Forex Fundamental vs Technical Analysis: Which One? | ForexBoat Trading Academy
Hello, everyone this is Dan again with Forex, boat Trading Academy today's. YouTube, video tutorial. Is going to cover, fundamental. Versus technical, analysis, which. One, now. This has been a debate, that has raged in the trading community for, years, I alone. In the past 20 years have had this conversation, countless, times with. Colleagues, traders, analysts. And, really. It's understandable, why this topic, comes up as much as it does, because. Every day really in the market as traders we have to grapple, with. The. Dilemma of whether, we're going to prioritize. You. Know news events. Such. As economic. Data that comes out on the calendar. Whether, we're gonna prioritize. Interest. Rates and the movement of interest rates around the world now. Where does that rank compared. To you, know what I'm reading on the charts for example, and this, is the core of the debate because as, traders, we, have no choice really but to, prioritize. The. Information. That we're being fed, in one. Way or the other and make. Decisions, based. On certain pieces of information, and that. Are that we alone, are going, to ultimately rank, higher, than. Other pieces of information because we are the ones pulling the trigger on each of our trades so, we're really going to look closely at these four topics and then, by the end of the webinar we, should be able to have a better look at where we stand with each of these things, so. Starting, with interest rates and capital flows what are we talking about here well, basically, as. We know every, major country around the world has a central bank and based. On the health of the economy at any point, in time that. Central bank can consider, engaging in, monetary, policy and. The. Core. Form. That monetary policy typically. Takes is the, raising or lowering of. The target interest rate in that country, so we've seen for example recently, the, Federal. Reserve Bank in u.s. has, actively, engaged, in, the. Cutting of interest rates actually, up here in early 2020, not, very long after, interest, rates in 2019. So. That's actually a very astounding. Example, of how a central bank engaged in one. You. Know one maneuver, of essentially, raising rates you. Know this is at a time when the stock market the US Dow Jones the S&P 500 was. Reaching all-time highs. Currencies. Commodity. Currencies, particularly, like the Canadian, dollar the Australian, dollar were, really, outperforming. The US dollar and it, was a very risk on market, as you might say boy. How things can really change in just, a couple of months right. The coronavirus, actually had an impact, here obviously, but. It was it, goes to show you how quickly. Interest. Rates can change in, an environment, where a central bank beans that it's necessary, and so, I think, what this tells us on the fundamental, side is that, fundamentals. Are important, but if you were a traitor especially in today's environment that was basing your trade strictly on what interest rates are doing you, really would have to be careful because going.
Through The end of 2019 interest. Rates using the u.s. as an example, we're. On the rise and. That, might lead you to believe that. The. US dollar would be continued, to strengthen and in, reality, that, is not what was happening actually the dollar was falling so in an. Interest rate rising, environment, the argument, for why a currency. Will strengthen. Is because it will attract capital, to that country, if that interest rate is expected. To be higher or. Outperform, another. Major country, let's say another major G cont g10 country, around the world then. You would expect money to flow let's use a let's use an example like Europe where no, interest, rates are set, have been essentially negative so. Or just below zero so you would expect as interest rates rise in the US capital. To. Flow from, Europe to the United States and move, into, certain. US assets so if somebody's. Buying Treasury, bonds for example from, Europe or corporate. Bonds right, what's, happening, first, of all they're exchanging, their euros into dollars, to buy those assets, so they're selling euros and they're buying dollars, this is creating, a demand and, increased, demand for dollars and a reduced, demand, for, euros and that's basically, the interest rate capital, flow story, right, and you. Know this goes back to just economics, 101 and, so, but we have to be careful because how many times have trainers have we discovered the way things are supposed to, work, aren't. The, way they always do work in the financial markets, right the market, can remain, irrational. Longer. Than we could remain solvent right, using, Maynard Keynes quote and so, that's you. Know that's a. Point. Where with fundamentals. It's good for us to understand, the backdrop, I think interest, rates of capital flow is more than anything, teach. Us that it's good to understand, the backdrop, of what, can drive the. Value, of a currency over. The long term. However. In the, very short term which. Most. Traders I find, are more. Short-term in nature with the ability to get in and out of trade so quickly these days I, find. The. Majority of traders are much, more short-term, and so, you have to be careful, if you're a short if you find yourself being a short-term trader how. Much, weight. You. Put into fundamental. Analysis, you know there's also the expression which is worth raising quickly, is buy. The rumor sell the, news and we're going to talk about news events briefly, but, a lot of times traders sometimes are surprised, when, for. Example if the u.s. cuts interest, rates on a particular day and time all of, a sudden the dollar strengthens, in that in that instant, right well.
This Is there's a classic expression, the market that says buy the rumor sell the news because if they, cut interest rates right. If, the US Fed could interest cuts interest rates let's say today at a certain time the, expectation. Is that the US dollar would fall right why. Because, it falls that would fall in line with our interest, rate and capital, flows story that I just outlined but. What do we see happen, so often what. We see happen, so often is the market actually does the opposite, of what. The traditional, fundamental, story is telling us that it should do right, and that's where the expression buy the rumor sell the, news came. Into play you know that's a tutorial for another day but it goes to show you that with. Fundamentals. Ok. Particularly. This interest rate and capital, flow story you, really need to be a little bit careful and watchful, of your. Of what, you're looking at first of all and come, with wait you're giving it based on the. Time, period, you're looking to hold your trade shorter-term. Traders, which. So many are these days really need to be careful by about, putting too much weight into fundamentals. And. Now that takes us to our next point which discusses. The technical side a little bit precision, of indicators, and price action right this. Has become you. Know now in 2020, just over the past 10. Years I would say and I've been in the markets now for twice as long as that 20 years, in the, past ten years there has been an explosion of. Indicators. And capabilities. That we, now have on charts, and, that's. A great thing right you know there's you know, some would say the more indicators, the. More capabilities, on the chart the better and. I actually for the most part would agree with that as long. As you. Can. Decipher. What, indicators. And what forms of analysis, are appropriate. To perform, at at. Which times as well, as not. Zooming. In too closely, so when, we talked about the fundamental, side with interest rates and capital. Flows we talked about where you could run into some pitfalls with that and with, indicators, and price action analysis, on the technical side I think it, would be wise to do the same you know where can we run into pitfalls, with, using indicators and, price action analysis, my, view is is that when you zoom in too closely, right because these, charts are so powerful right they allow us to do so much if, I want to look at a 15-minute. Chart a five-minute, chart a one-minute, chart a tick chart I can, zoom in as close as I possibly, can to try to gain an edge but.
In Reality if, I start zooming. In too closely on charts, I I. Find, in fact, you're not giving yourself an edge you're. Doing the opposite, you're actually. To find something, that can ultimately. Trigger. You to get into a trade at. What. Might be an unfavorable. Price or, unfavorable. Timing, right a big, expression with trading is that it's, the combination of finding. A good price at a good time right, we simplify, it down to I'm. Trying to find a good price at a good time both, on my entry and on, my exit and so, technical, analysis, is a powerful tool if used. Appropriately, and so, as you, know in more tutorials, you'll likely see we're. Often using for. Our charts, daily charts, weekly charts, sometimes, one-hour charts. But. Very rarely are we are we drilling or zooming in much more closely, than a one-hour chart, perhaps, a 15, or 30 minute chart can, add value for trying. To time the entry as you, know as precisely, as you can but, it's definitely not obligatory, it's not required. To. Pull. The trigger on a trade and so, you, know we're, gonna touch upon in the last part of our technical analysis discussion in a little bit why. You, know why is it important, that I'd. Be, looking, at a certain type of chart at a certain, time now, why is that fundamental. Or should I say, very. Critical, to technical. Analysis, we're going to talk about that but, without it now you know you, are with the charts we have today you know it's like harnessing, a powerful, horse that's, trying to take you somewhere the, indicators. And price action analysis, is an extremely, powerful tool you, know there are some great technicians. Going, back to the 1980s. You. Know who will tell you back then when they had to. You. Know the perform technical analysis, they didn't have you, know online charts, they, had to do it you know basically by hand if. And it's really interesting if you you know in another tutorial we can cover this but there's some true some, very famous traders, were managing. Millions. Of dollars and, performing. Technical. Analysis, essentially, by hand, and. So it shows you even then. How. It, was even identified, at that time that. Technical. Analysis, had in, or in value, and. So now as we get infer, the and further you. Know into the 21st, century and we're. Guaranteed, to see these charge just become more and more sophisticated, you. Know we have to take the good with the bad and we have to make sure that we don't. Paralyze. Ourselves with, so much analysis. That, really the most critical pieces of analysis, are not shining, through, we have to make sure that we're seeing the the critical price. Action that we need so. That's, a little bit on the technical side. But then back to fundamentals, just for a minute because.
I Think what, many traders are discovering, particularly. In this environment. That we're in right now here, in 2020. Is that, the market can do funny things right. And a, lot of times our expectations. Which. Is always so dangerous, to have as a trader as expectations. The, market can sometimes betray, our, expectations. Which. On the fundamental, side calls, into question well, why did we have such expectations. In the first place right, because. As traders, we always. Need, to account. For risk, right. You know a lot of traders in the markets rightfully. So have aspirations. Of you, know moving from being a personal trader, perhaps. Trading a smaller. Account to trading more professionally, trading larger amounts of their own capital later on and. Then who knows you, know where that road can take you to being coming a money manager, at some point perhaps, you. Know and beyond. I mean really there the sky is the limit with trading I think that's why it, excites so many people and so on the fundamental, side, what. You need to look at is you know I've been talking to some. Very close colleagues in the industry and a lot of traders in the past few weeks here. As we get closer to June. 2020. And watching. What the US, stock market has, done right. Unfortunately. There's been a severe. Downturn, in. The US economy on. The, jobs. Front in particular, related, to the coronavirus. But. To some surprisingly. The US stock market has. Been a made you know quite resilient. It's. Really done, well and. Has, continued to have consecutive up days for, a while now and. You. Know everybody's waiting for this big downturn, but the question is is, why. Does that downturn, necessarily. Have to happen it kind of comes back to the expectation. Part. Of trading as a fundamental trader and this is the risk now another risk of fundamentals. Is that thinking. That something because one thing happened. Reaction, in the market has to be a foregone, conclusion right. And a, contrarian, trader, for those of you who are new to the term contrarian, a contrarian. Trader, is someone. Who. Always. Looks. At what might be obvious with, a skeptical. Eye right, and always. Accounts. For the possibility. That what, the majority of traders, think might happen, the. Market will actually do the exact opposite, according, to a contrarian, a contrarian. Is always looking at not what the herd or the majority of traders will do they'll, always look, at, what the minority, will do and in, fact you, know certain contrarian traders, will try to look at certain, types of data like the. Ratios, of long, to short traders. To. Get this type of information and bear, in mind that's fundamental, analysis, actually so you, know we. Always use the forex factory charts, here I'm gonna pull them up clear. - the forex factory, economic. Calendar which I'm going to pull up here quickly you know and I use this every week you, know I'd come to this in the beginning of the week on Sunday, before the market before the market opens because it's, important, to have a grasp of, what's. Coming out because news, events are market, moving especially you know more and more significant, news events are marketing so whether.
I'm. Almost. Exclusively, a technical, trader and it means that I'm going to stay out of the market when. A certain news event comes out or whether it means I'm. Going to try to take a contrarian, approach. To. A tickler, news event so that goes back to the topic of buy the rumor sell the news, whatever. It means you, know it's important to have an idea, week in and week out of what's coming out on the economic, calendar so that you, can prepare you know many traders tend. To gravitate. To, the same instruments. Over and over not, every trader you know I've seen traders who will trade basically anything but, there are traders, who, stick. To a certain, set call it three to five, instruments. That they primarily, trade, and so, in those scenarios coming. To the economic calendar every week is good because it helps, you identify. What. You meet need to watch out for on, fundamental, side you know technical, traders I know people that lose almost entirely technicals, and they, still come to the economic, calendar because they. Want to know what news event might impact, a technical. Trade they've been holding let's say for a period of days or a period of weeks and it, might help them determine okay perhaps I should exit, this trade before. A certain news event comes out so the, economic, calendar can be really valuable tool for every, type of trader regardless, of whether you're primarily technical or not. And. So getting back to. Our presentation. Here, trading. News like a contrarian, trader so if you are you know this to me is one. Of the the. Stronger. Arguments. For, incorporating. Fundamental, analysis. Into. Your trading because you, know you're doing it in a way that. At. Least in today's market environment, has proven, to be very. Fruitful. Right, it's proven to be very fruitful. You know another argument and for looking. At currencies, quickly is you know what the US dollar has done right I can't. Tell you basically since I've since, I've joined this industry almost, twenty years ago. I've. Heard the same argument for 20 years as to why the US dollar is going to crash you, know the u.s. is carrying, so much debt right and it just continues, to grow and grow, eventually. This will be the undoing of the. US dollar the US dollar is going to unravel completely, because the u.s. just can't continue to carry this much debt and it's, going to show itself in the value of the dollar. If. I could tell you how many times I've heard that over the past 20 years I've heard I heard it 15 years ago I heard of 10 years ago I heard a five years ago you still hear it today, but, guess what the dollar has, continued, to remain resilient, for, the most part it appears, that it continues to remain the most chosen, safe. Haven assets and so, a contrarian, trader, who continues. To follow the. Dollar in times of flights, to safety. Has. Done pretty well and so, just. Keep that thought in mind of trading, as a contrarian. That. Might be different from one trader to another depending, upon what instruments, they like to trade but, I think it might be helpful to you to keep that approach, in mind when, looking, at fundamentals. I, think. That starts though, Berndt reading and strength in numbers well, what do we mean by that so a common. Expression. That you'll hear when it comes to technical analysis, is that technical. Analysis, is a study, of. Self-fulfilling. Prophecies, right what. Does that mean basically, what it means and this goes back to when I said earlier about time, frames on charts, right. So, if I'm a technical, trader and it's the beginning of the week and I'm pulling up you, know euro US, and I'm looking at the weekly chart you know, us. What, it means to say that this, is a study of self-fulfilling, prophecies, comes down to basically what.
Is My level of confidence that. The. Chart that I'm looking at here at the beginning of the week the weekly chart of euro US dollar, what. Is my level of confidence that other traders, are also looking at this same chart because. Ultimately. The. Idea is is that I'm putting. Some sort, of faith in the, fact that trading, decisions, that, I'm making based. On this chart that I'm looking at other. Traders, of significance. Whether, they're traders. At banks traders and hedge funds. Individual. High net-worth traders, and then the whole gamut, whole slew, of retail, traders around the world I'm, putting some faith that those. Hold those, that wide range of traders are also, looking. At the same chart that I'm looking at the. The. Premise, behind technical. Analysis working basically. Hinges. Upon, that. Being true, to some, extent and. When I say to some extent it means if I. Start looking at every chart that I possibly can if I start zooming in on you know let's use the same example euro US dollar it's, the beginning of the week, tomorrow's. Monday and I'm getting ready to see what might approach my beef for the next five days if. I zoom into a five-minute, chart on, euro, US dollar on, sunday. Am. I going to have the same level of confidence, that I'm looking at a chart that, other traders, around. The world of all types are looking at am, I going to have the same level of confidence that they're looking at a five-minute chart versus and weekly of course not right, because a five-minute chart is so zoomed in there, aren't traders making, those. Same decisions and ultimately, it's you know the term order flow, order. Flow, is going to dictate, what. The market does right. The the ratio of buyers to sellers at any moment in time and so, I want, to be making, sure that I'm on a technical, way in a technical way on charts. Looking. At information, that I have, the highest level of confidence, that I possibly can. That I'm looking at charts that other traders, are also looking, at and that's what it means to be a study, of self-fulfilling. Prophecies, that's a good thing right because now I'm going to apply my indicators, on this particular chart I'm gonna perform my price action analysis whether, I'm looking for you, know just to use some terms a double doji, you, know a reversal. You know whether I'm looking for a certain panache you two retracement, level to be hit on the you know or what have you I need. To make sure that I'm looking at a time frame that is significant. Right, because ultimately when. The market does what it's going to do how. Often is it that, weeks. Later, or a month later we. Go back and. Look at that weekly chart or, that daily chart and say. Wow had I seen, that had, I seen that particular. Japanese. Candlestick, formation, or had. I seen that key. Fibonacci, level, you, know showing strong support, you. Know I would have taken such in such action, right and so, technical. Analysis, is powerful. You. Know back testing, you know back you know the term back testing and performing back doesn't has become so you know so popular, because technically. You know in hindsight, we.
Can See how powerful technical. Analysis, is and, so, we need to respect, how. To use it right we need to respect what it can do for us and not. Become, starry-eyed, or, I'll have. To strong, expectations. You, know expect, do things that are not realistic, we can't we can't do that and that's where I think sometimes myself. Included. Over the past you know you know years where, traders can sometimes run into trouble, with technical analysis, where they think it. Can achieve certain, things that it's, really not intended, to achieve and that part, of that is because of the power of the charts that we have today here in 2020, now that nineteen eighties trader the 1985. Trader, you. Know something, it's kind of like be careful what you wish for because they. Didn't have the same strength of charts they had to use a much more simplistic, way. Of charting, and, a much more simplistic way, of performing the technical analysis but, hey that, might have actually turned out to be the best thing for them because they had to focus on the big picture for the most part and so. We're, wrapping. Up here in comparing. Technicals. And fundamentals, which we've highlighted. You. Know the strength of both, and where. We can run into perhaps some pitfalls with and so. If. We had to perform some type of final. Analysis. Here okay, and had to really think about. What. Type of, analysis. Is better, if we want to use that term okay. I, wouldn't. Phrase it as it's, not one over, the other okay. I think today's tutorial. Hopefully, highlighted. The. Capabilities. Of both forms of analysis. How. I would phrase it is I would aim to be a master, technical, analyst and never, lose sight of the fundamentals. Okay. The better that you become. At chart reading the better that you become at analyzing. Charts, which takes time you know it does take time it takes experience. The. More confident, you'll be on placing, trades off of, charts and perhaps, the. Majority of the, trades that you wind up taking are based, on the charts. However. Fundamentals. Will always be in the picture even, if it's just the big picture week. To week we're, gonna have economic, data events, we have that forex factory calendar, up there for a reason. There's. It never stops right there's always new, news events coming out of greater or lesser significance, there's, always central bank interest. Rates changes, happening, and, so we, have to keep our eye on the fundamentals, we can't discard them and sometimes, if. We take a contrarian, approach we. Can even make really, big money right, so, no. Warren, Buffett or in George Soros like to comment that they, look for asymmetric market, opportunities. Right brexit, was a good example of an asymmetric. Fundamental. Market. Opportunity, where if, you acted as a contrarian, during. Brexit. Right. And basically. Looked for the possibility, that the, vote would go towards, bread's it that. Was a contrarian, approach that, offered, a lot, of reward. Compared. To the risk and so, just, to finish with one, one. Last look at that fundamental, side and why it's important so, with that we're, going to wrap it up for today it's tutorial, you. Please remember to follow the Forex vote YouTube channel you'll, find more, great content on there covering, a whole wide range of topics a lot of different tutorials and of, course we, will be back with you soon with an upcoming tutorial, so. For everybody here at 4 it's both wish you a great rest, of the week and we, look forward to chatting with you soon have. A great rest of the day take care.