A new approach to handle fundamentals in forex (you’ll be surprised)
I’ve made a decision no to focus in Fundamentals anymore. Of course it’s important to be aware of them, but I will not make decisions based on them.
Want to know why? Keep reading.
Last Tuesday I wrote about a few tips to trade forex that I will take in consideration in 2013. Each one of them deserves its own article, and here I am writing about one of them.
This way you’ll know exactly hat went through my mind and decide whether or not you agree with me.
Fundamentals in Forex
If you’ve been trading for enough years, you know the impact of fundamental announcements. 5 or 7 years ago all we talked about in the entire month was about the non-farm payrolls report (the news announcement that moved the market the most).
Seriously, it was all about: how many pips it moved, in how much time, the strategy you used to trade, plenty of services selling news trading advice, and so on and so forth.
But things have changed, and we need to adapt in order to survive.
In the Forex market the stronger is not the one that survives, but the one that has the ability to adapt.
The most successful strategy (that used to work, but not anymore) to trade news announcements
It was called the straddle strategy and it worked like this:
Just before an important you’d set an entry stop order on either side of the chart. Say, the market was trading at 1.2550, you’d set an entry stop sell order at 1.2520 and an entry stop buy order at 1.2580.
On of these order would get triggered, the market sometimes moved a few hundred pips in less than an hour, and done for the day in a few minutes…
With announcements such as: non-farm payrolls report, interest rate announcements, GDP and other this strategy worked like a charm.
Just look at this chart: What do you think?
Sadly, it doesn’t work anymore, here is why:
- Some traders started using the difference in time of reaction to these announcements of several brokers to take advantage of this (aka sniper trading)
- Brokers protected themselves with requotes, slippage, and forbidding trading around news announcements, etc.
- The most important of them all, the market doesn’t react to these announcements the way it used to.
Thats right, if you use the straddle strategy these days, most of the time the market will surprise you with two trades in red, at the same time…
And the only thing worst than having a trade in red is having two trades in red, isn’t it?
And hear this, I will go one step further
There has been always this fight between fundamental and technical traders. Who is better, blah blah blah…
I used to trade a mixed methodology, most of my trading was based on technical analysis but I was always aware of fundamentals… A kind of a weird mix, you know what I’m talking about right?
But you know something… I forgot about one of the main principles of Technical Analysis:
All known information is reflected on charts (including insider information)
And you know something, I’ve never agreed more with the statement, specially with what happened in the market in 2012.
The Europe crisis for instance
Every trader talked about the crisis, most traders were bearish on the EUR… and still, there were plenty of opportunities to go long in the EUR.
I wrote about such opportunities a few times… and every time I wrote about it, some one commented… “mmm… not a good idea… the crisis blah blah blah.” And one way or the other I got some kind of a bias, that made me hesitate…
But not anymore, because I have changed the way I approach the market (from the fundamental point of view)…
So here is my new approach to fundamentals in Forex
I will never again take in consideration fundamentals in my trading decisions. Never, Nada, Zip.
I will not care what the fundamentals of any country are, I will trade based on what I see exclusively on my charts, that’s it.
I know you cant get away without hearing something here or there about fundamentals, but I will not get a bias because of them.
Do you like the sound of that?
Please share your thoughts.