Can You Trade Forex Without Knowledge Of Other Asset Classes?
Find out what will be moving the market this week. See our Currency Analysis Section here: https://financialsource.co/analysis/
Why Professional Traders Use A Forex News Feed To Trade - https://youtu.be/orgG56L5H7M
Always stay on the right side of the market and know what to trade every day. Sign up for a free trial:
https://financialsource.co
----
We have a question here from a new subscriber who says that they have always been trading FX in isolation without giving any attention to other asset classes, and they’ve been surprised to see us give so much attention to other asset classes and things like volatility indexes etc and wants to know whether they have to learn all these things or if it’s possible for them to just focus on FX without giving any attention to the rest.
I think this is a very interesting question, and it’s really going to be a yes and no answer. Let’s start with the yes answer. Yes, it’s possible to trade FX in isolation without worrying about other classes or things like volatility indexes. Any asset has certain drivers that you need to focus on, for FX, just like any asset class the biggest focus is on monetary policy, that’s always going to be a base to work from. Apart from that things like economic data, fiscal policy and geopolitics can often provide some excellent trades in the FX space without really needing to spend any amount of effort on watching other asset classes.
I think a really good recent example of the types of pairs and trades that you can focus on with that aim is something like the EURGBP, where the drivers of this pair had nothing to do with other assets classes or things like volatility indexes etc, it was just plain fundamental analysis looking for a currency that is expected to be weak and a currency that is expected to be strong and pairing those against each other.
The reasons for us trading the EURGBP to the downside was mostly driven by monetary policy, but there was also relative growth dynamics and some other qualitative aspects in play as well. So, with a trade like this, there wasn’t really any need for additional analysis around other asset classes, apart from keeping an eye on something like the BTP/Bund spread which usually has an inverse correlation to the EUR.
So, there are FX currencies and trades that you can take that doesn’t have to solve for other asset classes or things like volatility etc.
However, without any focus on other asset classes it will be very challenging for you to get a firm grip on currencies that are sensitive to risk sentiment, such as the high betas and the safe havens, so if you plan not to focus on any of that then your scope of possible currency pairs to trade will be very limited in my opinion.
Now, to the second part of the answer, which is the “No” part, I think the question shouldn’t be can I trade without having knowledge of other asset classes, but the question should rather be ‘why would you want to trade without that knowledge’ after learning how important and beneficial it can be.
If I think of the global macro market there are so many additional opportunities that opens up when you broaden your horizon to include other assets classes into your analysis, even if you don’t end up trading any of those assets.
For example, once you learn how important something like risk sentiment is for high beta and safe haven currencies, why won’t you have a quick look across those markets to get a sense for where the risk tone is trading in order to find some additional trading opportunities.
I think the amount of knowledge that you require to be able to understand how various asset classes related to each other and how they are correlated to each other isn’t so overwhelming to grasp if you are willing to put in some additional time to study.
And once you do, it just opens up your understanding of how markets work so much more and will give you a new depth of understanding for the FX market in general.
When it comes to things like volatility for example, it’s such a valuable sentiment tool to add to your analysis and it’s not something that will take you years to grasp, or knowing how inflation expectations affects various asset classes, knowing how things like yields can in turn affect things like currencies and even Gold, or learning how yield curve relate to specific equity sectors and how that might affect certain equities which might affect FX, or knowing how bond yield differentials can help you track currency pair movements, these types of things for me is such a valuable addition to your trading toolbox and it’s not things that will take you decades to learn, with the help of our video library and the help of the Q&A and analyst chat and the webinars etc we are here to help if you need some additional guidance on these things.
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
Why Professional Traders Use A Forex News Feed To Trade - https://youtu.be/orgG56L5H7M
Always stay on the right side of the market and know what to trade every day. Sign up for a free trial:
https://financialsource.co
----
We have a question here from a new subscriber who says that they have always been trading FX in isolation without giving any attention to other asset classes, and they’ve been surprised to see us give so much attention to other asset classes and things like volatility indexes etc and wants to know whether they have to learn all these things or if it’s possible for them to just focus on FX without giving any attention to the rest.
I think this is a very interesting question, and it’s really going to be a yes and no answer. Let’s start with the yes answer. Yes, it’s possible to trade FX in isolation without worrying about other classes or things like volatility indexes. Any asset has certain drivers that you need to focus on, for FX, just like any asset class the biggest focus is on monetary policy, that’s always going to be a base to work from. Apart from that things like economic data, fiscal policy and geopolitics can often provide some excellent trades in the FX space without really needing to spend any amount of effort on watching other asset classes.
I think a really good recent example of the types of pairs and trades that you can focus on with that aim is something like the EURGBP, where the drivers of this pair had nothing to do with other assets classes or things like volatility indexes etc, it was just plain fundamental analysis looking for a currency that is expected to be weak and a currency that is expected to be strong and pairing those against each other.
The reasons for us trading the EURGBP to the downside was mostly driven by monetary policy, but there was also relative growth dynamics and some other qualitative aspects in play as well. So, with a trade like this, there wasn’t really any need for additional analysis around other asset classes, apart from keeping an eye on something like the BTP/Bund spread which usually has an inverse correlation to the EUR.
So, there are FX currencies and trades that you can take that doesn’t have to solve for other asset classes or things like volatility etc.
However, without any focus on other asset classes it will be very challenging for you to get a firm grip on currencies that are sensitive to risk sentiment, such as the high betas and the safe havens, so if you plan not to focus on any of that then your scope of possible currency pairs to trade will be very limited in my opinion.
Now, to the second part of the answer, which is the “No” part, I think the question shouldn’t be can I trade without having knowledge of other asset classes, but the question should rather be ‘why would you want to trade without that knowledge’ after learning how important and beneficial it can be.
If I think of the global macro market there are so many additional opportunities that opens up when you broaden your horizon to include other assets classes into your analysis, even if you don’t end up trading any of those assets.
For example, once you learn how important something like risk sentiment is for high beta and safe haven currencies, why won’t you have a quick look across those markets to get a sense for where the risk tone is trading in order to find some additional trading opportunities.
I think the amount of knowledge that you require to be able to understand how various asset classes related to each other and how they are correlated to each other isn’t so overwhelming to grasp if you are willing to put in some additional time to study.
And once you do, it just opens up your understanding of how markets work so much more and will give you a new depth of understanding for the FX market in general.
When it comes to things like volatility for example, it’s such a valuable sentiment tool to add to your analysis and it’s not something that will take you years to grasp, or knowing how inflation expectations affects various asset classes, knowing how things like yields can in turn affect things like currencies and even Gold, or learning how yield curve relate to specific equity sectors and how that might affect certain equities which might affect FX, or knowing how bond yield differentials can help you track currency pair movements, these types of things for me is such a valuable addition to your trading toolbox and it’s not things that will take you decades to learn, with the help of our video library and the help of the Q&A and analyst chat and the webinars etc we are here to help if you need some additional guidance on these things.
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
