The fundamental side of trading is based around ‘new’ information that has come into the market and could change people’s buy or sell bias. This goes back the ‘efficient market hypothesis’ and theories that go back years like Adam Smith’s ‘invisible hand’ theory.
In current trading terms the new information that will move the markets are key political speakers, economic figures and major world events. If you want to know what is important in the markets it is very easy to do, open an economic calendar look for the red and that is IMPORTANT, we recommend that you use Bloomberg economic calender.
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What is economic data?
Once you have looked at the economic data and seen what is being released you may ask yourself, what does it all mean? Well again this is not as complicated as the traders and city bankers would like you to believe. Here are some simple rules that took decades to figure out:
1. Figures are generally split into being either GROWTH or INFLATIONARY. So look for what cycle the economy is in. 6 years ago we were looking for ‘price stability’ so controlling inflation. This means we focused on the CIP and PPI figures. Now we are focused much more on growth so GDP and sentiment figures are the key one to look at. Click here for a full figure run down.
2. The USA. Figure form the USA will move the majority of the UK and European markets if they are out of line, so focus on the figures like Non Farm Payrolls, and the Philadelphia Fed before looking at UK or European figures.
3. Have a range which you decide on. A figure will have a low and high end estimate, so if the figure is expected at 50, the range is low side 20 and high side 80, only trade is the figure is to the extremes so less than 30 or greater than 70 for example.
4. Use a squawk service. This is live commentary by real city analysts running through what is happening in the markets. This is the best way to get figures quickly. The squawk service we recommend is FCmaketsquawk.com and if you want an exclusive discount enquire at firstname.lastname@example.org
5. IF you don’t get filled on the figure immediately don’t panic. Wait for the 1st 5 minute candle to print (close), then when the next candle opens look for this to retrace the initial candle between 25% and 50% before trading. Either then go with the initial direction of the move and buy or sell, or look for the initial candle to be retraced 100% and the primary move to be reversed.
AS we all know there are a lot of things said on the political front that can move the markets. With the worries of the Euro Zone debt and the global slow down, what key politicians and market commentators say can have the same effect on the markets as when economic data is released. We there for need to remember to listen out on the news wires of the key people speaking and releasing views and statements to the markets. These people will generally already have a stance, being Hawkish (bearish and negative on the economy) or Dovish (Bullish and positive). If you want to know who the key speakers in the UK, US and Euro zone are click here.
Other good sources for fundamental news and analysis: