Market fundamentals. Part 2 - Page 7
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  1. #1
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    Market fundamentals. Part 2

    Hi traders!

    First side of this topic you can find here

    We've started talking about behavior of "big buys" or "smart money" (institutional) players. Basic assumption is the following - they rarely come to the market and buy all they want.
    They try to patiently accumulate, act near hot spots.

    Yet, there is particular situation when smart money players start acting like a "crowd" (they bring big volumes and do it very urgently)

    It is called "Flight to safety" (or "flight to quality" in some sources)


    Flight to safety


    It can occur when something catastrophic and unexpected happens. For example, war or terrorist attack, large bancrupcy, financial crisis and so on.

    There are lots of examples when market reacts too rapidly and too emotionally.

    For example - housing bubble crash in 2008 (known as "World Financial Crisis"), Asian crisis, "Dot-com bubble" crash e t.c.

    If "flight to safety" is in play, all short term trading techniques (for example - pivot points, channels or trend lines, divergencies and others) may work against short-term trader because traditional market logics doesn't work in such circumstances.

    During 4th quarter of 2008 I was short-seller and I've seen with my own eyes that all short-term trading systems was broken. Market was simply breaking level after level and falling down without any rest.


    Look at this chart:

    Attachment 1092

    It is AUDUSD, one of probably most volatile currency pairs for that period.

    You may notice that selling pressure is enormous - market needs slightest trigger to start falling. In these circumstances traditional short-term logics will not work, especially if you work counter-trend.

    Now look what happened with the price of gold:

    Attachment 1093

    All major indices, currencies and commodities were in down-trend, and Gold market only showed strength.

    This is classical pattern of collective behavior called "Flight to safety"

    Investors extract money from assets considered as "risky" and put them in "safe" assets.

    Housing bubble of 2007-2008 was called "Global financial crisis", but from time to time, less global bubbles blow up, and money is being transfered from commodities or stocks to treasury bonds with guaranteed income, though it (income) is very small. But investors are driven by fear and simply want to save their money and purchase these assets not for yields.

    If you guess, that something similar happens on this market - be aware.

    Traditional market logics will not work here - market will make enourmous "squeezes" in the the destination of the trend. Though, you can just hold your position and enjoy profits.

    But be also aware that such type of market conditions is relatively rare one, so don't reinvent the wheel - use your approach until something big will happen.
    That's why sometimes it's useful to know what's going on in the world.

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    Last edited by Value trader; 10-17-2013 at 09:36 PM.

  2. #61
    Trader Dheeraj123's Avatar
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    Thanks for the great article I am also agree with your my friend fundamental analysis is one of the most powerful analysis in forex and its right that it can reverse the trend a high news can affect market badly so its very necessary to use stop loss always in our trading.

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    we have to know that basic|the elemental|the basic} analysis isn't the sole fundamental that's getting used in forex mercantilism that we tend to even have to form certain that we are going to be combining the technical analysis once mercantilism similarly.

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  4. #63
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    Your own write-up truly affirms whereby standard greater impact tale releases truly provides quite high impact within your phenomenon. Often it adjustments your current development reversely or simply continues nevertheless the consequence is extremely very good. This actually continues to be about the precise regulations connected with requirements aside from items and this can be simple fact through which overall players trend to be undertaking may perhaps invest in the ones that offer the very best strength need it right towards the end, it is going this way continually in the particylar economic market irrespective the venue regarding dealing evaluation there are undoubtedly.

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  5. #64
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    One of the best advice for all new traders if they are willing to make some money is to follow the smart money, or money of big institutional players. How can we do that? It is actaully simplier than we thought. Just use the trend following systems, and always trade with the trend, but try to enter in a corrections.

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  6. #65
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    Yes, am happy with the topic because it can help you make good trading with good money also, this is because most fundamental analysis helps one to know when to enter the trade for instance trading with news gives good result and that's making most traders successful.

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  7. #66
    Trader layigold's Avatar
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    Thank you for this enlightenment but I am confused a bit because in one of your article in the previous thread, you mentioned that it is very risky to be following the big players and yet these are the market participants that move the market. I needed your explanation sir on how to reconcile the two scenarios together. I know this kind of event is not common and usual as you said but when it happens, is it advisable to play along with the direction of the big players ?

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  8. #67
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    Quote Originally Posted by layigold View Post
    Thank you for this enlightenment but I am confused a bit because in one of your article in the previous thread, you mentioned that it is very risky to be following the big players and yet these are the market participants that move the market. I needed your explanation sir on how to reconcile the two scenarios together. I know this kind of event is not common and usual as you said but when it happens, is it advisable to play along with the direction of the big players ?
    There are 2 types of big players. Those who move the market are big speculators, those who just hedge their positions are commercial players. You should rather follow big speculators, and fine-tune your entry fading small specs.

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  9. #68
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    some factors will affect the market in every situation and even with suddenly, we do not know what will happen in the future and the market move so faster , but we can get the information with earlier if we pay attention for fundamental analysis, it is necessary to protect or to take some benefits from it,so traders need to follow the business with flexible

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  10. #69
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    Quote Originally Posted by newentry View Post
    some factors will affect the market in every situation and even with suddenly, we do not know what will happen in the future and the market move so faster , but we can get the information with earlier if we pay attention for fundamental analysis, it is necessary to protect or to take some benefits from it,so traders need to follow the business with flexible
    sometimes we are not going to know what factors affect the movement of the market if we do not pay attention to how the state news will be released is definitely going to make us do not know what factors have an impact on the news that the so supervise the economic calendar will be important in this trade would to know when news will be released

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  11. #70
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    2008 was a period of high uncertainty and it created lot of panic almost in all sectors and hence everyone wanted to come out of their positions and according to me it also gave plenty of handsome opportunities to pick the bottom!. Aud/USD,Eur/Aud are also one of my favorite pairs due to both interest rates and the predictable movements.

    However the fundamentals have become more and more unpredictable as the time have passed and at this point of time market is more complicated than what it was in 2008.

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