Fast Travel
The Analogy
You are driving down the road in your dream car, mine a Jaguar F-type, and you’re reading all the street signs to ensure you are getting to your destination safely. Suddenly you start to see some construction ahead so you slow down to prevent hitting pot holes or have debris ruin the underside of your car. You come to a halt as you come across a sign that reads “speed bumps ahead - Drive slow or take detour”. You then drive slowly over the first speed bump and as you’re maneuvering through the construction zone you see the other speed bump. This time you avoid it completely to drive on smoother roads.
How does that all relate to trading and fundamentals? 🤨
I’ll tell you:
The dream car is our Trading Account. As any profitable trader knows, we are NOTHING without our trading account. So we must do all that we can to preserve our account to continue trading. Live to trade another day.
The street signs are your confirmations before you enter your trade. Always keeping your eye on the road to see what the market does.
The construction zone is market consolidation. We know we can trade our S&Rs but at the end of the day, we are waiting for the HTF set up. so we tread slowly.
The speed bump is high impact news. Sure we can trade it (full margin lol) but if we are unaware of their releases they can wipe you out immediately before we can even react, resulting in slippage.
Driving over it slowly is trading it but a lower lot size to protect our account from large losses.
Taking the detour is being patient and waiting for news to pass so we can trade the aftermath.
As stated in Post 001 Fundamental Analysis focuses on economic data and news events. While I do not rely on fundamentals entirely, my head is always on a swivel for red folder news.
High Impact News
High impact news or commonly referred to 🟥 red folder events 📁 refers to economic or geopolitical events that are expected to cause significant volatility and movement in the financial markets. These events often lead to sudden and large price swings, affecting currencies, stocks, commodities, and other financial instruments. High-impact news can greatly influence traders' decisions and market trends.
1. Economic Indicators:
Non-Farm Payrolls (NFP): Released monthly by the U.S. Department of Labor, it indicates the number of jobs added or lost in the U.S. economy, excluding the agricultural sector. It often causes significant movements in the forex market, particularly with the U.S. dollar.
Gross Domestic Product (GDP) Reports: Measure a country's economic output and growth. Strong GDP figures can boost a country's currency, while weak figures can lead to a sell-off.
Consumer Price Index (CPI): An indicator of inflation, which can influence central bank policy decisions on interest rates.
2. Central Bank Announcements:
Interest Rate Decisions: When central banks like the Federal Reserve, European Central Bank, or Bank of England announce interest rate changes or signal future monetary policy directions, it can have a significant impact on financial markets.
Monetary Policy Statements: Insights into future economic conditions and monetary policy can drive market expectations and movements.
3. Geopolitical Events:
Elections: Elections in major economies can affect market sentiment and lead to volatility, especially if the outcome is uncertain or unexpected.
Trade Negotiations and Agreements: Announcements regarding trade deals or disputes, especially between major economies like the U.S. and China, can influence global markets.
4. Natural Disasters or Global Crises:
Events such as pandemics (COVID), major earthquakes, or geopolitical conflicts can create uncertainty and lead to volatile market conditions.
5. Corporate Earnings Reports:
For stock markets, earnings reports from major corporations can impact individual stock prices and broader market indices.
Understanding the potential impact of such news allows traders to better manage their risk and adapt their strategies accordingly. It's usually best to avoid holding a position when high-impact news is released because the market can be extremely volatile, leading to large price swings. This can cause your stop loss to be triggered at a much worse price than you planned, which means a bigger loss than you're comfortable with. This is called Slippage.
Tools & Resources
These websites are free! I use both but more of myfxbook.
Forex Factory (Click to create your account)
The calendar on this site can filter events by date and see the expected impact of each—color-coded as yellow for low impact, orange for medium, and red for high impact. Understanding the significance of these colors helps in anticipating market movements.
MyFXbook (Click to create your account)
Correlation Tool: This shows how pairs move in relation to each other, ranging from -100% to +100%. A positive correlation indicates pairs move in the same direction, whereas a negative correlation means they move oppositely.
Timeframe Adjustments: You can adjust the correlation tool’s timeframe to suit your trading style, whether you’re a day trader or a long-term investor, making it a flexible tool for all.
Patterns Feature: Another cool feature is the 'Patterns' section under the market tab. This feature scans forex chart patterns in real-time, providing a quick reference to potentially lucrative trading setups.
🥛 Don Leche’s Takeaways 🥛
I am hands down a technical trader, but keeping an eye out for the red folder news events has saved me from crazy volatility that would have gone against my bias. One thing to note is that if news goes against the overall trend, more often than not, the market will correct itself.
Disclaimer:
I am not a licensed financial expert. The content I share is based on my personal experience and should not be considered financial advice. Trading in financial markets involves significant risk, and it is crucial to use proper risk management and conduct your own research before making any trading decisions. I am not responsible or liable for any financial losses you may incur from following the information provided. Always trade responsibly, and remember that past performance does not guarantee future results.