Is Fundamental Analysis Better Than Technical Analysis?

is fundamental analysis better than technical analysisI am not going to name names here, but i was watching a video from a well respected Forex training provider today, and it prompted me to write this article.

His training course is heavily weighted towards the premise that you will have more success if you use fundamental analysis rather than technical analysis.

The provider stated that professional traders, hedge funds, investment banks etc, are 80% fundamental and 20% technical. All of their trading decisions are based on macroeconomics and they are just using a 20% technical approach to help with market entries.

Now this is all perfectly reasonable, and i teach fundamental as well as technical analysis in my training course, but is fundamental analysis better than technical analysis? I don’t think it is.

Fundamental analysis will only give you an opinion of the market direction, and opinion is subjective. Sometimes your opinion is correct, and sometimes its incorrect. Just because you think something is going to happen, does not mean it will happen.

There has been a strong fundamental case for a number of months now, for the BOJ to expand on monetary easing, but they have not done it as yet. So if you have been buying yen pairs based on that, then you are in a bit of bother right now.

Putting fundamental analysis to the ultimate test.

Now is a great time to put fundamental analysis to the ultimate test. Lets take the Brexit vote for example. Now if Fundamental analysis was the best thing since sliced bread, and you were a hedge fund trader, or an investment bank, you would have been on the right side of the Brexit move.

Now do a search on Google to find out how many of these guys were on the right side of that move. There are 1000’s of hedge funds and investment banks, but it seems only 1 guy made any serious money on the move. And that was Crispin Odey. Crispin is a well respected hedge fund guy and he made 220 million on Brexit. See Brexit buccaneer rakes in £220million.

I would just like to point out that Crispin manages an 8 billion fund. So although he made 220 million, he only made a 2.75% return on that particular trade. Yes i agree its not too shabby, but people need the facts i think.

If the title of the article was “Brexit buccaneer rakes in 2.75%” it would not have the same ring to it now would it. 🙂

Here are a few sentences from that article.

A hedge fund tycoon made more than £220 million for himself and his investors yesterday after betting on Brexit.

As many in the City nursed heavy losses, staunch Leave supporter Crispin Odey declared: ‘I think I may be the winner.’

He is one of a handful of hedge fund bosses to have hit the jackpot after taking big ‘short’ positions on company stocks and sterling, betting on their value falling in the aftermath of a vote to Leave.

Now please pay attention to the words “a handful”. So out of the 1000’s of investment bankers and hedge funds a handful got it right.

If you actually looked at all the trades that were taken in the hours of the Brexit vote, you would probably find that traders that rely solely on technical analysis, did far better from that move than the fundamental guys did.

Mr Odey also revealed his trading position had left him in line for huge losses if financial markets had risen, and he had lost his gamble.

So he picked a side, and gambled his investors money, and was correct. Do you think we would have been told about his huge losses if the gamble had gone against him? Well you are not hearing about the other hedge fund guys who gambled the wrong way are you.

Can i just make a point here that i do not like the word gamble, as trading is not about gambling. You take calculated risks based on high probability, and the higher the probability, the more success you will have.

So why do hedge funds and investment banks rely heavily on fundamental analysis and not on technical analysis?

The main reason is, they are managing huge sums of money, and they cannot enter and exit the market as a retail trader would. They have to build up a position, and an opinion over time, they add or subtract from that position as the fundamentals change.

To enter and exit the market with one trade would not only spook the market, it would also leave them in a vulnerable position should the market move against them. They have to hedge in and out of the market, building up an average price for their holdings, hence the term hedge fund. This strategy leaves them less exposed to currency fluctuations than they would be if they were all in, all out.

Retail traders can trade this way too if they know how to do it, but it does not mean that this way is better. It does not mean that fundamental analysis is any better than technical analysis, its just a safer way to trade large sums of money.

How i trade the Forex market?

I personally trade 70% technical and 30% fundamental. And when i say technical i am talking about reading a chart rather than reading a news story. People get technical analysis confused with indicators. They think that technical analysis is putting moving averages on your chart and waiting until they cross.

I trade by reading a chart correctly, and understanding what makes the market move. If you look at my article on the Brexit trade, you will see that the trade was purely based on chart reading. No fundamentals were involved at all in that trade.

Almost everyone that trades fundamentals got that trade wrong, but if you had been trading primarily from a technical standpoint, you would have had a much better chance of success.

So to all the trading providers out there that are telling people the reason they are losing money in the market is because they are trading technical analysis i say this.

The reason they are losing money is because they do not know how to trade.

It has nothing to do with fundamental or technical analysis. You do not need to know anything at all about fundamental analysis to make money in the Forex market, and that’s 100% true and i can prove it.

Fundamental analysis is not the answer to consistent profitability.

So if you are a technical trader that is losing money, and you are considering paying some of these training providers to teach you how to trade fundamentals like hedge funds and investment banks, just think about the Brexit trade. I am not saying what they teach is not going to help you, but its not the answer to consistent profitability that they make it out to be.

Courses that offer to teach you the fundamentals of trading are the in thing at the moment, and a lot of training providers are jumping on the bandwagon to offer this because of the failings of traditional technical based training providers.

Some retail traders think that by taking a course on fundamental analysis they will find the holy grail, but this is not the case. Fundamental analysis is just one approach to trading, and it does not guarantee you trading success. I make a lot more money in a lot less time with my chart reading skills, than i could ever make by following fundamentals.

I know what these guys teach, but they do not know what i teach. So just think about that, when you are considering whether to pay these guys, or to pay me to teach you how to trade.

You get the best of both worlds with my training course. 🙂

How To Identify Supply And Demand Areas

Knowing how to identify supply and demand areas on a chart will help you to make more informed trading decisions.

What are supply and demand areas?

Supply and demand areas are all over a chart on every time frame, supply and demand makes the market work, as it creates an imbalance in the market, and that imbalance is what makes the price go up and down.

For example: Prices move up and down on perceived value. Say Euro Dollar is trading at 13500. Some people may think that is expensive, some people may think that is cheap. The people that think its cheap are buying, and the people that think its expensive are selling.

Now, if you have an equal number of buyers and sellers on both sides, then price will stay at 13500. The currency has reached its fair value according to buyers and sellers. Price will stay at fair value until an new imbalance of buyers and sellers is found. As new buyers and sellers are continually coming into the market, fair value can last a few seconds, or price can literally trade around the fair value area for ever in theory. Until a new imbalance comes into the market, the price will not move from the 13500 area.

Its not just about the buyers and the sellers.

Now consider this, its not just about the buyers and the sellers in the market, its also about the price.

Price is the most important thing in Forex trading, and you should never forget that.

To create an imbalance you must have more buyers at a higher price than the current price, or more sellers at a lower price than the current price. You may have more buyers than sellers in the market, but the price could still go down. Or you may have more sellers than buyers in the market but the price could still go up. How does that work then? I will try to explain.

Say you have 1000 sellers around the 13500 area, but you have 100 buyers that are buying from 13480 up to 13520. Sellers out number buyers 10 to 1, but if the cumulative value of their sell orders, are not larger than the cumulative value of the 100 buyers orders, then price will still go up. The total value of the buy orders, are worth more than the total value of the sell orders, so the demand for Euro Dollar is outstripping supply, so the price continues to go up.

When the last of the buy orders are filled at 13520, and just another 50 sellers come back into the market at 13520, and the cumulative number of sell orders is outstripping the now very small amount of cumulative buy orders, you then have more supply than demand and the price will do down. So to recap, more cumulative supply and the price goes down, more cumulative demand and the price goes up.

How to identify supply and demand areas.

Now this is the tricky bit. How do you know when supply is outstripping demand or vise versa? And more importantly, how do you know when fair value has been reached? and how do you know when supply will change to demand, or demand will change to supply?

This is the holy grail as far as Forex trading is concerned. If you can identify when price will switch from supply to demand, or demand to supply, you are effectively identifying key reversal levels in the market. And if you can identify these reversal levels in the market with high probability, then you have a license to print money. A lot of what i teach in my Forex training course is about how to identify key reversal levels in the market.

Identifying these reversal levels is not as easy as it may look though. Well unless you have access to every brokers order book, which you don’t. So in the absence of every brokers order book, you have to study the chart to identify possible supply and demand areas from which to buy and sell. I cannot go in to detail about what i teach in my course, and how i identify reversal levels in the market, but you can use previous areas of supply and demand, as possible new areas of supply and demand, rather like a trader would use previous support and resistance levels, as possible areas to buy and sell.

The chart below shows you how previous supply and demand areas are respected, and how trading long and short from those areas would have produced nice profitable trades.
supply and demand

Rather like support and resistance levels, sometimes old supply and demand areas produce some nice trades, but also like SR levels they don’t always work. The skill is in knowing which ones will work, and which ones will fail, and i can teach you how to identify the supply and demand areas that will work, which will enable you to take high probability profitable trades from those areas.

What Is Advanced Price Action Forex Trading?

What i trade and what i teach is advanced price action Forex trading. There is lots of free information online about price action trading, some good some not so good. I have some free info on here about price action set ups like how to trade pin bars or how to trade outside bars, but its just basic stuff that you can find on many free sites. Don’t get me wrong this information will help you in your trading, but it will not enable you to make money consistently, week in week out from your trading. To be consistent you need to understand advanced price action Forex trading.

So what is advanced price action Forex trading?

advanced price action forex tradingAdvanced learning by its nature is to learn something at a higher level, so you are learning price action trading at a much higher level than the majority of price action traders. Every candle on a chart is a representation of price action over a set period of time. A daily candle is made of six h4 candles, 24 h1 candles, 96 15 min candles, or 288 5 min candles. To really understand what is happening in a daily candle, you have to understand what has happened on the lower time frame candles. This is part of advanced price action Forex trading as i see it. We break every candle down, and understand what is happening on the smallest time frames, to give us an indication on which way price is most likely to move.

If we notice a price action set up on a higher time frame, we can also use the lower time frames to give us a great entry point. Traders that trade the daily and weekly time frames have massive stop losses, we can enter the same trade at a precision entry, and have a much tighter stop than they have. By studying the lower time frames, we will also know if the trade is going to fail before they do. Whats the point of being stopped out for 200 pips. If you know the trade is going to fail, you can take a much smaller hit instead, many times you can get out with breakeven.

Why so many Forex traders lose money.

As you are probably aware the majority of Forex traders lose money in the markets, and the reason for this is that they only have a basic understanding of Forex trading. To be a consistently profitable trader, you have to have a complete understanding of what is happening to price on every time frame, from the 1 min chart, right up to the monthly chart. When you have this understanding, and you know what makes the market move, you can enter and exit the market safely, and make profits consistently.

What the experts say, lol.

Many so called experts will tell you that you cannot make money trading the lower time frames, because price is too volatile. You need to trade the daily and above to be successful. This is complete rubbish, and anyone that says this does not fully understand advanced price action. There are many well respected price action traders, that sell their courses to people on the understanding that this is a fact. The only good thing about trading the higher time frames, is it takes longer for you to lose your money, as the set ups on the higher time frames are less frequent. This is great for the people that sell these courses, as they will have more time to fob you off, and you are less likely to demand your money back if it takes you 12 months to realise their stuff don’t work.

What other websites are saying.

A lot of websites make bold claims that they can teach you advanced price action Forex trading, but they are mostly teaching you how to trade pin bars off support and resistance levels, or doji’s or engulfing candles of the same levels. They are teaching you how to read price action after it has happened. Anyone can teach reversal signals on daily and weekly time frames, but how many people can teach you how to get in right at the top of a pin bar, or an engulfing candle, before the candle has even formed? That’s what I’m talking about when i talk about advanced price action trading. Identifying pin point entries and exits on the chart, whether you are trend trading, or counter trend trading, that’s real advanced price action trading.

Many paid Forex training courses are a complete waste of money.

The majority of paid Forex training courses are a complete waste of time and money to be honest, and there are many experts that claim to be able to teach you how to trade, but they will only teach you basic stuff that you can find online for free at babypips or similar sites. They will not teach you how to really trade, because they do not know how to really trade themselves.

waste of moneyBefore paying these people ask yourself “if this guy can trade why is he selling me a course for a few hundred bucks” and you will get your answer. The reason my course costs almost 4k is because its worth a 100k. I am a professional Forex trader, and what i can teach you will transform your trading and change your life. If you want the same old rubbish that you can get online for free, keep throwing away your few hundred bucks, plus all the time and money you are losing while you are testing this rubbish, before you find out its the same old stuff yet again that does not work.

Don’t get me wrong just because you pay 1000s for a training course, does not mean it will be the real deal. There are also many companies that charge a lot more than i do, and their training courses are just as bad, if not worse that the ones you can get for a few 100 bucks. These big Forex training organizations have huge marketing budgets, and they can make it sound like Forex is they key to making a fortune very quickly. You need to be really careful of these companies. I have heard stories of people that have paid these companies 25k and they still cant make money. How these companies are still allowed to operate their businesses is beyond me.

Forex Trading is not easy at first, and you need the right education.

I will be honest with you, Forex trading is not easy at first, and you are not going to make big money from it right away. Its a hard job that has to be learned fully if you want to be successful consistently. I can give you the right education, but its up to you to put in the time required to make yourself successful. What i teach is not a get rich quick scheme. If you can imagine Forex trading as a journey. I can take you 80% of the way very quickly, by teaching you stuff that could take you 5 or even 10 years to learn on your own, stuff you really need to know in order to be successful, but you need to invest chart time and practice what i teach, to complete the rest of the journey. With my support of course. 🙂

If you are prepared for a little hard work initially, then Forex trading will become a lot easier as you progress.

So if you are reading this and thinking “how do i know that you are not another con artist that is going to take my money and give me the same old rubbish i have paid 300 bucks for”. Well the short answer is you don’t. But you are welcome to contact any of my students for a review of what i offer, and they will tell you i am the real deal, and what i teach is true advanced price action Forex trading.

As Morpheus says. All I’m offering is the truth. Nothing more.