ForexGen | The Market is always Technical

The Market is always Technical - Forex Trading, Currency Forecast

Are there times when the market trades technically and others from fundamentals?
The easy way out when the market doesn't move as forecast…
This is a comment I often hear or read… "In the absence of economic information the market traded technically".
You should see my face glow red with frustration when it is repeated again… and again. What a lot of absolute bunkum. Whoever says that has NO idea what technical analysis is about.
The market is always technical.
The biggest issue is whether the analyst is reading the signs correctly and that is down to the skill of the individual analyst.
Let's get this straight. Technical analysis is a wide ranging group of techniques which obtain information from price action or derivatives of price action and provide indications to the analyst on the expected direction of price. The basic concept that is often said is that it is based on the assumption that market participants will react in the same way to certain events in the market and since these form patterns, once a pattern is recognized it can be projected forward to predict the next move. In a way this is correct but apart from simple pattern recognition it doesn't really explain the concept sufficiently well enough to make it believable.
Consider one of the market's maxims, "price reflects all known information about the market that is known by the participants and price will move when a new input has been provided."
Basically that is correct. Who are the market participants? Well, it's you, it's me, it's all the bank traders in the world, all the corporate treasurers with Forex exposures to cover, our families who are off on holiday, market traders in good and commodities from which a Forex exposure arises, fund managers, central banks and even politicians who see their policies being affected.
What is common to all of them? They react emotionally to movements in price. Traders, whether private or institutional, fear making losses as do corporate treasurers, market traders and fund managers. Central bankers and politicians react to exchange rate movements since it affects official reserves, interest rate policies, trade balances and possibly the equity indices. They all fear losing money. They react emotionally as price moves.
I view technical analysis as a study of emotion and more importantly the sequence of emotions that all market participants go through. There isn't any moment of time as price is moving that emotions are not in play. I know from what I do every day that the flow of price movement comes in sequences that can often be measured and projected to obtain an idea of the high risk areas for targets.
Let us consider the whole basis of the ridiculous comment that sometimes the market trades technically a little more.
I've just been told by a client that he tried subscribing to two analytical services, mine and another good analyst but he says he gets confused because we often issue opposite forecasts. That's interesting. To be honest it happens all the time. I use a group of techniques that I like, Elliott Wave, time cycles, Fibonacci (in conjunction with Elliott Wave) and also momentum. Another analyst will use different momentum indicators, Bollinger bands and standard patterns. Another analyst may use Gann, Market Profile and momentum. Probably we'll come out with different conclusions.
So when the market is trading technically, which "technical" is being referred to?
Some of us will be right and some wrong. However, we are all trading technically…
I have even attended conferences where economists will make forecasts that are so widely divergent that the same thing is obviously true of fundamentals.
None of us is right 100% of the time. How I wish I was! What is important to traders listening to what we say can be summed up with four factors:
How consistently correct are we?
Are the support and resistance levels we produce consistent?
Can we provide alternatives for the occasions when we are wrong?
If we are wrong, how quickly can we adjust our view?
The problem technical analysis has is the fact that it is a concept that it difficult to envisage unlike being able to talk about trade balances, GDP and monetary policies. Like any other skill it has its good practitioners and bad ones. Most good traders are bad analysts – and vice versa. The two mind sets are different. But if a good trader attempts to apply technical analysis and fails because he hasn't spent enough time to learn (and more likely doesn't have the basic aptitude) then he will dismiss technical analysis as lacking credibility.
The other day I had a client write to me:
"I don't believe anybody can predict market moves, but it is often uncanny how accurate your Pro Commentary is with regards to moves in the FX market. With a sound money management strategy, my FX trading has improved considerably. Keep up the excellent work."
The fact is that with the right mind set, the right techniques and the current emotional sequence is recognized an analyst can be very accurate in forecasting and certainly within 5-20 points in forecasting accuracy.
It is for this reason that technical analysis can provide an element of accuracy and anticipate market reversals far better than economic forecasting. I have predicted target ranges 10 months ahead of the actual occurrence. I have identified the timing of every major low in USDJPY this year ahead of time. On every occasion the fundamentals have been bearish.

ForexGen | Forecast Future Forex Movements

Is it possible to forecast future Forex movements? - Forex Trading

Technical vs. fundamental, or both?
I often hear traders claim that it is impossible to forecast price movement.
I can categorically claim that it is possible, and have considerable success and good accuracy in the process utilizing technical analysis in 100% of my forecasting.
Economists of course laugh at the idea that there can be any other method than applying economic theory.
So how should new, and for that matter experienced traders, formulate their own approach to forecasting future price movements? To be honest it is something personal to each trader. The most important factor they need access is their own personal skill set. Are they analysts by nature, or are they traders. Each has a completely different mindset and also different abilities in terms of analyzing.
A pure trader is reactive, wants to trade and wants to make quick decisions.A pure analyst is reflective, ponders decisions but likes to explore different factors that are affecting the market.
Most market participants are a hybrid of the two. Some err on the side of reaction and some err on the side of making sure of their trade, planning the entry and exits.
So how should a new trader decide what he or she should do in terms of analysis?
I am a pure analyst. I include no fundamental factors in my analysis. I am 100% pure technical analysis and I can be no other way since it works well for me. I have been able to forecast approximate targets 6-10 months in the future when the circumstances all work together well. That is how strong technical analysis can be. If an analyst knows what they are doing the advantage that technical analysis has over fundamental analysis is the ability to provide accurate targets, both on retracements and projections. It may also provide good timing.
In that case, do I recommend that all new traders base their trading on technical analysis alone?
Indeed not.
To be able to forecast with technical analysis in this way with a high success ratio requires a deep understanding of price movement, why it does what it does and what happens when it doesn’t move in the way that has been predicted. My method is based around Elliott Wave and a purely personal interpretation of Elliott Wave since I have found the Elliott’s methodology does not really apply to the Forex market, Elliott Wave takes years of practice and use to feel comfortable applying it. I also use time cycles which are also not plain straight forward to apply. If you don’t know what you are doing then you can end up making very bad trades. How long would it take to forecast accurately utilizing 100% technical methodologies? At least 5-10 years depending on the individual’s analytical skills.
So does that imply that new traders should base their trading on fundamental analysis alone?
Indeed not.
I am not a skillful fundamental analyst but I have worked with several and have seen their successes and failures. Certainly they require time to understand the vagaries of the Forex market and how what appear to be understandable and underlying economic factors can apparently fail totally. They can often forecast the underlying direction but what is impossible is to forecast precise levels to enter or exit.
Thus, for the new trader it is important to incorporate both elements into trade decisions. Fundamentals are normally favored because it is easier to conceptualize the concepts. They appear logical while technical analysis does not. It is normally easier for a new trader to become a little more skillful in applying fundamentals in a quicker time than he/she can with technical analysis.
However, the bigger problem for traders knows when to enter and where to place stops. The only solution is technical analysis. Since the process of understanding how to use technical analysis will take time it can be useful to subscribe to a technical service. Since probably 80% of traders are not analytical in nature it could be that most traders will find it useful to subscribe to an analytical service permanently and will need to try several services to see which suits their own personal style of trading.
Choosing an analytical service is important. Since there are always several ways a price pattern can develop what a good service must do for you is provide you with guidance to the possible alternatives, the levels that confirm a move and when it breaks down. It is vital to have a firm view of when to enter, why you are entering and when to take profit, or take a loss. Not to have this in your trading strategy will cause you more losses than you need take.
The key to successful and profitable trading is study and that means hard work. It is well know that trading is a stressful profession and that in itself implies that it is not a simple pastime, even for institutional traders who have a wealth of information at hand. However, there is enough information available to private traders these days and for the savvy that do their homework; there are good profits to be made.

ForexGen | Forex Insight on Gold

Intermarket Dynamics- Forex Insight on Gold - Forex Trading

The price action in Gold has been the focus of deserving attention, yet further insight can be gained from an inter-market perspective.
The usual historical inverse relationship between the USDX, US Dollar Index, and Gold has been out of sync. Both Gold and the dollar have been strengthening. We can see this in the chart below. But this inverse relationship is not likely to last. Is this an omen for a dollar retracement and a Gold sell off?
Another revealing chart shows the relationship between the Yen and Gold. The recent Gold buying has been sourced to be from the TOMOC (The Tokyo Commodity Exchange) as Japanese investors looked to hedge against a very weak Yen. So quite significantly, on the TOMOC exchange, Gold futures went limit down, after 8 days of gain. Is this profit taking or a clue to further Yen strengthening? The fundamentals are beginning to color technical sentiment as a new Tankan Report may reflect business sentiment rising.
A Bloomberg story reports that "The Bank of Japan will say on Dec. 14 that its Tankan confidence index climbed to 23 in the third quarter from 19 in the second, according to the median forecast of 26 economists in a Bloomberg survey." At the same time the Bank of Japan is signaling an end to the zero interest rate policy in Japan which has been a major driver of a weakening Yen.
Let's add to this mix of analysis another factor- China. The Chinese are signaling clearly that they will allow their currency, the Renminbi Yuan, to further strengthen. A stronger Chinese currency means more demand for Japanese goods, and is another positive factor for strengthening Yen.
The inter-market Gold puzzle gets more interesting when you see the Aussie/Yen cross and Gold Patterns. The Aussie has strengthened against the Yen in tandem with the move in Gold.
What can we conclude about the Gold moves from the perspective of currency trading opportunities? The Forex trader need not try to predict where Gold is going, but should be ready for the opportunities to trade the currency pairs in response to what Gold will be doing. An intermarket perspective shows that the Aussie, the Yen, and the AUD/JPY cross provide price extremes that may be about to break. While the majority of Forex traders pay attention to the popular Euro, it may be wise to look east.
Abe Cofnas' book - Understanding Forex "Trading to Win"
This book provides more information on fundamental analysis and how to use it when trading Forex than any other book on trading currencies. Fundamentals play a major role in forecasting price movement. Technical Analysis on the other hand is used to forecast price movement also. In this book learn how to use both types to your advantage so that you can practice more winning trades.