Technical or Fundamental Analysis, our Approach!
Quite often new traders often ask the following question "Do I need to use both Technical and Fundamental Analysis in order to trade successfully?". I'm sure as you read this question you are thinking that the correct answer is "yes" - however this is not always true. The public account we display here uses 100% technical analysis, and that's it. Before you roll your eyes at this assumption I understand that some trading methods do use both types of analysis and can be very successful. However, should you want to use just one type of analysis out of the two then you can create a trading method around this personal choice. At the end of the day I find Technical Analysis more interesting, and that's why I use it in isolation.
I once read on a popular forum from an FX trader (who I can only assume was trying to seem more educated than he actually was) state that "Without Fundamentals you are gambling, trading on the CHANCE that a pattern if traded enough will eventually win". Now two key words in this statement really annoyed me, the first being "chance" and the second being "win". As a successful private retail FX trader who trades full time, I do not see profiting from trades as a "win" - this business is not akin to being at a Casino or in a Sports Bookmakers where you actually win money from "chance".
Secondly, a professional trader who understands Technical Analysis will quantify his trading method so that an edge can be exploited - thus the term "chance" is taken out of the equation.
Chance: "The occurrence of events in the absence of any obvious intention or cause" - (if you exploit a successful edge then you have intention and cause, thus chance does not exist from a statistics point of view)
After this was placed on the Forex forum (one which is supposed to educate new traders), and this is the best part, a representative for one of the biggest US based brokers (who are listed on the NYSE) agreed with what had been said, and added that retail traders need to be aware of both types of analysis. Although I understand where he was coming from, his reply 'was' misleading and not really pointing towards any direction or explanation.
Trading really is a huge field of study, but you don't have to know everything to be successful, and this message is never given to new retail traders. Rather, new retail traders constantly read on free Forex forums contradicting, poorly presented and inaccurate material which doesn't help in the long term. To cut a long story short they end up trying to learn as much as possible, making a false connection in their minds that increasing knowledge somehow also increases the probability of being successful. The phrase "the blind leading the blind" comes to mind far to often when I see these kind of forum posts from supposedly educated members. (I also know lots of forum members who are extremely educated and professional, so i'm not making a sweeping statment about every suspective member).
The RISKonFX account uses the following Technical Analysis:
- One Moving Average
- One Oscillator
The rest of our analysis is dervived from price levels, looking at raw price data to try and determine the levels which have a higher probability of being significant.
And that's it... two degrees of freedom, keeping it simple really is key! By doing so it allows you to have precision accuracy when:
1. In the testing stage, resulting in accurate past performance results so that an edge can be expoited, and profitable variables can be replicated.
2. In the live trading stage, fewer variables to focus on improves accuracy and reduces errors caused by human psychology.
At RiskonFX we also only ever use one Time Frame for all our analysis, and we only ever trade one currency pair. Making it simple has been our top priority in the system development stage from the very start. We finally got to the stage of reducing and simplifying our entire trading system to a fully manual flow chart of "yes" and "no" processes in late 2012, with initial work starting in late 2008.
Conclusion
How does RiskonFX use Fundamental Analysis?
"We don't, all we need to know is a simple calander of events that may move the market during the day in question. The upcoming news has no impact on our trade analysis, it simply serves as a source of knowledge, just like knowing what day of the week it is"
Learning who you are as a trader, and as an individual will naturally lead you to the correct type of analysis which you can best work with. Be it Technical Analysis, Fundamental Analysis or a combination of both. The key point here is that you have a choice, do what you are best at and what you enjoy as a trader (at the end of the day you're going to be doing this day in day out, so it makes sense)