The Mental block of Technical Trading Vs Fundamental Trading

I am quite certain majority of the technical trader often faces unexpected moves within the market or unwanted movements which doesn’t seems right from theory or technical perspectives. This is a mental block and an obstacle that all technical trader faces, especially those with lesser experience and have yet been hurt or murdered by the fundamental aspects of trading.

Technical trading does not really indicate that price will move in technical perspectives, it just calculate a measurable risk and cost, while target is not really measurable but only estimated as a potential to price in a probability in a profitable trade or a possible trade set up in the given environment. And because of this mis-interpretation of many novice traders whom are trained technically and theory aspects often succumb to market’s irrational moves that caught them unexpectedly. This can also be due to a particular system or method being taught or claimed to be by a particular mentor or guru who may not actually give a disclaimer advice that the market might not work 100% and very prone to fundamental’s influence.

This can be seen on $GBPUSD over this week that despite technical and data favoring a upside biased but very shortly to be only impact by incoming fundamental that does not have a schedule. Any politician’s comment can actually weigh hard on currency as the market does not move because a trader places a sell or buy order at a particular point. Its really due to dealing and transactions every now and then.

For instance, the minute the headline is flashed out, the traders can quickly exit their positions with an OCO as well with stops order at a particular point which is often favor by saying “ i will turned bullish as soon as my buy stop get activated, and start to sell like crazy after my trailing stops get hits “ Any sudden surge of transactions done at a particular point of exiting done by bigger player or bigger ratio can see spike or plunge of price action upon that, and due to that, dealers across the world might not really have a quote upon that big movement within that span of 1-5 minutes as everything is moved quite rapidly. Thus, it’s almost like a minute ago, we can deal at this rate, but sudden exit of positions result in a plunge as a buyer exited as a seller by adding a seller to market and reducing 1 buyer at that point. This is further fueled by on-going market deals sending across to each other, when tier 1 big boys starts to receive sell orders and start to executing selling deals, most would just want to follow like a no-brainer.

As if they can agreed with their client to quote $GBPUSD sell GBP to buy USD at 1.6045, and quoted a 10 pips difference with their clients on conversions at 1.6035, they can hold onto the deal as market maker to release the price at a more favorable points. For instance,

Client A wants to sell his current GBP to USD, client A sold $1 million GBP to receive $1,603,500 USD despite a live rate at 1.6045. The bank can earn a margin difference of 10 pips of about $1000 for that deal, as the actual transaction is 1,000,000 units for 1.6045, so its like selling 10 lots and exiting at 10 pips. However, the bank can actually hold onto the client’s transaction by giving the client the deal 1st, and own self taking the 1.6045 value and bring it down to 1.59.

Thus, 1 million GBP was exited at $1,590,000 USD. So instead of earning just 10 pips for $1000 for that deal, the tier 1 dealing team can actually hold until 1.59 and exit at that value. and make the difference of 1,604,500 – 1,590,000 and make a profit of $14500, more than 10 folds instead of just making that $1000 deal by converting for his client. Thus, dealing can be quite rewarding as well as they are dealing with real margin compared to leveraged margin on Fx trading done mainly by brokers.

From the given scenario above, that’s how Mr.Market would want to move, they rely on volatile fundamental news to drive a particular trend, and traders are actually secondary to the market unless their position sizing has a huge impact on the market, this have to be more than 1000 lots of course which can be done on leveraged but hardly seen on live margin as 1000 lots is 1,000,000,000 or 1 billion dollar/units. As how often does a company change 1 billion dollar every now and then? More of accumulated amounts, else most are just fractions of that 1 billion units that might move the market by a few points and may give some confluence to technical views.

Fundamental trading is actually just speculation and going in in a particular heavy trend or volatile market speculating a further 30-100 pips move in that direction in a very short period. It’s definitely not the traditional style of placing your entries before the news and speculating that it moves in your favor later on .As that’s just gambling and hoping. Where as real fundamental trading is responding to live market sentiment of current volatility and volume traded in the market, and following the flow of trend trading relying on a particular headline or news impact, and that’s news trading and fundamental trading. And definitely not the mis-conceptions of placing your early trade and praying and predicting it moves in your favor later on! As such trading is just gambling and eventually if without proper risk management will succumb to market’s play out once biased-views are found.

Technical traders have to understand that the financial market are filled with participants there to make money and not really about having a bullish or bearish view, as every sessions can be a new thing, a new day a new thing, a new comment a new thing. Technical is just reporting what’s happening the market in the past and now, but not and never about the future! So, this mental block will continue to be a hindrance until the technical trader realize what’s is trading all about. Its about a mixture of technical, fundamental and sentiment. And it does not matter long or short, its about getting into the right side of the market following the whale and exiting with them!

Leave a Reply