Fundamentals drive direction
As stated previously the Forex Market’s direction mainly determined by the economic health of the region supporting the currency. The economic health is mostly reflected by economic information being made available from time to time.
Barry realized that the bigger trends are driven by the relative strength of the economic health of the various countries participating in the Forex Market. Fundamentals provide the direction and technical analysis provides the best entry points. So to him trading with the trend is trading in the direction the fundamentals are pointing. This is a more predictive Forex trading method.
Currency fundamental strength schedule
He has developed many tools to determine market sentiment and one his main tools for fundamental analysis is the cumulative economic information schedule. The contents of this schedule is based on facts.
What his team would do is have a look at each major announcement and would analyze the results of each announcement from 2 perspectives:
- Whether the announcement result was better or worse or on expectation.
- The actual result of the announcement on price action. The position before the announcement was compared to the position after the announcement at the end on the trading session the announcement occurred.
Barry’s team would then merely plot the result cumulative economic information schedule.
In general 3 poor results in a row would be taken as an indication that the currency is weak or will weaken. 3 great results in a row would be taken as an indication that the currency is strengthening. Again the trick is to only buy strengthening currencies against weakening currencies.
This process provided the confidence that when trades were taken they are with or in the direction of the fundamental trend and is particularly useful for swing trading and longer term trading. This information is also very useful for initial and top-up lot-sizing. In general, an against the trend trade had half the lots than a with the trend trades.
The Forex Factory website is particularly good for this type of analysis as it is possible to review announcement results far back into history and you can filter individual currencies. http://www.forexfactory.com/calendar.php
Fundamental analysis and predictive Forex trading
Economic announcements analysis can get complicated as a particular announcement must be viewed based on the impact relative to other currencies. The impact of a favorable US Payroll announcement can only be seem in the impact it has on other currencies. One has to look at all the US currency crosses to get a feel of the overall impact and also which currencies were impacted worst or which ones had the least impact.
Therefore the schedule maintained actually records the impact on other currencies and the overall impact of the announcement currency is the reverse of the impact of all other currencies. For example if there has been a favorable Payroll announcement the overall impact on the US dollar will be it the US Dollar appreciated or depreciated compared to all the USD crosses. So if all currencies or most currencies weakened that it is fair to assume the USD actual increased.
Sometimes a currency is relatively strong not because of its own strength but because it is the best of a bad bunch.
Making sense of Fundamental information takes time a dedication. As with everything the more time you spend trying to understand the delicate balances the easier it becomes.
All this effort enables Barry’s team to:
Not only know which are the strongest currencies but also WHY they are the strongest.
Develop a feel of how substantial the factors determining the strength of the currency and how easy it is for a currency to go from a strong to a weak currency.
Currency News Trading
One of the very best fundamental information trading websites is Henry Liu’s http://www.currencynewstrading.com. He has a daily newsletter explaining upcoming announcements for the day and has great free downloads and information on Fundamental Forex trading.
There is a free course on Fundamental trading http://www.currencynewstrading.com/definitive-guide-to-fundamental-trading/
One of the free Downloads is a Currency Strength meter which is geared to trading the strongest currency against the weakest. http://www.currencynewstrading.com/321/currency-strength-meter-explained/