Forex Secrets – Delusion No1 – Forex Currency Rate And Economic Factors Impact On Exchange Rate
The delusion conceptually propounds that intraweek and intraday FOREX currency quotes passage is governed by either enhancement or by wear of the state’s fiscal circumstances. But in actuality, even in case the actual Forex news is superior to the estimated one, the FOREX quotes up/down passage is of 50/50 probability.
This statement is thoroughly vital. Once the job of Forex trader is having a bet on FOREX chat rates differential (FOREX pairs up/down passage), the following is to be realized to obtain flawless profit:
FOREX pairs pricing mechanism (say at point X where you are completing the market analysis)
Factors imparting growth/decline to FOREX rates (up/down from point X).
Thus, having understood the FOREX rates factors effective at the extra-chat (book-maker) FOREX market and the given currency motive factors, a trader must possess evident knowledge of whether to buy or to sell the given currency pair.
So, what are these factors?
FOREX student suggest unambiguous translation of factors responsible for the price formation and the fluctuations there of:
Forex rate constitutes a demand-supply weigh for a given goods (currency).
Any violation of this weigh, (for occasion, in case where the estimated news is in disagreement with the issued authoritative one), results in the FOREX rates reciprocation in chase of a new demand-supply weigh. Poor demand brings about decline in a certain currency rate, with a high demand leading to the growth of the latter. The circumstances continues as long as the currency buy/sell demand comes to weigh at a additional level or at a additional point.
Referring to the B. Williams (“Trading Chaos 2″ Chapter 1 “The market is what you are thinking of it”):
Each world market is dyed-in-the-wool to deliver or share top secret amount of something… among those hoping for to obtain it most of all. The market affects it by way of result out and identifying the exact price? Underlying the buyer’/sellers’ power absolute equilibrium point.
The above point is gamely established by stock, futures, bonds, FOREX and options markets, be it either via an open public sale or by virtue of a computerized facility. Markets spot this point prior to any misbalance being detectable by you or by me or even by traders at the chat floor.
With this scenario holding right – and it really does – we are in position to jump at certain simple yet vital conclusions as regards the information being circulated owing to the market and enjoying doubtless acceptance”.
Thomas Demark was more economical in “Technical analysis – an emerging knowledge”:
“Price passage 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 gamely apparent.
In scholar fiction one will learn roughly the following explanation, persistently wandering from book to book, from site to site and suggesting attaining successful trading at FOREX market by way of scrutinizing the people’s fiscal fundamental data, viz. by tracking the factors reflective of the people’s economy shape up as below:
State economy shape up dynamics indicators (GDP, trade & payments weigh, contemporary account, manufacturing production, etc. It is knowledge, that the higher the above indicators – the quicker the fiscal and the currency price growth);
Stock indices, via average arithmetic index of the people’s securities market shape up 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 by DJU, went 0.3% more pricey. By similarity, DAX30 is the major German index, incorporating the price of shares of the people’s 30 leading companies.
The people’s interest rate, since the higher the rate, the greater number of investors is keen to invest into the people’s economy and hence into inhabitant currency might.
Rate of inflation (the higher the rate, the quicker the Inhabitant Bank will hike the interest rate). With this thought, 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 people’s gold and currency reserve assets.
Variation dynamics correlation of: balances of payment, trade weigh, state budget, yucky domestic product (GDP), etc.
Trade and industry dynamics (manufacturing production, manufacturing orders, DGO, capacity utilization, retail sales, etc.)
Construction statistics (construction spending, new home sales, housing under construction, construction permits, etc.)
Labor statistics (unemployment rate, new jobs, etc.)
The upper classes investigations (consumer confidence, consumer sentiment, hold managers and service managers sentiment, etc.)
To be thorough additionally are the people’s political stability and tranquility (visibly, any political, natural and other cataclysms are sure to turn investors nervous making them retreat the investments from the people, thus weakening its inhabitant currency). And with the currency being the inhabitant economy derivative, changes in fiscal data will inevitably result in the above currency rate passage.
Conclusions:
Movement in economy results in the currency chat rate rally.
Decrease in fiscal indicators leads to the inhabitant currency rate decline.
To sum it up, critical fiscal and political news (whose calendar is issued in advance and is traditional to any trader) constitute a standing factor giving rise to misbalance and causing the currency rate fluctuations.
In anticipation of vital fiscal and political news FOREX pair crawl to the rates as inspired by the estimates (“believed trade”), whereas upon actual news there occurs a pulse motion of FOREX pairs in accordance with the scheme below;
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 Traditional 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 fiscal 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 go sort of point-by-point analysis.
The currency chat FOREX market is a book-makers one. It is having a bet on rates difference lacking direct money manner of speaking to the chat market, except for hedging of traders’ funds by Forex brokers, via buy-sell difference especially during strong trends). Then, http://www.forexite.com reads: “Trading is performed lacking actual currencies supply, which fact cuts overheads and enables Forexite to go long and small on the currency” http://www.forexite.com/forexite_advantages/forex_advantages.html.
Comment: Have you ever met any book-makers;
- whose logics was immediate with that of THEIR clients (traders),
- whose stakes were being made in accordance with THEIR technical analysts forecasts, fiscal laws and common sense?
And what extent of doubt and disbelief should be emotionally caught up to THEIR free “recommendations”, “advice”, “surveys” and “forecasts”, laid out at THEIR sites owing to THEIR analysts?
As a regular result, over 90% of the world traders are still loosing their deposits at FOREX each time they follow Thomas Demark stereotype that “All the economists share these underlying principles”.
Comment No.1. In as much as the above underlying principles are 90% contradictory to practice, it gives rise to the following inquiry. Might these “underlying principles, shared by all economists counting Thomas Demark” have possibly turned into dogma, alien to life and practice?
Comment No.2. What should a trader lean on: practice or dogma even if supported by fantastic names, provided that the trader is purported at earning money?
FOREX analysts issuing their daily bulky market reviews are not FOREX traders in the overwhelming margin (see meticulous conversation below). And on bringing collectively pairs 1, 2 and 3 there appears certain regularity.
Please, reckon over A. Elder words, that: “FOREX rates and the fundamental analysis are tied collectively with a mile-long rope. The fundamental analysis is eventually intense. But anything is likely to happen prior to this eventuality”. A additional, yet no less celebrated trader and analyst, Bill Williams underlines the same mental regularity of an experienced professional trader (level 3 of his trader’s skill rating as per “Trading Chaos 2″): “On attaining level 3 you emerge as a self-provided pro trader. You are always traditional with the market’s basic, ordinarily hidden organize. You no longer need to refer to others’ opinions. You needn’t read “Wall Street Journal”, watch market-oriented TV programs, and subscribe to information bulletins, waste money on information channels”.
Comment: Logically, there is a counter-proposition, that if You are keen to become a successful trader, You are to restrict the influence of various surveys and recommendations on physically even in case they originate from the world well-known “Wall Street Journal”, to say nothing of crude gurus in analyst skins who use to know ahead of time where currencies will go.
Forex news is a scheduled issue of fundamental data, which as a rule impairs FOREX rates a sharp pulse of motion. But then, why the currency rates passage vector is only 50% immediate with the ABC truism logics as to where the rate should rush in case of actual news being much better or worse than the assess. And, please, make an attempt to answer the following inquiry, stirring for every trader: why with the new being worse than expected (say, on US economy), the USD currency would initially fall by 40 pips (news work-off) but in 5 to 10 summary it would swivel back and would show a 200-point rally, with no account to either the issued news or to common sense.
Below are some examples:
Fig. 1. GBPUSD chart as of April 1, 2005 after the news, positive for the GBP and negative for the US economy.
See Note below
In March the CIPS manufacturing index amounted to 52.0 (with the previous data revised from 51.8 to 51.6). Oil price in NYC has grown by USD 2.40 up to USD57.70 per bbl (new record of the latest 21 years). Non-farm payrolls in the USA was nominal since last July (previous data revised towards lower values). There has been a decline in the Michigan sentiment index to 92.6 (median assess was 92.9, with 92.9 previously).
All the US indices faced a fall down. DJI at NYSE has fallen by 99.46 pips (-0.95%) towards closing at 10404.30. NASDAQ declined by 14.42 pips (-0.72%) to 1984.81. S&P500 slipped by 7.67 pips (-0.65%) to 1172.92. 30-yr US Bonds yielded 4.729 (0.037 lower as compared to the previous close). By contrary, FTSE100 has grown by 19.60 pips (+0.40%) to 4914.00.
Now, the inquiry is to certified economists: what will happen to the GBPUSD within one day or even several hours upon publication of these data? You are right, USD should not simply fall down, it should end. Powerfully, swiftly. Well, well…
And this time, the same inquiry to experienced traders. By FOREX news headlines You might have guessed that the events are taking place at the Friday American session. Assess. Initially, anyway, the GBPUSD chart will go up by 100 pips (news wok-off), followed by a pullback. Then Forex chart starts a new rally.
It is now to be tracked whether the GBP will breach the latest rally high or not. If affirmative, it will rush up by approximately 160 pips (Elliott wave 1 was 100 pips, while EW 3 is 60% longer). But if the high is not breached? The GBP currency quote will in no way come to a be idle, moreover on Friday day. Hence, – down, to the early point! And, if breached, similar circumstances takes shape but the counting is performed in a “down” direction (EW1, being the same 100 pips plus 187 pips from 1.8826 to 1.8759 being EW 3).
The FOREX day trading tactics will be given analysis in a separate chapter. A still separate chapter will be dyed-in-the-wool to Friday trade at American session due to its inherent information and to strong seemingly inappropriate passage. The passage is, of course, appropriate. To say nothing of Friday. But it will be touched upon later.
Now, getting back to the currency chart. As apparent, the GBPUSD pair passage on Friday, April, 01, 2005 is in no way in conjunction with the US economy fundamental data. Each forex trader can provide from tens to hundreds of similar instances, where the news are of a certain vector, whereas, after a fraudulent rush along the news vector, a currency applies reverse thrust.
Thereafter, the next day, in daily currency surveys, certified economists are sure to clarify all to us by way of inventing a additional undisguised jabber, like: “in spite of certain data, traders chose that the currency has already worked-off this side”. But! How could this occur on Apr, 01, 2005, provided that the currency has been staying flat in a narrow range in the course of the whole of the European session?
Otherwise, a additional explanation may emerge, that forex traders were expecting still more inferior news on the US economy… But! By how much more inferior, if according to DJ, the US non-farm payrolls MA was equivalent to 180K, with actual being +110K, assess being +225K and prior being +243K? And in what manner do these economists count up world traders: by capita, by countries or by the funds, lost by those, who continued staying long in a holy belief in celebrated literary scholars postulate of FOREX rates being tied up to countries’ economy statistics.
I wonder if I’ll ever chance to witness legal procedures to be instituted against any of those well-known scholars, so that no one would dare claim that fundamental data trigger rate spikes.
The same pertains to economists, writing about the way, hundreds of thousands traders right through the globe have conspired to conclude that it is time to reverse the trends with unquestionably no grounds. Is it really feasible?
Such conception-matter is, but hammering a single inquiry into one’s head: is it lie or is it stupidity of those cooking daily intelligence for taking traders for a ride, fooling them up and maintenance them from the truth, which might be of fantastic avail to them in daily trading. Traders are not a intense factor, thus rates passage is in no way needy on their will. Virtually in no way.
Wanna check? Negotiate with tens of traders of the trading floor and arrange for a real-time entry long on some exotic FOREX pair. In so doing, try to push up either the NZDHKD, or the NZDCAD, or the HKDCAD. No need? I reckon so. You’ll certainly suffer obstruction with the above, to say nothing of the EUR, GBP, CHF.
A additional model:
Fig.2. GBPUSD passage as of May 13, 2005.
See Note below
This is an M15 chart of the American session, where the USD pair has grown by over 100 pips from 1.8583 to 1.8481 against the news, negative for the US economy:
Most indices have dropped down: DJI at NYSE – by 49.36 pips (-0.48%) to close at 10140.12; S&P500 – by 5.31 pips (-0.46%) to 1154.05. NASDAQ has grown by 12.92 pips (+0.66%) to1976.80. 30yr US Bonds yielded 4.484 (0.047 drop from previous close)
There is a fall in Michigan sentiment index. In May UMich was 85.3 with med est 90.0 and prior 87.7. So it was worse than the assess, success the low since March, 2003. The index decline was being observed for the fifth month.
The April US export price index was +0.6% with prior of +0.7%.
Below are other similar examples of that same day.
Fig. 3. EURUSD chart as of May 13, 2005.
See Note below
Hundreds of examples may be offered, where the Forex news vector is opposite to that of the currency passage. Virtually, actual news may happen to be superior or inferior to the assess. FOREX quotes up/down passage is also of 50/50 probability irrespective of the above.
Why does it happen and what is the way for a trader to pinpoint entries and exits? This is going to be discussed in ensuing chapters of this book.
Note:
Full text of this article and pictures of examples http://www.masterforex-v.su/
If you wish to be qualified on Trading System Masterforex-V – one of new and most effective techniques of trade on Forex in the world visit http://www.masterforex-v.su/
Professional Trader from 2000 year.
President of Masterforex-V Trading Academy.
Author of Books:
1. Trade secrets by a professional trader or what B. Williams, A. Elder and J. Schwager not told about Forex to traders.
2. Technical analyses in Trading System MasterForex-V.
3. Entry and Exit Points at Forex Market
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