Fundamental Analysis Drives Our Trading Plan

Tuesday, Mar 27, 2012

Good Morning,

Bernanke delivered again and sent equities soaring and as a result, the USD got crushed. Today, equities are sideways, meandering between positive and negative in very tight ranges and forex pairs are doing the same. Yesterday we had a move in the GBP/USD of over 1.5 pennies, today, we are in a half penny range.

Currently, we are in the exact middle of the day's trading range. What you need to focus on is the strength of the move in equities yesterday and the strength of the move down in the USD. Today, no one is willing to say "we have gone too far". So equities go sideways on yesterday's highs and the USD goes sideways on its lows. If the "trend is our friend", will equities continue higher and the USD continue lower? If fundamentals continue to improve and world central banks continue to deliver, it seems like these trends have the possibility to continue. This of course could change in an instant given the chance of negative news coming out of any corner of the world. Until it does though, the trend is in tact and as the adage stresses: "it is your friend".

Today's trading range is also a great leasson in what the markets have been providing as far as opportunity. With the VIX heading towards 10, volatility is down and thus, intraday opportunities aren't necessarily down, they are just less frequent. Today is a totally different day than yesterday. Yesterday, Bernanke gave us reason to trend and a reason for larger than normal average daily trading ranges. Today, without any economic news or speakers, the markets are taking a breather. Support and resistance are the themes of the day instead of trend.

Unless the markets are in one of those areas, you have to ask yourself is there enough reward to offset the risk to trade in what many analysts calle "the middle". The bottom line, let the charts help you in creating a trading plan, whether it is a trend day or a rangebound day.

Happy Trading and Be Environmentally Cool

Coach Brian

Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.

Posted By: 

Brian Kahn

Brian provides regular commentary focusing on the relationships between various financial markets. An experienced trader and portfolio manager with over 15 years in the markets, Brian relies on fundamental and technical analysis to create trading plans for each and every market entry.