Yet another Forex Trader has become one of our golden traders by acing their forex trader funded account by successfully passing their evaluation period. What makes our newest forex trader, Jonathan Bolton, different? He does differ from many forex traders. While most have a strong preference for technical analysis, he has a strong preference for forex fundamentals (there's a focus on macroeconomics).
(If you are keen to check out the funding challenge that Jonathan passed, click here.)
Forex fundamentals have been talked about before in earlier blog entries. However, to explain in case you are new here, whether you use it alongside technical analysis it can provide you with a unique edge that pure technical analysis cannot.
For instance, using a real life example, assume you were a forex trader with a forex funded account and after the Brexit referendum, you would have spotted classical range signals in GBPUSD within certain timeframes.
Utilising pure technical analysis, using the stochastics, you would have had a poor hit rate because you took all the long and short signals. However, incorporating forex fundamentals, your hit rate would dramatically improve because you would realize that the current climate at the time was bad for the UK, therefore bad for GBP, so you would ignore all the long signals and opt for the short signals.
Apart from points of certainty, forex fundamentals can tell you when the market is feeling uncertain. Then you can make a more well informed decision on whether you would like to get involved in a trade or not. For instance, citing the fundamental analyst in CTI, based on their forex fundamentals they decided they were going to be on “wait and see mode” with the USD for Q1 until the USD because US fiscal policy expectations will be better priced into the USD.
Or if you’re unsure about elections, news and other high impact events. You can make similar choices on whether you want to tighten your stops or increase your risk, depending on your conviction.
This is the art aspect of trading i.e. the individual aspect.
However, you will be hard pressed to find a forex trader who uses forex fundamentals alone. I would encourage all traders to incorporate it with technical analysis, regardless of if you have a forex funded account or not, as it will provide you with a more complete view of the forex market.
Of course, I have to let you know that if you want to incorporate fundamental analysis, namely forex fundamentals, there are various means you can use to do so:
Economic calendars: bare basics and this is where every forex trader who explores forex fundamentals usually stops. This usually involves looking at upcoming news for particular currencies and seeing how it affects your currency.
Common economic calendars include Forex Factory and Investing.com among others. The rule of thumb is to have around two, in case one picks up news that the other does not.
There is more. (Yes, there is more beyond your economic calendars.)
Sentiment: you will need a news feed, or a squawk, analysts to speak to and research reports on a daily or weekly report to give you an idea of the market tone and narrative.
Intermarket analysis: you can go further, some of you indirectly do this by going through cross pairs. However, you can also do this by looking at market correlations and considering forecasting their impact on your desired currencies.
Strategies based on forex fundamentals?
Some traders base their entire strategies based on their knowledge of forex fundamentals as our newest funded trader, Jonathan Bolton did, which one could argue helped him excel with his forex funded account.
In this case, he primarily focused on what he dubbed the “high beta currencies”, or the high interest rate currencies, AUD/NZD/CAD. Currencies where countries typically have higher interest rates, typically because they are commodity currencies. (His interview explains more.)
During the bullish market phase we are currently in, these currencies tend to gain strength because commodities trend to be in high demand. Likewise, weaker currencies, the “low beta currencies”, or low interest rate, CHF/JPY (the safe haven currencies) tend to be the currencies people go to when the market is scared.
Those of you jumping ahead can see where this is going.
Some traders may very well look to pair strong currencies against weak, usually a long position in CADJPY, or AUDJPY tend to be strong candidates during bullish markets; typically for a carry trade where a forex trader will benefit from the carry trade benefits; think of the rollover difference.
This is one of those clever tricks of how Forex Fundamentals can help a Forex Funded Account grow, assuming everything else is done right. Historically AUDJPY was used for the carry trade.
Alternatively, the high beta currencies are paired against each other e.g., AUDNZD, or CADNZD because these pairs are pure macro plays as they effectively remove the USD risk.
There are a range of strategies that can be utilized with forex fundamentals which you can draw inspiration from the hierarchy of the markets.
There are lots of techniques you could use to incorporate fundamental analysis into your strategy as a forex trader.
However,without further ado here is the interview from Jonathan Bolton: