It’s Just a Matter of Time

forex strategy time between trades

Market data is generally divided into two types: technical data and fundamental data. We are often asked, even challenged, about the importance of fundamental data as compared to technical data.

Each type of market data type has a sizable following – with each side often insisting that their data type is superior to the other for the purpose of trading.

In particular, people want to know which of the two data types can be used to most accurately predict the direction of the market.

The answer, in our opinion, is:  Both – it’s just a matter of time.

Let us explain exactly what we mean.

We need to start with a few definitions of what we mean by fundamental data and technical data as well as markets and how they are affected by each other.

Technical Data

Technical data is easy to understand: it is based on volume, price and time. Or more simply: how much is sold, in what quantity, at what price – over what time period. Amazingly the substantial and diverse number of technical indicators that are available are all based on this relatively small selection of data. 

Many technical indicators are based on some form of moving average calculation – generally referred to as trend indicators. Other technical indicators show relative degrees of overbought/oversold conditions. In addition, and there are many indicators for market velocity, directional momentum and potential pivots. There are a great many technical indicators. Probably too many, and it is our opinion, that many of them are simply another iteration of the same thing. Their usefulness, as with beauty, is often in the eye of the beholder. It seems that each trader using technical analysis to trade has his own favorite set of indicators.

A few technical indicators are designed for special purposes, such as options or indices, and have market specific utility. However, most technical indicators are applicable to most market security – and most lend themselves to customization – so traders can configure their own special edition of many indicators.

Our personal choice of technical indicators, and their usage, includes:

Bollinger Bands – trend and trading range.

Stochastic Oscillator – overbought/oversold indicator (our own iteration, of course).

RSI and Momentum Oscillators  - (not only our iteration, but we use them uniquely as well).

SRVs – our unique version of support and resistance values (horizontal lines which form the foundation of our trading system).

Obviously, technical analysis can potentially be complicated to explain and apply.

Technical analysis is essentially mathematical - and some people do not process mathematical data as well as others. That is why we developed our method of visual analysis – with practice, you don’t have to do the math – just visualize the setup.

Technical trading seldom causes a market to move violently – although it can amplify a movement – sometimes to an extreme. Such can be the case when a fundamental event initiates a dramatic move and technical stop losses start getting hit causing the market to be driven even further, hitting even more stops. Such actions are a trader’s nightmare as even stops often don’t prevent a greater than anticipated loss.

As a brief side note, we use only stop market orders – our fill may be at a greater loss than anticipated, but we will at least get out of the market. A stop limit order may not get you out of a rapidly moving market - with truly catastrophic results.

We believe a few well chosen technical indicators are essential – too many easily leads to confusion and hesitancy – both of which are very undesirable in short term trading.

Fundamental Data

Fundamental data is easy to explain – it is everything else that can affect a market except technical data.

However, fundamental data is not very easy to assimilate – the volume available can be overwhelming and the sources can be hard to find.

Fundamental data can be even harder to understand and apply – because so much of it is subject to individual interpretation. It can cause a market to move violently and to an extreme point – at least temporarily.

But, in our opinion, what really makes fundamental data analysis difficult is that it is subject to multiple subjective interpretations. We can think of at least four right off:

1. The preparer – subjectivity can be injected into news or data accidentally or intentionally.

2. The transmitter – news sources are notorious for “helping” us to understand by adding their own spin.

3. The individual trader – we are all a bit different in background and education and our analysis and reactions to events can vary accordingly.

4. The market - the cumulative interpretation by the total of market participants – or the mass psychology of the market – ultimately, and sometimes irrationally, moves the market in the direction it chooses.

So which type of data actually causes the moves in a market?  It is our belief that it is both – or either!

It’s just a matter of time.

We use the work market to describe all markets collectively – as well as to describe trading in a single security (our a pair, as in FOREX).

What really moves a market is the interpretation of technical and fundamental data by all of the on fundamental data analysis.

forex strategy time between trades aud usd

Technical analysis can be very helpful to the fundamentals trader, if they would learn to use it, for picking the best time to enter the trade – as well as the best place to enter a stop loss exit. Technical analysis can also alert the trader early on to an impending change of direction before fundamental detects the change.

Short Term/Technical Trading

The short term, trader, proficient in technical analysis, and following a good system/methodology, has the opportunity to construct and complete (often many) profitable trades in the period of time between the occurrences of fundamental events. We know this to be true because we ourselves do so routinely, using our Trading Between the Lines (TBL) system/methodology. Our method, although adaptable to longer term trading techniques, is particularly good for short term (often called intra-day) trading.

We watch and trade the music of the market - but run like hell the moment we see the noise!

Short term traders must be aware of those fundamental events that cannot be predicted and use stop losses – or pay rapt attention to the market combined with a quick trigger finger on the exit button.

When selecting your trading methodology, always remember the importance of time.

A good trading methodology, studiously and diligently applied, can produce good trades and profits for the hard working trader - both long term and short term.

It’s just a matter of time.

So there you have it – we believe in both using both fundamental and technical data in trading. We highly recommend that technical traders, ourselves included, be aware of the fundamentals that affect the markets they trade to the maximum extent possible.

Likewise, we highly recommend that fundamental traders learn the basics of technical analysis – it can help in making a wiser entry and stop loss selection.

However you decide to trade, we wish you great success in your efforts.

Phil Elrod
Author and Trader
Trading Between The Lines