Fundamental versus Technical

Discussion in 'Forex' started by forexcranium, Dec 25, 2006.

  1. One last point, before I retire for good this holiday season :)

    What moves the forex market? It's people's speculations that move the market! The news don't move the market, and the graphs don't move the market! It's people speculating on those news and people speculating on those graphs is what moves the forex market! When 9/11 happened, the dollar went down, not because 9/11 happened! The dollar went down because everyone thought that everyone else will be selling their dollars, so everyone sold the dollars, therefore the dollar went down. When a bunch of traders are looking at the graphs, and they see a head and shoulders pattern signifying that the EUR/USD pair will go down after the price breaks the neck line, EUR/USD doesn't plummet down because of that graph pattern! EUR/USD plummets down because everybody recognizes that pattern, and they think that everyone will go short on the Euro at the neck break, so everyone goes short, in hopes that everyone else will go short as well, and it creates this price effect!

    Here is the real question... How much money is traded based on fundamentals, and how much money is traded on the technical analysis? As far as I know, most big banks, hedge funds, and other big financial institutions trade mostly fundamentally. Obviously those financial institutions have most of world's money, so when they place their trades, the market moves accordingly. With fundamentals, it's pretty clear cut, if the report is better than expected for a specific country, that currency goes up, if it's worse, that currency goes down. What about technicals? It's pretty obvious that most of technical traders and individual traders don't have a whole lot of money, even altogether. It's also pretty obvious that there are more than 100 different indicators, and at any given time, some are showing up and others are showing down. How do you trade that? I guess look at the most popular indicators, and look for confluence of events, only sell when most of them show sell, or mostly buy when most of them show buy. And only do it, when there are no important news coming out. That's what Peter Bain teaches, and I think he is one of the very few mentors out there, who recognizes this confluence of events among popular indicators, and that's why he still produces traders that actually make money, using technical analysis. Most other technical analysis gurus, try to impress you with some fancy new indicator that they developed themselves, and obviously most people who trade with it lose money, simply because nobody else is using that indicator, so the market doesn't respect what that indicator says.

    Merry Christmas.
  2. Nice post... I agreed!
  3. I have never worked for a financial institution so any of my observation are indirect. I have noted the following:

    1. Institutional activity in the crosses often moves the majors. As far as I can see this is mainly related to carry trades i.e. selling 'funding' currencies and buying high interest rate currencies. Unwinding of these positions towards the year end (e.g. just after Thanksgiving) certainly moves the markets. I cannot see how these would produce technical patterns in the four majors.

    2. I monitor the large orders in the futures markets when I am trading. Large offers and bids are invariably at previous high/lows, fib levels or a pivot point.

    3. Option barriers and data releases often destroy chart patterns.

    4. Most indicators are useless for generating entry levels. Nothing beats a new higher high/lower low in the time frame of interest. But what do I know? In my defense, your honor, currencies are a commodity and I would like to cite 'Reminiscences of a stock operator' as an authority.

    5. There is no doubt a confluence of significant events often presages a move. These may be technical, fundamental or chronological.

    6. I have found COT data almost impossible to use.

    Merry Christmas
  4. drasfs


    This discussion is getting tedious. However, what you say is true, but some modification is needed.

    Fundamental is needed for long term trends, and I would say that one has to be aware of them as well, as they might interfere with your technical trading. And tecnical trading is nedeed for short term trends. Which exact pip one should plunge in for example.

    And I guess that market movements consists of two things. 1) Underlying Fundamentals, and 2) predictions/speculations(which are based on tecnical indicators,random speculation/gut feel,and fundamentals).

    I just came up with this now, and im sure there is some room for improvement with my explanation.
  5. Fundamental or technical? How about neither. In the early to mid-1990s I worked as a quant analyst at a large pure currency hedge fund. The participants of the global fx marketplace can be divided into the following 4 broad categories:

    1. Central banks.
    2. Multinational corporations, typically via treasury or corporate finance divisions; importers and exporters.
    3. Investment managers of equity, fixed income, real estate and other, non-currency asset classes.

    Pop quiz: what do all of the above have in common?


    That's right -- when it comes to entering into currency transactions, most participants in the above 3 categories are driven by motives other than the speculative, profit-making motive. It's worthwhile to contemplate what those (distinct) motives are.

    4. Speculative players -- bank prop desks, hedge funds, CTAs, CPOs. Add "retail" today, if you must.

    Categories 1 through 3 were the primary driving forces behind fx flows and movements over time, estimated to be directly responsible for over 80% of turnover.

    A lot has changed in the last decade, such as the proliferation of currency as an asset class, direct access trading explosion, dramatically lower barriers to entry, much faster information dissemination, and so on. The relative importance of the different categories of players has certainly changed as well. However, I still find it very useful to keep in mind at all times that this is a game where not all the players have the same objective or even concern themselves with turning a profit.
  6. drasfs


    late apex: This was a refreshihng comment-a new perspective ive never heard or read before, and I can understand its importance.

    However, to transform that idea into a trading plan, one ought to know the turnover that each participant is responsible for, and then on top of that, have a deep understanding of how they utulize the currency market and how it affects the market.

    It would be a lot of hard work behind that, but I realize the potential that it would generate if one could map and trace the reason and cause for all movements from all major players, and maybe make an average of that.

    Any idea if there are any books on the subject?
  7. On COT reports...know of a good place where I can find some?
  8. I use the COT as supplied by

    a freebie and a contiguous week out of I mainly run index cfds I use them for larger trend degree bias and relative context......useless for exact timing, excellent for seeing WHO is pos WHERE.....bias.....small fish v. big fish

    completely different data to the original cot.....still very useful

    good for metals too