By Shavasb Bohdjalian
We all know well that a large component of the $4 trillion in daily forex trading volume is generated by forex fund managers, forex traders and forex speculators, each attempting to outsmart the other and rack up huge profits.
By far, the bulk of the daily forex volume is generated by professional forex fund managers who trade in billions of dollars and are responsible for moving the market in a particular direction.
There are many thoughts as to how such fund managers, sometimes referred to as hedge funds, base their decisions. Some follow fundamental news and others use only technical indicators.
Fundamental traders usually follow major economic news, trends in industry and global trade and other data as well as the budgetary and fiscal conditions of a particular country, group of nations and sectors in order to reach an investment decision.
A trader using technical analysis tools usually ignores fundamental news and instead bases investment decisions on technical indicators, how fast a market is rising or declining, is it trending, heading sideways, ranging, retracing and so on.
By far the most trusted technical analysis tool on which most trading models are based for forex trading is the moving average. The moving average could be for any given time analysed on a 1 minute, 5 minutes, 1 hour, 4 hours, daily, weekly and monthly basis as well as taking into consideration 5 days, 10, 20, 50, 100, 200 or the Fibonacci sequence of numbers 1, 3, 5, 8, 13, 21, 34, 55, 89, 144 and 233 and so on.
At our firm, which is one of the few forex firms to offer managed forex accounts, our portfolio management department uses a combination of fundamental and technical analysis to manage client portfolios.
For example, when trading in EURUSD, every trader is obliged to have eyes and ears glued to the newswires to see who is saying what. The recent “clash” between the ECB and the German Finance Ministry on whether or not private investors should shoulder the pain of a Greek restructuring forced the euro sharply lower. So even if one says he is only a technical analysis trader, he cannot ignore the official comments.
A technical trader may counter that even if you don’t follow the newswires, the mere fact that the euro fell sharply at a particular moment starting on Thursday after the ECB press conference and later on when the ECB and the German Finance Ministry were clashing would prompt one to short the euro, irrespective of who said what and in what sense. This may well be true, but sometimes, if a trader can analyse a statement correctly, then he can jump start a move before the other traders, which is why at our firm, we insist to follow and base our trading models on a combination of fundamental and technical analysis.
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(Shavasb Bohdjalian is a certified Investment Advisor and CEO of Eurivex Ltd., a Cyprus Investment Firm, authorized and regulated by CySEC, license #114/10. The views expressed above are personal and do not bind the company and are subject to change without notice. The comments mentioned above are not to be considered as an offer to subscribe, invest or benefit from an investment scheme, nor are to be considered as advice for trading in markets. Trading on margin and leverage is risky and may result in losses. Past performance is no guarantee for future performance.)
