Charts vs. Fundamentals

[AverageJoe]

Hi

The FX market turns over $5.3tr a day. There is no single entity which is a significant part of it. Hence, I believe, it is hard to claim that any entity is a systematic supplier or demander of liquidity for the main pairs. From time to time, entities like central banks make intercede in a particular direction. They may demand or supply liquidity from the perspective of a particular currency. Variations in this are uncommon.

The commercials, or FX implemented on their behalf in relation to traditional trade, are a small part of the market. The banks which make markets are levered. The largest part of currency trade is financially motivated, which is two-way.

I'm not exactly sure what you mean in terms of unleveraged. Maybe Davis was a spot trader only, moving funds into different currencies at spot with total gross notional equal to or less than his net portfolio value. Or he did the same effective move via overlay. If so, his portfolio value will never go negative. It is also a highly unusual way to manage money in the land of FFX, which underlies my uncertainty with what has been said.

The largest insto managers operate with leverage on allocated funds. The OTC market does not levy an initial or variation margin after initial credit checks are cleared. Enormous leverage is therefore possible. This leverage is applied. In addition, the institution, which may be a bank or hedge fund, can also be leveraged. Hence solvency risk or, at least, liquidity risk in terms of having enough funds to hand to meet settlement obligations is a real issue. Waiting for long enough is not an option in such circumstances as they are marked-to-market.

There is no reason why TA or FA can or cannot be used under conditions of leverage or not. My observation is that the insto side favours FA.

I am not sure if you trade FX but the leveraged are 200-1 to as high as 3000-1, Very small margin of deposit 'punt'. I am not saying FA doesn't play a part in directional bias but price is very technical, precise and can respect support/resistance to the pip often. The growth in FX trading has seen a phenomenal rise and brokers these days are offering ECN type liquidity with very tight spread.

We can go on discussing who provides the liquidity and which CB manipulated their currency but for me the focus remains making money. We retail traders do not have the fire power to move markets so I like to take positions in the preference of the so called smart money or insto players. I trade with high leverage so I do not have the comfort to analyse FA. Most research are usually based on rubbery figures unlike looking at the Fin statements of individual listed companies.

So in this respect I treat outcome of market reactions as random in nature. I am only looking at the risk reward ratio when I get a trade setup and nothing else besides the money management etc.

There are plenty of strategies and chart patterns to indicators to magic ratios and one takes what works. Personally I only find raw charts with a few horizontal lines works for me as I want to strip out the noise of math indi that can have unwanted influences.

I often read with amusements about stop hunting by brokers and in most cases I reckon it is a raiding levels by the smart money. I believe that this often happens when the underlying bias regarding a certain piece of high impact news are pretty much "known' and the raiding is often where the greatest amount of liquidity sits before price is taken in the direction these smart money wants to take. I will very often try to play this type of 'raiding', as a swing trader, on the minute timeframe, zone time based of course.

I migrated from stock trading and they are 2 different beast in their own right. Good luck in the journey.

 

[AverageJoe]

Waiting for parity



P.S. you can get them for about $5 on ebay! Then wipe your ass with it

Holy Crap! I bought my 100Bil from Ebay I paid more for that then the Trillion note! My investment is def going backward! LOL If I maintain it in good condition for say 500 years, the grand (power of nth) kids might be a zillionaire one day.

 

[pixel]

Waiting for parity



P.S. you can get them for about $5 on ebay! Then wipe your ass with it

Wowee!
... and doesn't the picture on that bank note instil "con"fidence in the Zimbabwe Dollar. "Rock"solid indeed.

 

[lesm]

I am not sure if you trade FX but the leveraged are 200-1 to as high as 3000-1, Very small margin of deposit 'punt'. I am not saying FA doesn't play a part in directional bias but price is very technical, precise and can respect support/resistance to the pip often.

Or it can be assumed that the fundamentals have already been factored into the price. Whether fundamentals lead or lag the price is a separate topic in its own right.

We can go on discussing who provides the liquidity and which CB manipulated their currency but for me the focus remains making money. We retail traders do not have the fire power to move markets so I like to take positions in the preference of the so called smart money or insto players. I trade with high leverage so I do not have the comfort to analyse FA.

Understanding market structure, which only a relative small number of retail traders take the time to study or familiarise themselves with, is a separate matter. Using spot FX as an example, you can consider the Fed (US) central banks (CBs) down through Tier 1 instos, with retail traders being at the bottom of the food chain. Following the Smart Money is one way for retail traders to make money, if they can recognise when they are chasing volume.

There are plenty of strategies and chart patterns to indicators to magic ratios and one takes what works. Personally I only find raw charts with a few horizontal lines works for me as I want to strip out the noise of math indi that can have unwanted influences.

Yes, follow the KIS principle. Some charts, lead to sore eyes, look more like works of abstract art and the price is lost amongst the noise created by the indicators or even patterns being documented in the chart. Trading doesn't really need to be as complicated as some make it out to be.

I often read with amusements about stop hunting by brokers and in most cases I reckon it is a raiding levels by the smart money. I believe that this often happens when the underlying bias regarding a certain piece of high impact news are pretty much "known' and the raiding is often where the greatest amount of liquidity sits before price is taken in the direction these smart money wants to take. I will very often try to play this type of 'raiding', as a swing trader, on the minute timeframe, zone time based of course.

The old chestnut, always easier to blame someone else, rather than accept things for what they are. Stop sweeping has been around for ages and will continue. The retail trader is really just collateral damage, plus the way they use TA, their stop placement is predictable. Sweeps will take a large number of retail traders out every time.

 

[AverageJoe]

Or it can be assumed that the fundamentals have already been factored into the price. Whether fundamentals lead or lag the price is a separate topic in its own right.



Understanding market structure, which only a relative small number of retail traders take the time to study or familiarise themselves with, is a separate matter. Using spot FX as an example, you can consider the Fed (US) central banks (CBs) down through Tier 1 instos, with retail traders being at the bottom of the food chain. Following the Smart Money is one way for retail traders to make money, if they can recognise when they are chasing volume.




Yes, follow the KIS principle. Some charts, lead to sore eyes, look more like works of abstract art and the price is lost amongst the noise created by the indicators or even patterns being documented in the chart. Trading doesn't really need to be as complicated as some make it out to be.



The old chestnut, always easier to blame someone else, rather than accept things for what they are. Stop sweeping has been around for ages and will continue. The retail trader is really just collateral damage, plus the way they use TA, their stop placement is predictable. Sweeps will take a large number of retail traders out every time.

I would be interested in your trading strategy. You read as one who has much experience and success in the FX game.

 

[DeepState]

Hi AJ

Thanks for the response. Much appreciated.

I am not sure if you trade FX

Just a few yards here and there. Though I mean it when I say, "not much in the scheme of things".

...but the leveraged are 200-1 to as high as 3000-1, Very small margin of deposit 'punt'. I am not saying FA doesn't play a part in directional bias but price is very technical, precise and can respect support/resistance to the pip often. The growth in FX trading has seen a phenomenal rise and brokers these days are offering ECN type liquidity with very tight spread.

With the above, I now understand what you mean by not leveraged. I'll take it to mean not extremely leveraged. We are then on the same page in terms of FA/TA. When your margin for error is pips, forget about FA. It's just too blunt.

You're right that retail margins are coming right in as volumes and competition are growing. There is not really any change going on in insto right at present. However, and this is big, there is a move on to collateralize into variation margins in the US. More or less treat them as retail in this regard.

We can go on discussing who provides the liquidity and which CB manipulated their currency but for me the focus remains making money. We retail traders do not have the fire power to move markets so I like to take positions in the preference of the so called smart money or insto players. I trade with high leverage so I do not have the comfort to analyse FA. Most research are usually based on rubbery figures unlike looking at the Fin statements of individual listed companies.

So in this respect I treat outcome of market reactions as random in nature. I am only looking at the risk reward ratio when I get a trade setup and nothing else besides the money management etc.

There are plenty of strategies and chart patterns to indicators to magic ratios and one takes what works. Personally I only find raw charts with a few horizontal lines works for me as I want to strip out the noise of math indi that can have unwanted influences.

I often read with amusements about stop hunting by brokers and in most cases I reckon it is a raiding levels by the smart money. I believe that this often happens when the underlying bias regarding a certain piece of high impact news are pretty much "known' and the raiding is often where the greatest amount of liquidity sits before price is taken in the direction these smart money wants to take. I will very often try to play this type of 'raiding', as a swing trader, on the minute timeframe, zone time based of course.

I totally respect the approach in the larger sense. The details are unique to yourself.

If you don't have the space to use FA, then I'll ask the usual questions:
1. Why should TA work when everything wants the same as you...to make money? Every pattern known to mankind would have been tested, wouldn't it?
2. Why do you think that the predictive ability of TA is actually superior to FA? LESM has suggested that setting FA aside could arise from the belief that all FA considerations have been priced (I don't think you actually said this explicitly). Why not TA?
3. Given you trade with high leverage, how do you risk manage?

I migrated from stock trading and they are 2 different beast in their own right.

Yep...what they have in common is that they are both still beasts.

Good luck in the journey.

I hope yours is awesome.

 

[AverageJoe]

I totally respect the approach in the larger sense. The details are unique to yourself.

If you don't have the space to use FA, then I'll ask the usual questions:
1. Why should TA work when everything wants the same as you...to make money? Every pattern known to mankind would have been tested, wouldn't it?
2. Why do you think that the predictive ability of TA is actually superior to FA? LESM has suggested that setting FA aside could arise from the belief that all FA considerations have been priced (I don't think you actually said this explicitly). Why not TA?
3. Given you trade with high leverage, how do you risk manage?


Yep...what they have in common is that they are both still beasts.



I hope yours is awesome.

Hi RY,

I don't totally ignore FA, just don't put much attention to it except to see the general direction of bias.
So presently as the best example, it can be clearly seen that the USD buying has been super bullish lately. I do not speculate on the actual reasons for my trade directional bias but I see it in all the major FX pairs. Take AUDUSD for example, if I flip a monthly chart the trend is still very much bullish but on the daily it is definitely collapsing. I am looking for all the resistance level to look for shorts and not going against this bearish momentum, make sense right. However if I flip the 1H charts, there are plenty of opportunities to take a long trade intraday or even shorter time frame. So the 1H or less time frame charts FA is not going to help me but a combination of surviving the stops in pips and any Australia news will be the prime focus.

I will also put on trade setups on the daily TF and price action are all factored in as to why it is falling. Presently daily is just in a block of chop so no setup there personally in either direction. Should it break out to the upside then it is natural to trade with the down trend and look for reversal setup to join this bear trend. If it break out downside, I would look to play a continuation short.

If you recall I believe price or markets has a randomness about it. In other words just because a pattern or level has worked in the past DOES NOT necessarily means it will be repeated in its predictability going forward. It just has a better probability of working again, that's all. In this respect I do not use or have faith in Harmonic patterns (butterfly, gartley, etc) of any of the more conventional patterns (ascending/descending triangles etc) nor do I use fib levels except as a confirmation tool. Neither do I use any of the Maths indi (MACD, RSI etc) or moving averages. You may ask what do I use? The answer is nothing much, just raw candlestick chart with a few support/resistance lines and I pay attention to supply/demand zones.

I measure a setup in terms of risk reward ratios and I will try and stack the odds in my favor then fire. The rest is up to the traders after my order has fired to decide the fate of that trade. Out of my control besides risk which I have already applied using conventional money management. I do not know whether the trade will be profitable even though it has worked in the past because the number and types of traders will vary and also economic/political conditions are different.

I manage risk by preset stop loss and predefined take profit level/s. Depend on the time frame charts I will not open trades before key events like NFP FOMC Draghi's speech nor do I trade say 5/15/1H charts before RBA rate decision. These news reactive volatility are just unpredictable because if the stops are tight, price can take you out while your directional bias is till correct.

In my previous experience trading leveraged CFD stocks, stop loss can never protect a trade on the defined risk. The gaping nature of pre-auction means that price can open below a stop loss level which will mean the fill is randomly worse off. FX gaping day is once a week on an early Monday morning in AUS (NY open). No trading halt in FX and there is usually a price taker on the other side if I want to close out without any or much slippage unless I play the post news action.

That is my KISS system.