Market fundamentals. Part 2 - Page 91
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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. #901
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    Quote Originally Posted by qaiser1 View Post
    Yes, if you are short-term trader, it would be hard to benefit from those movements.I agree with what you have explained. it is all about how you perceive this market according to your understanding but never the less It is all about demands and supplies and is the way traders are playing in the Forex the market. So emphasis more on boarding the horizon of your understanding of this remarkable world .
    Trading style varies from traders to traders,some like short term trading why others love doing it long term like me,whatever that pays you is what you should go for,and it is not true that traders do not succeed short term in this market a lot of traders do very well.

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  3. #902
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    Quote Originally Posted by markove View Post
    I agree with you what you have say.Understanding funamental anlysis is much easier for a experience trade according to the new beginner.Although It is all about demands and supplies and it is the way professionals
    I honestly do not think fundamentals have anything to do with demand and supply,the market moves according to fundamentals that is what tells us which currency is weak and which is strong,currencies trends because of fundamental releases over a period of time.

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  4. #903
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    fundamental high impact news releases really has very very high impact on the trend . Either it changes the trend reversely or continues but the effect is great. Surely anyone just trading on technical analysis wont do much good on long term. But if he/she puts stop loss in place , then i believe he /she can be saved from much more losses

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    Quote Originally Posted by markove View Post
    fundamental high impact news releases really has very very high impact on the trend . Either it changes the trend reversely or continues but the effect is great. Surely anyone just trading on technical analysis wont do much good on long term. But if he/she puts stop loss in place , then i believe he /she can be saved from much more losses
    Of course yes high impact news can change trend and that is the major reason why we need to be very careful when such news releases are coming out,it is important that we stay off the market during such period of time,if we have an open position then stops will have to be tight.

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    Quote Originally Posted by BOSST View Post
    Of course yes high impact news can change trend and that is the major reason why we need to be very careful when such news releases are coming out,it is important that we stay off the market during such period of time,if we have an open position then stops will have to be tight.
    How impact news can either enhance an already existing trend or help to change its direction completely, for me the risks is just too much, it is just better that we are not in a trade when we see that a news of high degree is soon to come up in the calendar.

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  7. #906
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    Quote Originally Posted by forexlearner View Post
    Some amount of money would be good enough to learn in this business but if we are looking for gaining big amount of money then we have to invest the same big money in our trading account also, the risk management and money management should be very lower and equal and we should never try to take very higher risk in account especially when we have less amount of deposit.
    Yes when you have a mind of good knowledge and psychology you also have great results of your trading. So one must understand the size of his investment and only expect what can be achieved by following risk management. There is a need of lot of experience and emotional stability to succeed with Forex.

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  8. #907
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    Quote Originally Posted by Bhave4U View Post
    Yes when you have a mind of good knowledge and psychology you also have great results of your trading. So one must understand the size of his investment and only expect what can be achieved by following risk management. There is a need of lot of experience and emotional stability to succeed with Forex.
    We should plan the layout of our trading and trade according to it with a calm and disciplined mind. I am a short term trader and so my targets are usually small ranging betwee 20-50 pips. I do not believe in big targets because it takes a long time through which some unforeseen events may appear to reverse the trend in the opposite direction.

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    as entering with the details of preset with the plan to manage as running with the trading projects, trader to follows as appealing with the works of evaluation as defining contrast of optimum value to focus with the cue as targeting the use and finds of way as might to reach within the bands of position.

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  10. #909
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    I equally experienced that event in 2008 though I was a baby trader then because I only had two years of trading experience. I saw myself selling GBP/JPY and I did not know why the pair had to crash seriously like that until I got to know that big players were moving their money to less risky assets they considered safe haven as at then and now I know better that such a case is called "flight to safety".

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  11. #910
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    Quote Originally Posted by layigold View Post
    I equally experienced that event in 2008 though I was a baby trader then because I only had two years of trading experience. I saw myself selling GBP/JPY and I did not know why the pair had to crash seriously like that until I got to know that big players were moving their money to less risky assets they considered safe haven as at then and now I know better that such a case is called "flight to safety".
    Yes this flight to safety can actually create panic selling in some currency and strong bullishness in some other. Retail traders often take trades on emotions at this times seeing a good low or a good high price in the currency pairs. Emotions are harmful so the trading always should be based on reality. When we have the knowledge and experience we can plan our trading so that it is as near to perfection as possible.

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