Market fundamentals. Part 2 - Page 3
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Thread: Market fundamentals. Part 2

  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. #21
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    Quote Originally Posted by Value trader View Post
    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.
    If such pressure is in the market then it's best for trader to exit from any opposite position and prefer to take his first position. Such pressure always create lot of opportunities for trader like me in similar situation I can enter more then one time and many time i remain successful to close all of my positions in profits. In fact analysis really matter in this market if one can sense the the same pressure before it occur then he can plan with more accuracy but this skills is really tough to get.

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  3. #22
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    i think fundamental analysis is the most important for making profit from forex. on 07-11-2013 i have opened my trade with EUR/USD pairs and my indicators showed me market trend bullish but fundamental analysis declared market would down about 200 pips and it was real and i have lost my big capital.so i realized fundamental analysis is most important for making big profit..

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  4. #23
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    I believe that political decisions have a significant impact on fluctuations in currency and and also the market completely.Is the economy depends on the political How allocated free from politics and politicians.Extremely close political relationship between operating currency. We can see this by following the basic techniques, here we see that political influence is very strong at all with the movement of the currency, so we must be sensitive to political news.

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  5. #24
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    Very good to be awear of such market sentiment,flight for safety,I've seen such move a couple of times myself,when the price refuses to retrace,it just keeps heading in one direction early correcting,I believe such move is mainly fundamentally driven or poor economically health which would make investors pull there assets out of such an economy in search for safe heaven currencies.thanks for sharing

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    i know that it is the fundamental that moves the market but i think it is not necessary for all the traders to know every thing about fundamental analysis because technical analysis can show us every thing about market trend

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    Quote Originally Posted by sasal View Post
    i know that it is the fundamental that moves the market but i think it is not necessary for all the traders to know every thing about fundamental analysis because technical analysis can show us every thing about market trend
    if you are a technical trader who depends only on the chart in trading then you should at least know when the news are being released,because during news time a lot of wired movement happen that is not consistent with your technical analysis and you should know that this is a result of news release by checking the calender daily and be ready for them.

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    Bend your view to the charts, not the charts to your view

  8. #27
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    Quote Originally Posted by sasal View Post
    i know that it is the fundamental that moves the market but i think it is not necessary for all the traders to know every thing about fundamental analysis because technical analysis can show us every thing about market trend
    Both technical analysis and fundamental knowledge is very essential for a trader to achieve success in Forex. The more knowledge we have the better will be our trading performance and profits. So if I now want to increase my profit then I have to increase my knowledge and my skills and my experience in according to earn more profit with less loss. I need to develop the skills to be ale to keep my losses very low and earn a good return on my capital.

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    Quote Originally Posted by Nizar View Post
    if you are a technical trader who depends only on the chart in trading then you should at least know when the news are being released,because during news time a lot of wired movement happen that is not consistent with your technical analysis and you should know that this is a result of news release by checking the calender daily and be ready for them.
    Trading by taking into account only the technical analysis or the fundamental analysis is like trading with half knowledge and can be very dangerous. Thus we should have good knowledge to read the charts and indicators and also have good knowledge about the news and economic events to earn good income from Forex.

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  10. #29
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    Quote Originally Posted by PROPENSITY100 View Post
    Trading by taking into account only the technical analysis or the fundamental analysis is like trading with half knowledge and can be very dangerous. Thus we should have good knowledge to read the charts and indicators and also have good knowledge about the news and economic events to earn good income from Forex.
    you mentioned a really important point here and i think you are right that trading with only one type of analysis can create a great deficit in our trading and when we trade using technical analysis only we will not be able to understand some market movements that are caused by fundamental issues and also for fundamental traders they should understand technical points.

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    Bend your view to the charts, not the charts to your view

  11. #30
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    Quote Originally Posted by KUMARRAJ View Post
    Both technical analysis and fundamental knowledge is very essential for a trader to achieve success in Forex. The more knowledge we have the better will be our trading performance and profits. So if I now want to increase my profit then I have to increase my knowledge and my skills and my experience in according to earn more profit with less loss. I need to develop the skills to be ale to keep my losses very low and earn a good return on my capital.
    It's right if technical and fundamental analysis would be needed to all traders although there are some traders who prefer to focus on technical only or fundamental only. My suggestion, it's better to learn both of them although we didn't master both of them but we must know the usage of each analysis. It will be better if we can trade in every transaction than we should trade when there is high impact news only or when there is no news.

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