The delusion conceptually propounds that intraweek and intraday FOREX currency quotes movement is governed byeither improvement or by deterioration of the state’s economic situation. But in reality, even in case the actual Forex newsare superior to the estimated one, the FOREX quotes up/down movement is of 50/50 probability.This statement is thoroughly important. Once the job of Forex trader is gambling on FOREX exchange rates differential(FOREX pairs up/down movement), the following is to be realized to obtain faultless profit:1. FOREX pairs pricing mechanism (say at point X where you are completing the market analysis)2. Factors imparting growth/decline to FOREX rates (up/down from point X).Thus, having understood the FOREX ratesfactors effective at the extra-exchange (book-maker) FOREX market and thegiven currency motive factors, a trader must possess distinct knowledge of whether to buy or to sell the given currencypair.So, what are these factors?FOREX student suggest unambiguous interpretation of factors responsible for the price formation and the fluctuations thereof:1. Forex rate constitutes a demand-supply balance for a given goods (currency).2. Any violation of this balance, (for instance, in case where the estimated news is in disagreement with the issuedofficial one), results in the FOREX rates reciprocation in chase of a new demand-supply balance. Poor demandbrings about decline in a certain currency rate, with a high demand leading to the growth of the latter. Thesituation continues as long as the currency buy/sell demand comes to balance at another level or at another point.Referring to the B. Williams (“Trading Chaos 2” Chapter 1 “The market is what you are thinking of it”):Each world market is dedicated to distribute or share limited amount of something… among those desirous to obtain it mostof all. The market affects it by way of finding out and identifying the exact price? Underlying the buyer’/sellers’ powerabsolute equilibrium point.The above point is readily established by stock, futures, bonds, FOREX and options markets, be it either via an openauction or by virtue of a computerized facility. Markets spot this point prior to any misbalance being detectable by You orby me or even by traders at the exchange floor.With this scenario holding true – and it really does – we are in position to jump at certain simple yet important conclusionsas regards the information being circulated through the market and enjoying doubtless acceptance”.Thomas Demark was more laconic in “Technical analysis - an emerging science”:“Price movement is governed by demand and supply. Should demand exceed supply, there’s a price rally and if visa versa,there’s a price decline. All economists do share these underlying principles”.Hence, the role of fundamental analysis for FOREX market is readily apparent.In scholar fiction one will discover roughly the following explanation, persistently wandering from book to book, from site tosite and suggesting attaining successful trading at FOREX market by way of scrutinizing the country’s economicfundamental data, viz. by tracking the factors reflective of the country’s economy condition as below:• State economy condition dynamics indicators (GDP, trade & payments balance, current account, industrialproduction, etc. It is knowledge, that the higher the above indicators – the faster the economic and the currencyprice growth);• Stock indices, via average arithmetic index of the country’s securities market condition and dynamics. E.g.: 0.3%daily DJI growth in the USA means that this certain day the shares of 30 leading US companies, being pictured byDJU, went 0.3% more expensive. By similarity, DAX30 is the major German index, incorporating the price ofshares of the country’s 30 leading companies.• The country’s interest rate, since the higher the rate, the greater number of investors is eager to invest into thecountry’s economy and hence into national currency strength.• Rate of inflation (the higher the rate, the quicker the National Bank will hike the interest rate). With thisassumption, the CPI constitutes a key factor.• Money supply growth in domestic market, which fact brings about the inflation, leading to the interest rate hike.• The country’s gold and currency reserve assets.• Variation dynamics correlation of: balances of payment, trade balance, state budget, gross domestic product(GDP), etc.• Trade and industry dynamics (industrial production, industrial orders, DGO, capacity utilization, retail sales, etc.)• Construction statistics (construction spending, new home sales, housing under construction, building permits, etc.)• Labor statistics (unemployment rate, new jobs, etc.)• Society investigations (consumer confidence, consumer sentiment, purchase managers and service managerssentiment, etc.)• To be considered additionally are the country’s political stability and tranquility (clearly, any political, natural andother cataclysms are sure to turn investors nervous making them withdraw the investments from the country, thusweakening its national currency). And with the currency being the national economy derivative, changes ineconomic data will inevitably result in the above currency rate movement.Conclusions:1. Progress in economy results in the currency exchange rate rally.2. Decrease in economic indicators leads to the national currency rate decline.To sum it up, critical economic and political news (whose calendar is issued in advance and is familiar to any trader)constitute a standing factor giving rise to misbalance and causing the currency rate fluctuations.In anticipation of important economic and political news FOREX pair crawl to the rates as inspired by the estimates(“rumored trade”), whereas upon actual news there occurs a pulse motion of FOREX pairs in accordance with the schemebelow;• Forex rate grows if actual news are better than the estimated one;• Forex rate declines if actual news are worse than the estimated one.ARE YOU FAMILIAR WITH THESE ABC BASICS OF STUDYING FOREX?Do you accept that one can earn money by way of using these basics, known to every trader?Then why, having absorbed these economic axioms, 90% of Forex traders in the world are losers rather than winners.Where is the delusion of the above ABC truth, nudging traders towards losses? Let us perform sort of point-by-pointanalysis.
No comments:
Post a Comment