Market fundamentals. Part 2
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  1. #1

    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:

    flighttosafety.jpg

    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:

    gold_history.jpg

    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.
    Last edited by Value trader; 10-17-2013 at 08:36 PM.

  2. #2
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    Thank you for the detailed article sir, I agree with all these that you have explained. It is still about the rules of demands and supplies, and this is how the overall players are doing in the market, the ones that have the highest power takes it at the end, it goes like that all the time in the financial market no matter the side of trading analysis they are. Please sir, what do you mean by housing bubble?

  3. #3
    Trader Russel2012's Avatar
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    yes that part was really too necessary to me... Fundamental is really too critical subject... So we need to be expert to learn perfectly.. here is needed perfect experience to make better analysis of fundamental... That part can help me to be more experience about fundamental ...
    ~~You have chance to be successful until Death.. So try hard till death~~

  4. #4
    Quote Originally Posted by Russel2012 View Post
    yes that part was really too necessary to me... Fundamental is really too critical subject... So we need to be expert to learn perfectly.. here is needed perfect experience to make better analysis of fundamental... That part can help me to be more experience about fundamental ...
    You are very right that fundamental analysis is really critical. But we know that if we able to capture it then we can easily make profit from here. So to make a good amount of money we need to learn properly about fundamental analysis and we need to gather more trading experience about trading.

  5. #5
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    thanks very much for this article sir it is really helpful to me

    - - - Updated - - -

    we must be patient because we don't open many trade but only open few trade that have high probability to make profit. Fundamental is not easy to predict because untill it is related to long term policy factor has big deviation release you can't make a consistent profit. We all are fundamentally technical retail trader and we rely on charts to predict the outcome and stay proactive.

    - - - Updated - - -

    Fundamental is not easy to predict because untill it is related to long term policy factor has big deviation release you can't make a consistent profit. We all are fundamentally technical retail trader and we rely on charts to predict the outcome and stay proactive.

  6. #6
    Quote Originally Posted by Russel2012 View Post
    yes that part was really too necessary to me... Fundamental is really too critical subject... So we need to be expert to learn perfectly.. here is needed perfect experience to make better analysis of fundamental... That part can help me to be more experience about fundamental ...
    Fundamental analysis is really too much critical subject for analysis the market. But if you able to capture this then you can make huge profit from here in a short time. So you need to know about it. You need to gather more information about economic news. If you able to gather right news and if you able to analysed the market then you can able to make more money from here.

  7. #7
    Quote Originally Posted by Russel2012 View Post
    yes that part was really too necessary to me... Fundamental is really too critical subject... So we need to be expert to learn perfectly..
    Yes, it's true that fundamental is is very necessary for right prediction about market and it's enough critical too. But at primary level some major important fundamentals like economic data analysis to understand economic condition, monetary policy objective can be focused. With increase of knowledge more subject can be included.

  8. #8
    Quote Originally Posted by Russel2012 View Post
    yes that part was really too necessary to me... Fundamental is really too critical subject... So we need to be expert to learn perfectly..
    Fundamental is critical and isn't too easy to learn. For making fundamental analysis a trader needs to have knowledge on macroeconomics. This won't be achieved easily and fast, but if a trader tries enough hard to learn this with patience, then he will have good knowledge on it certainly.

  9. #9
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    Quote Originally Posted by tanvir33 View Post
    Fundamental is critical and isn't too easy to learn. For making fundamental analysis a trader needs to have knowledge on macroeconomics. This won't be achieved easily and fast, but if a trader tries enough hard to learn this with patience, then he will have good knowledge on it certainly.
    I agree with it that in this trade seems like we have to figure out how to do the analysis with fundamental analysis is related to economic issues and so on because we know this is not possible in the trade we just took off and did not want to do this trade with the analysis because we know that in this trade will always be better opportunities in trade with good economic analysis if we do trade with the fundamental analysis

  10. #10
    Registered user mohabbat's Avatar
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    Quote Originally Posted by Russel2012 View Post
    yes that part was really too necessary to me... Fundamental is really too critical subject... So we need to be expert to learn perfectly.. here is needed perfect experience to make better analysis of fundamental... That part can help me to be more experience about fundamental ...
    Yes dear I think you are right, but without fundamental how can we develop our skill ? is it possible ? because in my view 95% professional trader dependable on fundamental outlook or economic events, because financial market depend on economic event which call fundamental out look in FX language, so it is more critical but we should to learn and understand it.
    Don't loss you hope.

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