Many mainstream trading books about forex trading love to talk about the importance of combining a fundamental view and a technical view of the market. That’s great if you are going to be interviewed on a popular financial media outlet. Fundamentals make you sound smart, and smart is sexy. The problem is fundamentals generally look at the market from a very broad view and focus on particular themes that can be affecting currency rates. Technicals on the other hand can provide a much more accurate picture in terms of what market participants are feeling at the moment. This in my opinion is much more valuable when it comes to speculating in the forex market.
It is also important to keep in mind that as retail traders, the fundamentals that we have access to are limited in scope. We know only what government reports and the media tells us. This means we know what the rest of the world knows. This information carries hardly any value. Do you think large fund managers like Soros or Tudor Jones use this quality of information in their strategic decisions? They can afford analysts who can provide much higher quality and actionable information when it comes to the macro global speculation game. We have no business attempting to compete in this arena.
As retail traders, the one area where we can gather actionable information is the technical view of the market. By technical I am not referring to trend lines and oscillators, instead of I am referring to particular information that is generating by unfolding raw price action. There are specific reasons for this and they are related to the basic tenets of technical analysis as stated by the father of modern technical analysis John Murphy:
1. Market Action discounts everything
2. Prices move in trends
3. History repeats itself
Murphy states in his book “Technical Analysis of Financial Markets” :
“Chartists do not concern themselves with the reasons why prices rise or fall. Very often, in the early stages of a price trend or at critical turning points, no one seems to know exactly why a market is performing a certain way. While the technical approach may sometimes seem overly simplistic in its claims, the logic behind this first premise -that markets discount everything-becomes more compelling the more market experience one gains. It follows then that if everything that affects market price is ultimately reflected in market price, then the study of that market price is all that is necessary.”
He goes on to say that chartists know there are reasons why markets move, but knowing those reasons are not necessary in the forecasting process.
As you reshape your mental framework for trading professionally, it is important to recognize the value that a technical perspective offers. Maintaining this perspective helps our forex and futures traders stay focussed on relevant information and avoid the numerous distractions and noise that surrounds a trading environment. The methodology used in our training is based on a purely technical view of the market and provides a very unique way to observe and capitalize on market opportunities. I hope you find this information informative and helpful for your trading effort.
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Marc Principato, CMT,
*No Relevant Positions