Atilla
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Hi FXX,
fwiw here are my thoughts after pondering about the subject.
Struggling with the sentiment indicator because it is difficult to gauge as it is subjective imo. Also because the subjective analytics varies depending on where one is within the economic cycle.
For example when interest rates are low ie at 0.5% then a 25 basis points is effectively a 50% change moving up to 0.75%. Compared to when moving from say 2% to 2.25% effectively a 12.5% move.
Then it also depends on when the change takes place on the economic cycle.
So a .25 basis point move in the trough can be more significant than a .25 move during expansion or at the peak.
How one would measure impact, significance and sentiment is variable. The BoE will have models where they'll be able to forecast change in various measures of the Money supply Ms but they are kept private as far as I know. You may find other studies online depending how deep you wish to look into it. I usually just look at how the dynamics are applied and never thought about precise impacts or measuring sentiment. You may with respect to interest rates look at different measures of the money supply. ie M0 M1 M2 etc.
Same would apply to inflation and BoP and exchange rates. Then there are real and nominal interest rates and they all go into the mix in determining exchange rates. Numbers one thing but sentiment is very hard.
One suggestion that might be possible is to look at are candlesticks and ratios. I'm thinking along the lines of wavelength and amplitude ratios. So you could look at various time frames prior to announcement or change in news and then subsequent brake out range or amplitude and establish ratios applying same criteria. It may be possible to carry out backward testing. You can then build a picture of past moves.
Bulkowski has a few books on chart patterns with much statistics on %percentage breakouts from various setups and statistics around probabilities. You might find it an interesting read. However, he looks at technical chart patterns rather than news. I suspect that those breakouts occur as a result of CB changes or news announcement but he focuses more on stats and chart patterns.
As before I would add to that due consideration of economic cycle and where we are on that curve which will change impacts or sentiments.
The latter part of trading on pullbacks is also tricky and risky as you say but here I thought of simply approaching the problem by studying Elliot Wave and Fib retrace
levels. Assuming these TA methods hold water by virtues of people watching they converge. I would say this is more to do with how the market and business analysts value fundamental changes and prices moving towards equilibrium but easier to study price movement and convergence to levels in terms of technical charts.
I use Pivot Points my self and those same pivot points often converge to Fib levels and those areas become very strong R/S levels.
You may see Dentists PF charts as well and irrespective of time it is very clear to see key levels of price convergence where congestion is highly visible.
So if you are looking for pullback S/R levels Fibs, PF charts, EW and PPoints are tools that help me identify them. Start looking at long TFs like monthly and then drill down to your TF; weekly, daily, 4H 1H and 15m etc. Higher Time Frames carry greater significance.
Thank you for your posts which are really good and helpful and I do enjoy reading and reflecting on them. That's it from my perspective.
All the best
Thanks AtillaHi FXX,
fwiw here are my thoughts after pondering about the subject.
Struggling with the sentiment indicator because it is difficult to gauge as it is subjective imo. Also because the subjective analytics varies depending on where one is within the economic cycle.
For example when interest rates are low ie at 0.5% then a 25 basis points is effectively a 50% change moving up to 0.75%. Compared to when moving from say 2% to 2.25% effectively a 12.5% move.
Then it also depends on when the change takes place on the economic cycle.
So a .25 basis point move in the trough can be more significant than a .25 move during expansion or at the peak.
How one would measure impact, significance and sentiment is variable. The BoE will have models where they'll be able to forecast change in various measures of the Money supply Ms but they are kept private as far as I know. You may find other studies online depending how deep you wish to look into it. I usually just look at how the dynamics are applied and never thought about precise impacts or measuring sentiment. You may with respect to interest rates look at different measures of the money supply. ie M0 M1 M2 etc.
Same would apply to inflation and BoP and exchange rates. Then there are real and nominal interest rates and they all go into the mix in determining exchange rates. Numbers one thing but sentiment is very hard.
One suggestion that might be possible is to look at are candlesticks and ratios. I'm thinking along the lines of wavelength and amplitude ratios. So you could look at various time frames prior to announcement or change in news and then subsequent brake out range or amplitude and establish ratios applying same criteria. It may be possible to carry out backward testing. You can then build a picture of past moves.
Bulkowski has a few books on chart patterns with much statistics on %percentage breakouts from various setups and statistics around probabilities. You might find it an interesting read. However, he looks at technical chart patterns rather than news. I suspect that those breakouts occur as a result of CB changes or news announcement but he focuses more on stats and chart patterns.
As before I would add to that due consideration of economic cycle and where we are on that curve which will change impacts or sentiments.
The latter part of trading on pullbacks is also tricky and risky as you say but here I thought of simply approaching the problem by studying Elliot Wave and Fib retrace
levels. Assuming these TA methods hold water by virtues of people watching they converge. I would say this is more to do with how the market and business analysts value fundamental changes and prices moving towards equilibrium but easier to study price movement and convergence to levels in terms of technical charts.
I use Pivot Points my self and those same pivot points often converge to Fib levels and those areas become very strong R/S levels.
You may see Dentists PF charts as well and irrespective of time it is very clear to see key levels of price convergence where congestion is highly visible.
So if you are looking for pullback S/R levels Fibs, PF charts, EW and PPoints are tools that help me identify them. Start looking at long TFs like monthly and then drill down to your TF; weekly, daily, 4H 1H and 15m etc. Higher Time Frames carry greater significance.
Thank you for your posts which are really good and helpful and I do enjoy reading and reflecting on them. That's it from my perspective.
All the best [emoji106]
Will spend some thought on your input. Ready for another week of trading.
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morning
A new week and new opportunities up for grabs. We have recently heard from the FED,BOJ, and ECB so all those speeches this week wont carry as much importance because they would have already conveyed their message in detail in their statements. We do have the Swiss central bank this week and will look for any changes to their negative stance and ultra low rates. We also hear from the BOE who have provided zero direction on future rates. I will be watching the vote spread to see if there is any change there that could create short term volatility. Later in the week will be EU inflation data and also CAD inflation data. As usual any deviations there can provide a short term opportunities either way. I am also looking at oil inventories this week and hopefully it will like up with a negative BOC statement and OPEC news on increasing production.
So hopefully 1-3 opportunities this week.
A new week and new opportunities up for grabs. We have recently heard from the FED,BOJ, and ECB so all those speeches this week wont carry as much importance because they would have already conveyed their message in detail in their statements. We do have the Swiss central bank this week and will look for any changes to their negative stance and ultra low rates. We also hear from the BOE who have provided zero direction on future rates. I will be watching the vote spread to see if there is any change there that could create short term volatility. Later in the week will be EU inflation data and also CAD inflation data. As usual any deviations there can provide a short term opportunities either way. I am also looking at oil inventories this week and hopefully it will like up with a negative BOC statement and OPEC news on increasing production.
So hopefully 1-3 opportunities this week.
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Currently in a trade using correlations between equity markets and safe havens. The dollar has been softer today but no real news to drive the FX market. Noticed a lot of red in Europe markets as well as USA which seems to be gradually worsening. This all started with the Asian markets which closed red. Anyway i am short USDJPY @110.49 with a target of 110:20 and a 10 pip stop
hatemypips
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How do you combine fundamental and technical approaches? I mean does one of them serve as a confirmation of trading signal generated by the second one?
Neither. All trades are derived off fundamental factors and technicals are only applied to manage trades. I don't even look at a chart when making the decision to place a trade and the technical formations on a chart don't prevent me from placing a trade. In other words I don't look for a technical setup to confirm a trade.
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Absolutely no follow through with the market on that one. Looking back it made sense with softer $ and stock market cranking up selling which usually affects yen. Maybe its too close after central banks last week and more this week. Only lost 10 pips and think it's safe to put this down to tough market luck over doing anything wrong.
Onward and forward, we have AU minutes in the am. I am not going to stay up but setting alarm earlier to see if there is an opportunity. If the news is of a decent data point like central bank activity then we should get some market reaction in the European session. The Boa are basically neutral on policy and will continue until economic activity picks up pace. I will be looking for any changes in forward guidance and I'll be all over the AU like a rash. Pairing it with another economy with fresh sentiment on the opposite side of the spectrum. If AU wants to cut rates then I'll pair it with the strongest economy by sentiment or, in its absence, a strong economy fundamentally.
Later we have Draghi speaking and I want to see if he brings anything fresh to the table - unlikely, but it does happen.
Will also be on the watch out for NZ dairy news playing it either way on a deviation.
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Onward and forward, we have AU minutes in the am. I am not going to stay up but setting alarm earlier to see if there is an opportunity. If the news is of a decent data point like central bank activity then we should get some market reaction in the European session. The Boa are basically neutral on policy and will continue until economic activity picks up pace. I will be looking for any changes in forward guidance and I'll be all over the AU like a rash. Pairing it with another economy with fresh sentiment on the opposite side of the spectrum. If AU wants to cut rates then I'll pair it with the strongest economy by sentiment or, in its absence, a strong economy fundamentally.
Later we have Draghi speaking and I want to see if he brings anything fresh to the table - unlikely, but it does happen.
Will also be on the watch out for NZ dairy news playing it either way on a deviation.
Sent from my SM-G950F using Tapatalk
Morning I have an update for a trade I took overnight. At 23:30 yesterday evening just as I was about to go to sleep news popped up about trump adding another 200bln to the trade war. I immediately entered a short on usdjpy with a 20 pip stop then went to sleep. Just woke to check it and AUS news (which was a dud), to find the trade up 50 pips from the Asia session reaction. I don't want to hold the risk of it reversing so closed the trade and will look to get back in on a technical level this morning if sentiment continues.
Today has kicked off in full risk off mode.
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Today has kicked off in full risk off mode.
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Account is up 6 percent this month so far. Working hard towards making this work. The plan is to give it another 6 months of gaining knowledge and applying it successfully with progressive lessons learned. At the moment my biggest downfall is trades that don't spin off news ending up for small profits or being stopped. I might make the decision to cut these from trading permanently and keep with what clearly works with a high win rate. I will give myself more time to review and work trading outside news. I might add strick filters to filter out duds but have yet to define those.
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Trade war sentiment has carried into the US open and i took the chance to take a trade on USDJPY on a technical 110 level short. This time momentum on my side (perhaps this is the filter I need). Looking to target 109.60 for 40 pips but have my stop at break even just in case the market decides Trump is just blowing hot air.
Hi FXX, a word of encouragement on your excellent postings. Firstly, I have been using fundamentals far more now to influence my trade decisions and importantly staying in a trade, however I don't really trade the news per se, have had some modest success trading currencies recently which eluded me for the most part previously as I have mainly traded index futures.
From my observations so far, currencies seem to move directly to fundamentals however indices seem to react to correlations which affect underlying eg cable, oil and commodities move the ftse (though of course not exclusively as sentiment will always be influenced by global events and central banks, data etc)
Do you trade just currencies based on your MO? I'd be interested on your views if you would be so kind.
Thank you.
From my observations so far, currencies seem to move directly to fundamentals however indices seem to react to correlations which affect underlying eg cable, oil and commodities move the ftse (though of course not exclusively as sentiment will always be influenced by global events and central banks, data etc)
Do you trade just currencies based on your MO? I'd be interested on your views if you would be so kind.
Thank you.
Hey swissy
Thanks for the words of encouragement. I have never thought about trading other markets. Indices are interesting, I work with them daily at an index provider and quite familiar with their formulas and review processes.
For me, having the ability to work my trading around my job using the economic calendar made the fx market the most attractive. On top of this, all I had to do was deeply follow central banks, economic data, politics and geopolitics. All of which I have a keen interest on anyway, and there are only about 8 economies that need following.
I encourage everyone to take any given week with tier 1 economic data and look at the charts on that week. What you will notice isn't mear coincidence.
What questiona do you want to ask me swissy?
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Fresh on the wire this morning:
Conflicting ECB communications. Their forward guidance stated last week mentioned hikes around Autumn. Today Villeroy said
"first rate hike could come in Summer 2019"
This is sooner than their guidance. The reaction in the Euro however is softer than expected but has this sunk in yet? Potential dump and pump scenario in the works - ready to take action
Note: Villeroy is generally Dovish
Conflicting ECB communications. Their forward guidance stated last week mentioned hikes around Autumn. Today Villeroy said
"first rate hike could come in Summer 2019"
This is sooner than their guidance. The reaction in the Euro however is softer than expected but has this sunk in yet? Potential dump and pump scenario in the works - ready to take action
Note: Villeroy is generally Dovish
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