Does Forex News Trading Really Work?

Jarratt Davis

Special Consultant to the FPA
Messages
1,495
Hey everyone,

I've put together a short video explaining how news trading works which I hope will give everyone a clearer picture :)

[video=youtube;u5ms3ZwhhdY]
[/video]

Many people think fundamental analysis doesn’t work, and the main reason for this is because they simply don’t understand it correctly.

Over the last 2 weeks we’ve had a couple of news announcements that have confused people into thinking that news trading is pretty random, and almost impossible to make consistent profits from.

I will look at this event in more detail and explain why things moved the way they did.

The particular event was Australian private capital expenditure, and this figure came out at -4.2% which was much worse than the expected 1.6%. Many retail traders who look at that particular figure would think that the AUD would fall off much worse than expected data. However surprisingly, the AUDUSD rallied almost 100 pips, which continued into the following day where it broke 0.9300.

Many people would see this and instantly think that news trading doesn’t work, and it’s completely random.

Basically, this is not the case, and anyone who thinks that simply doesn’t understand how news trading works. Which is the reason I’m trying to explain it, and give you a better understanding of why things move the way they do.

You’ve got to look behind the headline figure, and in this case with the Australian private capital expenditure, overall companies were investing less which is of course negative, however there was two things you need to bear in mind from this figure.

Firstly, the projections for the coming year were much revised up, which provides a very positive outlook.

Secondly, it was shown that companies and businesses away from the mining sector (which is one of Australia’s biggest industries) were expanding at a faster pace, and the reason that’s important is because the RBA is focused on getting Australia away from relying heavily on mining and exporting commodities, particularly to China.

So in summary, they are trying to move away from depending on mining so heavily, and from that figure, it showed that the transition from mining to non-mining is going very smoothly, which overall is bullish for the AUD.

P.S - If you want to learn more about how I trade, I've put together a FREE video course which you can check out here

http://www.forexpeacearmy.com/forex...e-trading-course-forex-pro-jarratt-davis.html
 
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Brett Reynolds

Sergeant Major
Messages
717
I think you overdid the microphone tinkering a bit Jarratt!? A bit of 'Blast back'...there. Maybe a bit too close to your mouth...but your getting closer mate! :). Now lets see if you can't do the same with your 'Daily Predictions'! I'm short Cable still...;-)
 

shads

Private
Messages
23
HI Jarratt,

Thank you for the explanation, most helpful. Can you please clarify the following for me:

1) If your expecting GBPUSD to rally to say 1.70 and your buying at 1.68 and the price keeps on going lower, do you still keep on buying it or do you stop out and re-enter?
Or you would have a big stop loss of few hundred pips? Average down? Or do you start with small position and keep on adding as it goes down?

I guess for a retail trader this is much harder to do.
Question is, do you stop out of a trade on a fixed price or on fundamentals?

As they say the market can stay irrational longer than you can stay solvent?


2) How do you determine if the price has fallen because of a sentiment or fundamental change? Sometimes one group of traders can perceive the same news differently. For GBP last week Mortgage approvals came out worse than expected and GBP fell few hundred points. Say then, as you have already factored in GBP falling to 1.65. When would you change your view and think, hold on, why is GBP selling off without any other fundamental news changing.

Thank You
 

Jarratt Davis

Special Consultant to the FPA
Messages
1,495
HI Jarratt,

Thank you for the explanation, most helpful. Can you please clarify the following for me:

1) If your expecting GBPUSD to rally to say 1.70 and your buying at 1.68 and the price keeps on going lower, do you still keep on buying it or do you stop out and re-enter?
Or you would have a big stop loss of few hundred pips? Average down? Or do you start with small position and keep on adding as it goes down?

I guess for a retail trader this is much harder to do.
Question is, do you stop out of a trade on a fixed price or on fundamentals?

As they say the market can stay irrational longer than you can stay solvent?


2) How do you determine if the price has fallen because of a sentiment or fundamental change? Sometimes one group of traders can perceive the same news differently. For GBP last week Mortgage approvals came out worse than expected and GBP fell few hundred points. Say then, as you have already factored in GBP falling to 1.65. When would you change your view and think, hold on, why is GBP selling off without any other fundamental news changing.

Thank You
Hey Shads, good questions :)

1) Recently if I were to buy GBPUSD at 1.6800 I would have a stop loss of a few hundred pips, and because fundamentals are still bullish, I would have no problem holding this position, also depending on how high my conviction is and other trades I have on at the time, I could look to maybe add another position at 1.6700 or 1.6600. Only if the fundamentals change and I lose conviction would I close out of my position.

2) Fundamentals are in control over a longer period of time so it doesn't change that often, the main things that change fundamentals are the central banks of each country, or if data points constantly keep coming out negative/positive. Sentiment however, changes everyday, but you have to keep in mind that one or two bad data points won't change the bullish fundamentals of GBP, I view these moves lower as a better price to get in long. The only time I would change my bullish view for GBP is if data starts getting consistently worse, or the central bank state a firm move away from the idea of any rate hikes in 2015. Hope that helps!

Jarratt
 
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shads

Private
Messages
23
Awesome answers, much appreciated. I can now see how one can embrace "sentiment" positively rather than fear it.

Will you be doing a 4th video to show how to put everything together (I think you mentioned this at the end of your 3rd video)? I hope it will include how you trade technically too.

Finally, when you traded for the hedge fund in Hong Kong, was it after you learnt fundamental analysis or was it based on pure technicals? I am just trying to understand when you made this shift as in your book you don't mention anything about fundamentals and its seems like you had great success with using pure technicals by taking all the trades. So as long as you had a good win/loss you would come out on top eventually. Again I thank you for this information as it has helped me so much in my trading.
 
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