Economic analysis

[neil4x]

discuss how economic and political events would affect the forex market.

Also to show how different market (e.g. interest rate market) may affect the forex market.

As a technical (mechanical) trader I would like to ask one thing:
is their a mechanical way of adding in the effects of interest rate moves and other factors or not.
The way I see it is this. If you are using a mechanical system and ignore some of the signals because you have heard rumours of interest rate moves etc. that that is surely a recipie for disaster in the long run as you begin to make decisions based on how you interpret those looming economic factors.

Are there any long term studies pulling together the threads we have discussed into a statistical, measurable study to which one could refer?

[novice]

robsky

How life on the western side of the Indian ocean?

About the market being rational it was just a throw away comments in regards to not putting too much emphasis in fundamentals. Certainally never hold a losing position believing the market was wrong.

I don't really trade on news per say. This is what I do based on Elder's triple screen:
1 Decide to be either bullish or bearish based on the long term trend and/or fundamentals. And only trade in this direction.
2 Use technical analysis to find trades in the direction of the long term trend and or fundamentals.
3 Use technical analysis and a market event (e.g. market openings, news, data etc) to pin point entry points.

IMHO the most dynamic price moves occur around a market event. I try to use such events to "float" my trade that I have entered based on technicals and to a lesser extent on fundamentals.

[robsky]

Thanks, life is very good but the water is FREEZING (Cape Town that is) at this time of the year.

Agree with you re your trading method. I have a similar approach to trading. Some time ago I tried to follow the market news but went into a tailspin and gave it up. Without a wholesome understanding how all of the cogs work and interact it’s a mission impossible. At some stage I doubted if I could actually trade. Got some friends who at times drop me e-mails with a digested version of “what if…” and this keeps me happy….now E/$ is in a “thinking stage”. Patience (drumming fingers on the desk).

[novice]

neil4x

Fundamentals involve so many different factors and the relative importance given to each factor is hard to determine.

In Fundamental Analysis by Jack Schwager he gives a multiple regression model. The original is for the Deutch Mark. A simple version for the EUR is below.

small case regression coeficient

EUR = a + b1C + b2P + b3E + b4B + b5I

C = current account balance
P = industrial production index?
E = interest rate differential
B = 10- bond interest rate differential
I = inflation

Regression analysis is very quantative. I prefere a much more qualative method but each to their own.

From forexnews

http://forexnews.com/education/default.asp?loc=fvt

"In Forex, several studies concluded that fundamental analysis was more effective in predicting trends for the long-term (longer than one year), while technical analysis was more appropriate for shorter time horizons (0-90 days). Combining both approaches was suggested to be best suited for periods between 3 months and one year." No references to the studies that I could find.

Is this something like what you are looking for?

[novice]

robsky

If the water is freezing in the middle of summer I would hate to swim there in the middle of winter. I know a South African from East London who raves about the surf.

About using a market event, it is not really a major part of my decision making tree. But just the last step to find a entry point. I am not really betting on the result of a market event. I hope this makes sense.

About waiting for the EUR/USD, I don't mind it much as I feel I can get a lot of work done without the worry of missing a move that I want to trade.

I agree that know one can know everything about the market and to try and do so would be counterproductive. I pay the most attention to TA while keeping the fundamental in mind. But I try an look ahead about a week at the likely market events and judge what effect they might have. If I can use them to my advantage well and good.

[neil4x]

Very useful info, as someone who blows hot and cold about whether to include fundamentals in my decision making tree (thanks for that phrase novice)your balanced approach certainly makes sense.
There are a number of topics I will delve into as a result;
Elders Triple Screen
Market Sentiment
Water Temprature in worlds oceans

Thanks
Neil

[novice]

neil4x

"decision making tree"

Well I can't claim credit for that as it is pure Elder.

Water Temprature in worlds oceans

Well there are some traders who use astrology to make decisions so maybe you are onto something here.

The regression model I posted was just a brief summary. If you want I can p[ost the whole thing in detail?

[neil4x]

Thanks Novice
Just printing off 8 Part Investopedia article On The Triple Screen Setup which you mentioned.
Should keep me busy when I get back from day job!