The essence of the delusion – the behavior of the currency quotations on the Forex market within the short-term (m5-m30) and mid-term (h1-h8) trading is not imposed with the improving or worsening of economic conditions (state) of a country and the volumes of the currency demand-and-supply.
Masterforex-V about the role of fundamental analysis at short-term and mid-term trends
·The news is just a motive to drive (run) the price rates up and down.
·If the released news are better than the forecast, the probability for currency to advance equals to its fall.
·Price movement after the news is the working-off of technical-and-wave-analysis waves and sub-waves coded into the settings of the Major Computer of the Forex Founder.
·Understanding this MF algorithm, one can “follow the trend” not paying attention to the news results that are better/worse than the forecast, knowing the time of newscasts and the algorithm of the patterns of trend continuation/reversal for each variant.
The importance of this thesis. If trader's job is to speculate in the difference of currency rates (increasing or decreasing of the currency pair rate), then the following should be realized for the faultless gaining of profit:
1. The formation procedure (process) of currency pair`s rates on Forex.
2. Factors that make the currency pair growing or fall.
Thus, once realizing the factors of price formation at the off-stock (bookmaker) of the Forex market, a trader must clearly know:
·Either to buy or to sell this currency, keeping in mind the factors that move the currency pair up or down.
·How strong the following price movement can be and how to make precise calculations at the “uncontrollable” and “unpredictable” Forex market.
There exist 2 opposite standpoints on the factors that make national currency pairs move up and down.
·The classic supply-and-demand theory
·Masterforex-V's theory about technical analysis having an advantage over fundamental analysis within the scope of mid-term (h1-8) and short-term trends (m5-15) at the controlled Forex market.
Forex Classics about the factors provoking the rise/fall of currencies in the world.
Forex classics name the following factors affecting price formation and its alteration:
a) The price is the balance of the demand and supply for a certain commodity (currency).
b) The balance violation (for example, when news is released, a forecast of which did not coincide with the published official data) makes the currency exchange rates moving to the one or the other side, searching a new balance of the demand and supply for that currency pair. Low demand dictates lowering of price rate for that currency, and the high one – its growth and rise respectively until the demand for currency buy-sell is balanced at a different level, at a different point.
Let us read:
B. Williams (Trading chaos: maximize profits with proven technical techniques, Chapter 1: The market is what you think it is)
Every market in the world is designed according to ration or it distributes a limited amount of something (whether it be stocks, agricultural products, currencies, dinosaur clubs, or whatever) to those who want it most of all. The market does this by finding and defining the exact price where, at that moment, there is an absolute balance between the power of those who want to buy and those who want to set.
The stock, commodity, bond, currency, and option markets all find that place of balance very quickly whether they are using open outcry or computer balancing. The markets find this place before you and I can detect any imbalance and before even the traders on the floor become aware of any imbalance. If the preceding scenario is true—and it is—then we can come to some very simple and very important conclusions about information that is distributed through the market and accepted without question.
Sperandeo's quote:
“A market is composed of individual human beings, each pursuing values defined within that person's unique context. In considering the stock market, or any market, as a whole, change will occur only when the predominance of market participants believe that the change is occurring or is forthcoming” (Îðèãèíàë)
Thomas R. Demark was more brief in his book "The New Science of Technical Analysis":
"Supply and demand dictate the price movement. Specifically, should demand exceed supply, price advances; conversely, should supply exceed demand, price declines. These are basic economic tenets accepted by all economists". (Îðèãèíàë)
Stanislav Grebenshchicov's quote from “Forex and us”.
“Axiom 1: The market is unpredictable and uncontrollable”.
Forex classics' brief conclusions:
·The Forex market is always random and unpredictable and doesn't have any fundamental difference from any other market (stock exchange, goods market, etc.)
·Forex is moved by volumes according to economic laws (the growth in demand will result in the advance of the price of a specific commodity/currency)
·It follows from the side that the role of Forex fundamental analysis is significant as it reflects the tendencies of economic progress as well as traders and investors' sentiments on Forex.
The role of fundamental analysis… or how economic theory helps traders losing their money on the market.
In classic literature, you can find approximately the following explanation on Forex which constantly travels from one book into another and from one web-site onto a different one: for a successful activity at Forex learn fundamental data on the country economy, specifically, watch the following factors, which reflect status of economics of that specific country:
* Figures of the dynamics of the country's economic status (gross of the national product, payment and corporate valuation, balance of current accounts, volumes of industrial production, etc. It is clear that the higher those data are the more dynamically the economy grows, yet the cost of its currency also grows);
* Stock indexes – average indicator of status and dynamics of the securities market in that country (for example, growth of the Dow Jones index in USA for 0.3% per day, means that the shares of 30 leading companies in the USA, index of which represent Dow Jones, went up in price for 0.3% on that day. Similarly, in Germany the main stock index is DAX 30 index, representing the share prices of 30 leading German companies);
* Level of interest rate in a country (the higher it is, the more investors will invest their funds into economics of the country, and, accordingly, into reinforcement of its national currency;
* Inflation rate (the higher it is, the sooner the National Bank of the country will rise the interest rate, because of this, the index of consumer costs is one of the key figures);
* Growth of money stock on the internal market (causes inflation, and it, in its turn – growth of money stock);
* Volume of the gold and foreign exchange reserves of a country;
* Comparison characteristics of dynamics of changing the payment and trade balances, government balance, gross domestic product (GDP) etc.
* Dynamics of production and trade (index of industrial production, volume of commercial orders, orders for goods of long-term use; index of utilization of production capacity, index of retail sales etc.).
* Statistics of construction sector of the state economy (construction costs, number of houses under construction, number of issued construction permits, sales of new houses etc.).
* Statistic figures of the labor market (level of unemployment, number of new working positions etc.).
* Sociologic researches (index of business optimism of population, index of business optimism of procurement managers and managers of the service providing companies, index consumers' confidence etc.).
* These and other economic data should be obligatory supported with the political stability and peace in the country (it is clear that any political, natural and other disasters will make investors nervous and take their funds back from that country, and this will result in weakening of its national currency). As far as a currency, is a derivate of economy of a country, any changes of economic data will definitely result in change of exchange rate.
To read in detail about the role of fundamental analysis in classic trading, please, see the 1st grade of the school for beginners under Masterforex-V Academy called “The fundamental analysis of the Forex market” FOREX
The conclusions of the classic fundamental analysis:
1. Once economics develops – the exchange rate of the currency is also growing.
2. Once the economic figures in a country go down – the exchange rate of its national currency also goes down.
The role of the news better/worse the forecast
Thus, important economic and political news is the permanent factor causing imbalance and resulting in motion of the currency rates, the calendar of which is published upfront, and is known to any trader. The newscasts make investors and traders reconsider their opinion on the economy of the state thus changing the value of the national currency.
Waiting for important economic or political news, the currency pairs move toward the anticipated forecast ("trading based on rumors"), and after publication of the data, the subsequent currency pairs movement impulse takes place: if the published news turned to be better as compared with the forecast – the currency rate goes up, when the data is worse as compared with the forecast – the currency rate will accordingly come down, influenced by new factors, obtained by the market.
Are those truisms of the basic Forex training course familiar to you?
Do you agree that being guided by that basic knowledge, familiar to every Forex newcomer, is it possible to raise money at that market? Then why do 90% traders all over the world loose instead of earning money, knowing these “copy-book maxims” of economics?
What is wrong with those truisms, leading to losses of Forex traders?
Masterforex-V about the factors that trigger the rise/fall of currencies in the world
·No theory can work at the market if is considered to be working by 97% of traders as these 97% will definitely lose
·If the 97% think that the classic thesis about demand-and-supply balance as a factor that impacts on the change of currency rates is true…this theory must be unprofitable and false for a trader (or its interpretation in the form of market quotes must make a path, which will make the 97% lose).
·Consequently Thomas R. Demark's thesis “All economists share these basic principles” acquires (under MF's algorithm of predators and preys) the opposite meaning – preys always trust “the basic principles” of the state and its economy, especially when “all”(!) the world's leading economists including Demark stick to them.
·A partial solution to the “demand-and-supply” and the “cheating-the-crowd” problems was given by A. Elder in the form of a “colorful” saying. He said that quotations at Forex and fundamental analysis are "tied with a mile's rope”. Finally the fundamental wins. But before the "final" anything may happen.
·The second tip was given by Bill Williams. He defined the algorithm of defining the differences in thinking between a skilled (professional) trader (the 3 level under his classification of a trader's professional skills in the book “Trading chaos: maximize profits with proven technical techniques”) and a beginner.
Williams' quote from “Trading chaos: maximize profits with proven technical techniques”:
Once you reach Level Three, you are a self-sufficient professional trader. You are acquainted with the always underlying and usually unseen structure of the markets. You no longer need or desire outside opinions. You do not need to read the Wall Street Journal, listen to market-centered TV, subscribe to newsletters, or waste money on hotlines.
MF's Comments. Hence, it is logical to derive an opposite idea from William's words – in order to become a successful professional trader, you should limit the impact of different analytic reviews and recommendations, even if they come from the pages of the world-famous Wall Street Journal as well as from the “primitive” guru like analysts, who know beforehand where the currency "should" go.
To understand the value of such “analysts” and “skilled traders” answer the following questions:
Why their bosses get down to massive sacking of such personnel during the financial crisis? What new professions are they (the “skilled” market workers) trained for (for bartenders)? (Those who just yesterday told to the whole world how to read correctly the market quotes)
When next time, you spot the “'economically correct” market overview of some Forex analysts… recollect bartenders.
An example of how fundamental analysis is used to cheat “the crowd of preys”
Let's take a close look at MF's algorithm based on Elder's “colorful” saying that quotations at Forex and fundamental analysis are "tied with a mile's rope” and that “anything may happen” while you go along that rope.
Pic. 1. GPB/USD, April 01, 2005.
On April 01, 2005 GPB/USD was upon issuance of the positive information for pound and negative one for the USA economy
·Business activity`s index (CIPS manufacturing index) in UK for March constituted 52.0 (the previous value was revised from 51.8 to 51.6).
·Financial Times Stock Exchange 100 Index (FTSE 100) raised by 19.60 points (+0.40%) up to the level of 4914.00
·Oil price in New York has increased for USD 2.40 and reached the level of USD 57.70 per barrel, which became a new record for the last 21 years.
·Number of new jobs (Non-farm payrolls) for March in USA constituted its minimum from July last year. Its previous figure was revised to the decreasing side.
·The Michigan sentiment index went down in March in USA and constituted 92.6 (the forecast was 92.9, and the previous figure – 92.9).
·All the USA indexes went down. The Dow Jones index at the New York stock exchange went to 99.46 points down (-0.95%) and closed at the level of 10404.30. NASDAQ index went down for 14.42 points (-0.72%) and stays at 1984.81. S&P 500 Index went down for 7.67 points (-0.65%) and stays at 1172.92.
·Profitability of the 30-year USA state bonds constitutes 4.729 (went down as compared with the previous closure for 0.037).
Now a question to the certified economists arises: what will happen to the currency pair GPB/USD, when all the above-mentioned information will be released during one day, specifically within several hours? Correctly, dollar should not simply go down, it should collapse. Heavily and rapidly.
What has happened as a result of the above-mentioned news? It can be seen on m5 (at the top) and m30 charts.
·At first the US dollar made a heavy fall (the GPB/USD rate advanced) “catching” (whiplashing) the buy-stops at the top.
·Then the sell-stops at the bottom (below the base of d1 candlestick) were “caught” (whiplashed).
What has happened next is also interesting
The synthesis of SHORT-term, MID-term, LONG-term trends of the GBP/USD pair
Pic. H4 ,D1 and W1 of GBP/USD (April 1, 2005)
·The British Pound continued falling for 4 days, breaking minimum by minimum (the price was breaking the minimum and pulling back into flat again)
·The flat breakthrough during MID-TERM (H4) trend went… UPWARDS.
·For 3 weeks the GPB/USD price (“working off” the terrible news on the US economy) increased by 240 pips.
Form the viewpoint of the GPB/USD LONG-TERM trend (w1), all the upward movement… turned out to be a bullish pullback, after which for the next 6 months the US Dollar continued rising (GPB/USD continued falling) even though, the news on the US economy were getting worse.
Do you see the algorithm?
It exists… yet it is opposite to the one that the crowd sees.
Now, try to estimate on-line “the cheating of the crowd of preys” and define the BUY/SELL of the entry points.
What would be the confirmation criteria for you?
·The pictures contain over ten new prompts based on MF's synthesis of binary patterns (SBP)
·Why was it possible to open “short” positions in this situation? (SHORT positions, under MF's terminology, are not SELL positions. These are “pipsing” deals, i.e. deals which are obligatory to be closed at the peak as stop-losses +1 are caught during the pullback).
If the algorithm is not clear to you, stop trading on Forex.
A separate chapter is dedicated to the detailed overview of the intraday trading tactics at Forex.
How do analysts explain such price movements (of course, it is done post factum, after the trend is over)?
Let's read the quotes and try to understand their logic.
“In spite of the fact that the news appeared to be worse than the forecast and the preceding data, investors (?) considered (??) the fall of US Dollar to be worked off (?) through the preceding movement and the market took it into account (??)”
·How could it work off on April 1, 2005 if during the entire European session, it was simply standing, floating within a very narrow corridor?
·Why didn't any analyst warn the traders that the currency had already worked off before the news came out?
· If the market “worked off” the news BEFORE they came out then why did the movement start from the falling of the dollar?
The quote : Traders (??) expected the news on the USA economy to be even worse than they came out.
· It would be interesting to know how much worse, when to the opinion of a Dow Jones` analysts, the moving average of new jobs in USA were 180 thousands, and it turned out to be +110 thousands with the forecast +225 thousands and previous value +243 thousands).
·How do those economists count traders (?): by heads, countries or by lost amounts of all those who left their buy deals, honestly believing all the academic publications of the world-famous authors that the currency was bound to the statistic data of the country economies.
The main thing is that:
·You shouldn't pay any attention to what these analysts from numerous DCs and broker companies write in their market overviews
·Recollect the bartenders… any reasonable person will understand everything at once
·At the Academy, it exists a special forum branch where we collect the nonsense of the leading Forex analysts
Masterforex-V's algorithm of trading (on) news releases
1. “The market” always works off the news
·If the news came out worser than expected, a bearish movement is obligatory
·If the news came out better than expected, a bullish movement is obligatory
2. Under MF's algorithm, “cheating the crowd” lies in what the wave that work off the news is going to be:
·An impulse (see the material of the 11th grade of the school for beginners)
·The last sub-wave of an impulse on the senior timeframe
·A correction…with the continuation of the current trend after the released news is worked off.
3. The most difficult thing in this situation is the timeframe synthesis (of SHORT-TERM, MID-TERM and LONG-TERM trends)
·SHORT-TERM (m1-m30), MID-TERM (h1-h8) and LONG-TERM (d1,w1,MN) trends belong to MF's optimization of Elder's triple screen system.
·Consequently, the work-off news can be an impulse/correction of the numerous variants on the 8 timeframes.
The picture of the pullback and the reversal are seen on the senior timeframe (wave B and C upwards). It is the continuation of the picture above.
Pic. The 5th Wave and the reversal on the senior TF
Pic. The 3rd waves downwards (the 1st in the 3rd, the 2nd in the 3rd and the 3rd in the 3rd)
4. How the work-off of the news can be defined as an impulse/pullback on a specific TF?
·Instead of Elder's triple screen MF TS has 8 screens that allow to correctly define on-line the wave level of the current wave (m1, m5, m30, h1… h4, d1…) and “assemble them like Lego”, following the market instead of trying to foresee its movement.
5. There are no accidental movements on the controlled market (“market noise”). Each movement is determined (even on the tick chart and m1)
6. The news is just a pretext to run (drive) the currency pairs up and down within the framework of SHORT-TERM and MID-TERM trends. Any strong/weak/opposite movement on news is not based on the published economic data. It occurs because of the “accidental” match/ mismatch of the current technical analysis with the vector of the released news.
7. while understand the MF algorithm (None of the classics has one), you can clearly see:
·The extreme points of a strong movement
·The variants of a strong/weak/opposite movement on news (no matter what data the news contains).
·At the closed part of the Masterforex-V World Academy`s forum, these methods have been practiced daily since 2005. The methods allow traders to do without the news websites when the news is released (if “the price takes everything into account” then it doesn't matter what the published data is).
The pictures explaining the Masterforex-V's newsalgorithm.
The work-off on news is as an impulse
The work-off on news is as the last sub-wave of an impulse on the SENIOR TF
The work-off on news is as a pullback…with the continuation of the current trend after the work-off of the released news.
The examples of the application of MF's algorithm to news releases.
1. The “market” reaction to the news equals to a strong impulse in the form of “The Hound of the Baskervilles” by Elder/MF
An example
·On 29.06.2006 the long-term (d1) trend reversed after the news on US interest rates had come out
·I remind the supporters of fundamental analysis that on 29.06.2006 US interest rates have been increased.
·The US Dollar rate decreased instead of making a swift increase (basing on the “fundamental laws ” of fundamental analysis and economic science )
2. The “market” reaction to the news equals to the last sub-wave of an impulse with the following reversal
·The reversal of a SHORT-TERM trend and a pullback from a MID-TERM trend (like on 1.04.2005 when the work-off of the correction wave B was followed by a bullish trend which lasted for 3 weeks. The trend was working off the horrible news on the US economy).
·A MID-TERM reversal ( the base of an h4 wave was broken through)
The example that we considered above (1.04.2005).
·News of the work-off = the last sub-wave on m5/15 (C) of wave A on h4
·The break-through of the base = the end of wave A on h4 (for the Academy members, the criteria of closing buy positions are considerably higher as far as MF's new tools are concerned)
·Then going down (“the moment of the truth” on h4) = wave B on h4 (which consists of the correctional model a-b-c m30/h1)
·No break-through on h4 + an upward reversal = a pullback wave B (correction wave B) on d1.
3. The “market” reaction to the news equal to a trend pullback… with a trend continuation after working off the released news.
·The examples are given in Chapter 19 of MF's book 2. MF TS rules of trading (on) the news
·Including the example when the Bank of England raised the interest rates by 0.25% on 10.05.2007. GPB/USD worked off the pullback (50 pips) and then continued falling down following the current mid-term bearish trend against all the dogmas and the “fundamentals of economic science” (Demark)
Tasks for discovering MF's algorithm of trading the news on one's own.
The role of the news on the controlled Forex market.
·News is just a pretext to work off the impulse of one of the 8 timeframes
·Each Forex movement is determined, consequently it can be calculated and assembled online with the help of Materforex-V's new technical and wave analysis
·Is it accidental or not that Forex gives us a sea of price rates each movement of which is logical and a smaller TF is the work-off (including news releases) of waves, sub-waves and Fibonacci sequences, Murrey levels, the orders of the exchange and off-exchange Forex markets on bigger timeframes . Is this an accidental daily match of supply-and-demand balance of the market participants or is it the algorithm of the global interbank and interexchange computer software that control the Forex market? It will be discussed in the following chapter.
How can a trader always follow the work-off on the released news?
1. Try to solve on your own the unsolved riddle of the classics of wave analysis
·How can the wave level of the current wave (m1…m5…m15…h1…h4…) be defined online
·How can one define the end of the current wave and the beginning of the next wave in the opposite direction (and consequently, its wave level)
·Then, we come up to the classic impulse/correction patterns that are coded into the computer software of the Forex Founder (see the 11th grade of the school for beginners under Masterforex-V World Academy)
2. Assemble the waves, knowing the following:
·The criteria of the difference between an impulse and a correction
·The wave level of an impulse/correction (the riddle, unsolved by classics but solved with the help of MF TS)
·The sub-wave work-off on any smaller TF before and after the news.
3. Basing on the above mentioned algorithm, it defines the extreme points of the trend reversal/continuation on a specific TF.
·What will serve as a proof of the trend reversal/continuation when working off the news?
·Why are you going to calculate the support and resistance levels of each of the 3 possible variants of movement
·Where is the point of the obligatory placing of a stop-loss? (If the stop-loss level is broken through, it means that an alternative variant of movement on the senior TF has just started)
4. Define the role of the following elements of MF's synthesis of binary patterns (SPB) as prompts not related to wave analysis:
·Allied currency pairs
·National currency indexes
·Exchange market orders
·Oanda preys' orders
·Exchange tools (oil, gold, indexes)
·Classic tools of technical analysis, i.e. Moving Averages, fractals, the AO, Fibonacci, Murrey and Demark levels.
·New tools of technical analysis i.e. intersession flats (ISFs), fractal-zigzag reversals (FSRs), MF pivots, MF SCs (MF sloping channels) , “the Hound” by Elder/MF, “the Trap” by L.Williams/MF, MF's wave levels, The 8-screen system of the TF synthesis etc.
5. MF's methods of searching for valuable information in analytic overviews
6. When you come up to MF's algorithm, you will see Forex axioms at a completely different angle of view
·"The market is always right” (Wasn't it right on 1.04.2005 in the above-mentioned example? If the answer is YES then you should re-read the chapter)
Only those are not right who trade for real money understanding neither the market itself nor its plans. Nor they understand that they follow the beaten path of “preys” to the killing of their deposits.
The chapter can be discussed at the Academy`s forum
Introduction to the 2nd edition of Masterforex-V's Book I. >>>
Read more
Part II - Masterforex-V's Trading System and new technical analysis. >>>
Book 2. Technical analysis in the Masterforex-V Trading System >>>
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