Forum Archive Index - January 2003

["Kevin Congdon" <kevcong@xtra.co.nz>]

Hugh

 

As someone who works inside of the financial markets, I can tell you that economists views are seriously listened to with regards interest rate forecasting, but to a much lesser extent with regards foreign exchange - your comments perhaps illustrate why.

 

Economic fundamentals count for very little with most currencies, except in the very long-term, although the NZD/AUD example is perhaps one that does have some economic science that can be applied - for most other currencies, this is not the case. With those, competent technical traders will always have more success than an economist.

 

To illustrate their better understanding of the FX markets, the support and resistance arguments are easy to explain as prhughes tried to. When a trader sells a currency at a particular level, and that level is subsequently breached on the upside, he/she will often be keen to close out his position on any retracement back to near his entry level. When traders with similar positions buy the currency to close out those positions, their buying places a floor of support at that level. It works the same on the downside. Its simply logic, and regrettably something I'm often forced to do in my trading activities - its just part of the game 

 

The truth is, even if you don't understand why something works, if it does, why deny it. Certainly some people need to have a complete knowledge of the reasons why something works before they will buy into it - consequently, many stick with the fundamentals that they can understand and have a closed mind to TA.  But frankly, I don't understand the mechanics of how the accelerator on my car works, but I know that if I put my foot down, it goes faster - TA is often the same. Many people make a living from it, betting real money - others play with it with little skill, and therefore little success, and then spend the rest of their lives deriding it - their loss.

 

Regards

Tech Trader