, if our 200,000 Non-farm payroll number comes in at exactly 200,000 it could actually make the market go down, because everyone already bought into the market with an expectation of 200,000 jobs or more being a positive sign. So, if the number comes out at 200,000 exactly, no one with any clout is going to want to buy anymore because the number didn’t “surprise to the upside”, as the market analysts like to put it.
I am trying to explain to you guys that trading Forex news releases is essentially the same as gambling your money in the market. You never know how the market is going to react to any particular news release, and you can’t trade based off the logical thinking that “a positive number on the economy will make the market go up and a negative number will make it go down”…because everything is usually factored in by the time the number comes out! That’s why beginning traders and traders who focus too much on news find themselves getting chopped up every time they try to trade the news. In short, it’s a futile game that seems logical on the surface but really is nothing more than a roll of the dice at the casino.
It’s all in the price
As a price action trader, I believe that all fundamentals and Forex news releases are reflected and can be traded via the price action
on a plain vanilla price chart. The main reason why I believe this is
because news events and other variables are nothing more than catalysts
that cause the market to move. But, HOW the market ultimately moves as a
result of them is a different story, and this story is ultimately
reflected via the price movement on a price chart. Thus, I am not
concerned with the thousands of news events that can affect a market
each week, because I know the biggest “short-cut” to reading and trading
a market is by learning to read and trade its price action.Price action is essentially its own language, and this language can be thought of as a reflection of what every market variable has caused the market to do, as well as which direction the market is most likely to move next. Sometimes, these reflections result in repetitive price action patterns that are high-probability predictive tools that can be used to gauge the future direction of a market, in this way, price action is actually the most accurate “leading indicator” in existence. So, it’s really quite simple; when you learn to read the market and trade it based off simple price action strategies, you are trading off of all fundamental variables via their representation in price action form on a price chart.
The psychological trap of believing that “more is always better”
More is not always better, and especially as it relates to analyzing forex news and economic data. You see, there is simply so much economic information available everyday on the internet that you can’t possibly make use of it all.It’s a proven fact that traders who trade more often make about 1/3 less money over the long run than traders who trade less often. In other professions, “more” IS usually better, but because trading is mostly dependent on you being objective, disciplined, and trading with patience…analyzing increasing amounts of economic news variables will likely decrease your chances at achieving success as a trader because you will be over-analyzing, over-thinking, and as a result, over-trading.
Fundamental analysis is not a complete waste of time
Now,
I’m sure I will get some flack over this article from some diehard
fundamental traders who are totally brain-washed that they can predict
what the market will do next from their $400 a month news service
subscription (after all you don’t want to admit you are blowing $400 a
month for nothing).However, I do need to mention how news releases can affect open trades…because I literally get emails about this everyday. So, for all of you wondering, here is my official statement on what to do with open trades prior to big news releases like Non-Farm payrolls or GDP…
If I am in a trade and up 2 times my risk or more and a big report like NFP is about to come out, 9 times out of 10 I am locking in that 2 times risk reward and letting the market due it’s “thing”. If I am in a trade that’s hovering near breakeven prior to NFP or GDP or ABC (ABC is not really a news release, that was supposed to be a joke)…I will usually keep the trade open and either take the knee-jerk reaction stop-out at my pre-determined stop loss level, or I will sit back and watch my trade rocket off in my favor and likely close out the position for a large gain shortly thereafter, or keep it open and trail my stop at my discretion. Now, if I am not in a trade about 24 horus prior to a big / volatile news release, I will generally wait to enter the market until after the release. If you want to know which news releases are “big and volatile”, check out the section on fundamental analysis in my beginner’s forex trading course.
What will you do now?
Now that you know why trying to trade the news or even concentrating on it too much can actually hurt your trading, what will you do? The ball is in your court. Are you ready to accept that trading off the news is irrational and pointless? Or are you going to hang on to your old news-trading habit and continue to try and “figure out” what is going to happen next? The truth is that you can never figure out what will happen next, all you can is trade the market with a high-probability trading edge and make sure your winning trades out-pace your losers, as well as not over-trade or over-leverage your accountTrading the market without any news variables influencing your decisions takes a huge amount of pressure and confusion off your shoulders. You don’t have to sit there biting your nails before Non-Farm Payrolls comes out anymore, and you don’t have to stay up all night reading some analyst’s forecast for the euro. Less information to digest means less confusion and the elimination of analysis-paralysis, A.K.A chasing your tail around in circles trying to “figure” shit out that simply can’t be “figured out”.
I teach my students how to read and trade based off the “pure” price action of the markets. I really feel that people who incorporate news and other fundamental variables into their trading decisions are “polluting” the raw and pristine “waters” of the market. Part of my core trading philosophy is to use the natural price action of a market to anticipate what the market is most likely to do next…not to “figure it out”. I know I can never know 100% for sure what is going to happen next in the market, however, after 11 years of trading it’s my belief that we can use price action to trade the market with a high-probability edge. Price action is the all-encompassing “key” to reading a market; it reflects all fundamental variables and gives us an effective and simple way to make use of them. Thus, we need to “listen” to a market’s price action because it is truly the heartbeat of a market and shows the hands of all market participants at any point time; we cannot ignore this fact. So, if you’re ready to shed the confusion and contradictory nature of Forex news and fundamental variables, check out my Forex Price Action Strategies Trading Course to learn more.
About Nial Fuller
Nial Fuller is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught 20,000+ students since 2008. Checkout Nial's Professional Forex Course here.Related
- Nial Fuller’s Price Action Forex Trading Course. Learn Advanced Price Action Strategies & High Probability Trade Entry Signals That Work
That’s my only concern about fundamentals: I will close my positions if the fundamental is soon and I have a near to break even position.
Thanks for the speedy response to me email, and directing to the above “Warning”….from here on “News” will no longer be an element in my trading decisions. I will let you know how things turn out later.
Cheers
Nigel
You r too generous..with these luccid explainations and fundamental truths about Price Action,..l must agree with Jude Fx,..HAPPY ARE YOUR MEMBERS(WHO PRACTICE WHAT YOU PREACH)..they have a future in Fx…cheers!
Cheers
In a nut shell: Trade What You See and Not What Others Think.
This gives me more help than you can perceive,please keep
the focus on price action and teach me to follow your example
I have certainly been wrong on my reading and television
gulibility.
THANKS for your guideance Dennis
That’s the thing with us traders or anyone who embarks on their own in any profession. We look for justification, for direction. We want to prove ourselves wrong, either to bank early profit or take an unnecessary hit.
That’s why monks practice Buddhism in a monastery. To generate a self discipline free from distraction, and generate self belief to such an extent that they become impervious to negative outside influence.
From my experience on a lower time frame like 5mins or 15mins,making 20pips on a consistent basis without much stress is possible if you trade after major FA.
However, I agree that the candles often foretell what will happen next and so are quite reliable “indicators”.
I think this advice is just cool for beginer traders. But we all know that developing or advanced traders dont actually try to predict any news outcome-they simply use the straddle strategy. The problem however, has always been slippage and sometimes whipsaw. But we all know how to handle this problem, dont we? I think using straddle on only high impact news releases is a comfortable adjunct to any other good strategy such as the price action strategy you teach, and this can be proven just by looking at the equity curve!
Thanks all the same for the article.
Then, I became experienced (??), and started to read the Forex news, from as many sources as possible, I stopped being successful, have less time and am more confused.
Nial, what you have just said, was one of those AHA! moments in life, in fact pure words of wisdom and you could not have said it any better, so Thanks.
NB. There is one advantage to being informed, and that is this led me to buying your course, so now I will once again a) have more time, b) become less informed/confused and c) become more successful once again.
As I write this EUR will probably hit my stop loss and Nzd will hit my target.
Will see at the next 4 hr bar.
Regards
I have noticed that your price action set ups often occur
just prior to the larger impact news releases e.g this week the eurusd formed a bearish fakey on Tues night just prior to German Services data on Wednesday. It is almost as if the aggregate of global trader’s “anticipation” of a poor news figure manifests itself as a fakey or bearish pinbar on the daily candle prior to the news event. On this occasion, sure enough, the news WAS negative and the eurusd nose-dived (the bearish fakey playing itself out on the charts).
it’s a nice warning for all we trader,thanks a lot.