AdamTheAnalyst
Junior member
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Hi there,
I'm a bit of a lurker on these boards, i'm a newbie still doing a hell of a lot of research whilst i'm demo trading and just want to chuck this into the pot in case it helps someone as much as it has helped me.
My reading list so far has been extensive, covering large sections of the Bonds, Equities and Currency markets but after a few years of studying a lot was still missing and my demo trades were still losing money.
One thing that never clicked to me is why all the things i were reading relied on either a very technical approached, ie scalping and TA analysis or on the opposite end of the spectrum, the buffet style of investing by valuing a companies stock from its financial data, after all this i was still getting beaten up on my trades. But if you watch any program about trading desks, trading floors, hedge funds etc, they all have really really heavily news based trading approaches (if you don't believe me watch something like "Million Dollar Traders" and see how they are taught to trade the markets or chat to someone that works on a desk if your lucky enough).
I was lucky enough to chat to a desk manager for an investment bank who traded in the early 2000's and he said something along the lines of "trading is 10% technical analysis, 30% fundamental analysis and 60% market correlation" (correlation probably isn't the exact word he used but he meant how markets are linked together and move in patterns with one an other). But no book i had ever read mentioned this.
Enter Macrowave theory, before I started studying this, the markets seemed to take the exact opposite direction of my trades and I had no idea why, or what was moving the markets in that direction when my set up seemed perfect. Macroeconomic wave theory says, sectors of the markets and companies in those sectors are affected by global events, economic press releases and other data reaching the market. Understanding these correlations means you can start to make sense of why price is moving in a direction, instead of just watching it tick towards your stop loss.
That's probably a terrible hash of a description so ill give you an example, you're day trading a tech stock that relies on selling components to global markets and a US CPI rate announcement is released suggesting inflation is on the increase, this raises fears of the Fed raising interest rates, a raise in interest rates often increases the value of the US dollar, and in turn will increase the trade deficit with increasing the cost of US exports (such as the stock your holding) and decreasing the cost of foreign imports. Your stock will SHOULD drop in price to reflect the reduced purchasing power of foreign consumers (in a perfect world).
Nothing in technical analysis would help you out in this instance, your stop would just get smashed and your left wondering why, that's why so many of these "systems" that people are peddling to you tell you to avoid the news. And its very hard to program an EA to understand real world market correlations.
That's just one example, there are loads more in the book "If its raining in brazil, buy starbucks"-Peter Navarro, im not an affiliate - that book was written before i finished high school, its just what opened the door for me - there are probably loads of free articles online too.
Ill probably get shot down for this, but after a lot of failure i have come to the conclusion that news drives the markets, everything in the middle is mostly noise and manipulation. Technical analysis is such a small part of the over all picture. If you could make money when 3 lines cross over then i sure as hell wouldn't be working my IT day job, and the rest of you wouldn't be wasting time reading this thread. You need to understand the global economics of the stocks your trading, and understand them in terms of market risk, sector risk and company risk. By understanding these things, you know how news releases will effect your holdings and understand when to hedge against negative moves against your position.
Ill leave you with this, if your at a loss with your trading/investing - give that book a read and see if it changes your outlook as much as it did for me.
Cheers
Adam
I'm a bit of a lurker on these boards, i'm a newbie still doing a hell of a lot of research whilst i'm demo trading and just want to chuck this into the pot in case it helps someone as much as it has helped me.
My reading list so far has been extensive, covering large sections of the Bonds, Equities and Currency markets but after a few years of studying a lot was still missing and my demo trades were still losing money.
One thing that never clicked to me is why all the things i were reading relied on either a very technical approached, ie scalping and TA analysis or on the opposite end of the spectrum, the buffet style of investing by valuing a companies stock from its financial data, after all this i was still getting beaten up on my trades. But if you watch any program about trading desks, trading floors, hedge funds etc, they all have really really heavily news based trading approaches (if you don't believe me watch something like "Million Dollar Traders" and see how they are taught to trade the markets or chat to someone that works on a desk if your lucky enough).
I was lucky enough to chat to a desk manager for an investment bank who traded in the early 2000's and he said something along the lines of "trading is 10% technical analysis, 30% fundamental analysis and 60% market correlation" (correlation probably isn't the exact word he used but he meant how markets are linked together and move in patterns with one an other). But no book i had ever read mentioned this.
Enter Macrowave theory, before I started studying this, the markets seemed to take the exact opposite direction of my trades and I had no idea why, or what was moving the markets in that direction when my set up seemed perfect. Macroeconomic wave theory says, sectors of the markets and companies in those sectors are affected by global events, economic press releases and other data reaching the market. Understanding these correlations means you can start to make sense of why price is moving in a direction, instead of just watching it tick towards your stop loss.
That's probably a terrible hash of a description so ill give you an example, you're day trading a tech stock that relies on selling components to global markets and a US CPI rate announcement is released suggesting inflation is on the increase, this raises fears of the Fed raising interest rates, a raise in interest rates often increases the value of the US dollar, and in turn will increase the trade deficit with increasing the cost of US exports (such as the stock your holding) and decreasing the cost of foreign imports. Your stock will SHOULD drop in price to reflect the reduced purchasing power of foreign consumers (in a perfect world).
Nothing in technical analysis would help you out in this instance, your stop would just get smashed and your left wondering why, that's why so many of these "systems" that people are peddling to you tell you to avoid the news. And its very hard to program an EA to understand real world market correlations.
That's just one example, there are loads more in the book "If its raining in brazil, buy starbucks"-Peter Navarro, im not an affiliate - that book was written before i finished high school, its just what opened the door for me - there are probably loads of free articles online too.
Ill probably get shot down for this, but after a lot of failure i have come to the conclusion that news drives the markets, everything in the middle is mostly noise and manipulation. Technical analysis is such a small part of the over all picture. If you could make money when 3 lines cross over then i sure as hell wouldn't be working my IT day job, and the rest of you wouldn't be wasting time reading this thread. You need to understand the global economics of the stocks your trading, and understand them in terms of market risk, sector risk and company risk. By understanding these things, you know how news releases will effect your holdings and understand when to hedge against negative moves against your position.
Ill leave you with this, if your at a loss with your trading/investing - give that book a read and see if it changes your outlook as much as it did for me.
Cheers
Adam
