This updated version provides even more lessons from the past, plus fresh insights on current market trends. com, author of Big Trends in Trading. A visual guide to market trading using intermarket analysis and exchange-traded funds With global markets and asset classes growing even more interconnected, intermarket analysis—the analysis of related asset classes or financial markets to determine their strengths and weaknesses—has become an essential part of any trader's due diligence.

In Trading with Intermarket Analysis, John J. Murphy, former technical analyst for CNBC, lays out the technical and intermarket tools needed to understand global markets and illustrates how they help traders profit in volatile climates using exchange-traded funds. Armed with a knowledge of how economic forces impact various markets and financial sectors, investors and traders can profit by exploiting opportunities in markets about to rise and avoiding those poised to fall. Trading with Intermarket Analysis provides advice on trend following, chart patterns, moving averages, oscillators, spotting tops and bottoms, using exchange-traded funds, tracking market sectors, and the new world of intermarket relationships, all presented in a highly visual way.

Gives readers a visually rich introduction to the world of intermarket analysis, the ultimate tool for beating the markets Provides practical advice on trend following, chart patterns, moving averages, oscillators, spotting tops and bottoms, using exchange-traded funds, tracking market sectors, and intermarket relationships Includes appendices on Japanese candlesticks and point-and-figure charting Comprehensive and easy-to-use, Trading with Intermarket Analysis presents the most important concepts related to using exchange-traded funds to beat the markets in a visually accessible format.

Trying to trade stock, bond, commodity and currency markets without intermarket awareness is like trying to drive a car without looking out the side and rear windows--very dangerous. In this guide to intermarket analysis, the author uses years of experience in technical analysis plus extensive charts to clearly demonstrate the interrelationshps that exist among the various market sectors and their importance. You'll learn how to use activity in surrounding markets in the same way that most people employ traditional technical indicators for directional clues.

Shows the analyst how to focus outward, rather than inward, to provide a more rational understanding of technical forces at work in the marketplace. This eye-opening book brings together today's most relied upon tools of market analysis. Michael E. Gayed clearly explains how this powerful combination of major schools of thought of market analysis can help investors dramatically improve their judgment on likely market performance and spot important trends, thereby making successful investment decisions.

Intermarket Analysis and Investing begins with an overview of investment analysis that examines types of risk and portfolio structuring. Then it moves on to the three prominent schools of thought in market analysis with discussions of: - Economic analysis, which is primarily concerned with the state of business, and anticipates phases of economic expansion and contraction by focusing on economic indicators - Fundamental analysis, the most widely followed and practiced form of analysis, it looks at the accounting and financial position of companies in an attempt to evaluate intrinsic worth and true stock value - Technical analysis or the market-timing school, practiced by "believers in the supremacy of trend analysis," and followers of the ticker tape.

It is primarily concerned with the dynamics behind the fluctuation in the price of a stock This book also examines the positive aspects and pitfalls to contrarian investing, top-down and bottom-up market approaches, comparative market analysis, and common-sense trend analysis.

By integrating economic, fundamental, and technical quantitative analysis into a sensible working framework, Intermarket Analysis and Investing exposes the inherent short-comings of relying too heavily or exclusively on any single approach. Each school of stock market analysis is thoroughly examined so that the reader can understand each approach and how it interacts with the others.

Part II stresses the economic by analyzing the most important aspects of the business cycle, the Fed's role in managing the balance of inflation and unemployment, and factors investors should watch to tame market risk and minimize loss during downtrends.

It is here that the importance of economic indicators is emphasized, with an in-depth discussion of the 11 leading indicators that monitor the economy and help the investor anticipate long-term business trends, the four coincident indicators that help verify the predictability of the leading indicators, and the lagging indicators that help spot emerging structural trends.

Part III discusses the use of fundamental analysis, which compares the growth and finances of different securities and industry groups. The commodities market and the effect of globalization of securities markets are also examined.

Part IV shows how quantitative market analysis aids active investors in determining the short-or immediate-term direction of stocks. Intermarket Analysis and Investing shows how to improve investment decisions by integrating the best features of fundamental analysis and some well-known market timing techniques described and illustrated in this section. The final section of the book provides insightful investment strategies that are based on the intermarket relationships previously discussed.

By integrating the methods described in detail in this book, investors stand a much better chance of profiting from market opportunities and of achieving their objectives. Master this market that never sleeps, and you could be a big winner. The introduction of the Internet in the mids gave forex trading a big boost as it made it possible for individual traders to get informa- tion and to trade on a level playing field with any trader of any size any place in the world at almost any time of the day or night.

As a result, numerous cash forex firms popped up in the late s and early s to accommodate this exploding interest in forex trading, making forex trading available to almost any pocketbook.

Electronic forex trading volume has skyrocketed, and the growth in trading forex options promises to be just as dramatic in the next few years as exchanges facilitate that type of trading. The global war on terrorism and other geopolitical, economic and hur- ricaneomic shocks and events will undoubtedly keep forex markets at the center of the global financial marketplace.

The growing influence of China and other Asian markets on the global economy will affect many markets, the forex market foremost among them. Looking at one market means looking at a number of related markets to get the full story about the market forces driving any one market. With forex, that obviously means other currencies, but it also means interest rates, equities markets, and commodities, particularly international markets such as gold and oil.

Single-market analysis just is not sufficient anymore. Because of their trending tendencies, forex markets are especially good candidates for such market forecasting. Failure to incorporate leading indicators and information on related markets into trading strategies puts traders at a great disadvantage in compet- ing with other more sophisticated traders, including professionals who make their livelihood trading forex markets.

Neural networks are not only well-suited to analyzing these markets from both a single-market and intermarket perspective but can also incorporate fundamental data as inputs. By using the computational modeling capabilities of neural networks in a structured framework that synthesizes these three approaches and integrates seemingly disparate technical, intermarket, and fundamental data, quantitative trend and market forecasting will continue to be at the cutting edge of financial market analysis in the early decades of the twenty-first century.

Even hurricaneomic data can be incorporated into forecasting TRADE SECRETS 90 models. Literally any data that may have a bearing on financial mar- kets can be used to determine its relevance to market forecasting.

com for valuable assistance and free information on trading see also the list of important web sites on page These include mass psychology, judgment, trading experience, risk propen- sity, fear, greed, and amount of risk capital available. I am, nevertheless, determined to continue my research to push the forecast accuracy envelope as far as it will go; this has been my intellectual passion for the past several decades and continues to excite me.

Fortunately, now, I am no longer a one-man research shop since forming the Predictive Technologies Group years ago, which is comprised of a team of analysts, researchers, and programmers, including Ph.

s who can read books on neural networks as light bedtime reading. By broadening their perspective to include intermarket analysis and various forecasting techniques that have been outlined in this book, I am confident that traders will be able to improve their trading performance by gaining more self-confidence to make better trading decisions, whether trading only the forex market or also trading equities, options, or futures. TRADING RESOURCE GUIDE TRADING RESOURCE GUIDE [ information on intermarket analysis, forecasting, VantagePoint, free sample forecasts, and much more Trading Education www.

com Educating traders in stocks, futures and forex markets News, quotes, trading courses, software, and bookstore Let Editor-in-Chief Darrell Jobman guide you to success Forex Trading Software www. com Trading software making predictions for thirteen forex pairs com The 1 source for trading and investment books, videos, and related products Louis free samples available at the site Chicago Board Options Exchange www.

The FOMC consists of seven governors of the Federal Reserve Board and five Federal Reserve Bank presidents and determines the near-term direction of U. monetary policy. The Fed has several actions it can take to stimulate or tighten the U. economy to maintain a balance between too little growth and too much inflation, its major tool being the power to raise or lower short-term Fed funds interest rates.

Almost as important as what the Fed does with interest rates is the statement it releases at the end of each meeting, suggesting the posture with which it views the economy and sometimes hinting at what it intends to do in the future. The importance of interest rates cannot be overlooked by the forex trader. All else being equal, a nation with the higher interest rate will attract more money than the lower interest rate nation and will thereby have the stronger currency.

Beige Book. Each of the twelve Federal Reserve regional districts provides reports on the economic outlook for their region, and the Beige Book combines these reports into one composite view of the status of the U. Information on economic conditions from this report often guides the FOMC in setting monetary policy. Reports from indi-. vidual Fed banks, especially the Empire State Index from New York and the Philadelphia Fed report, may have their own impact on markets.

Index of Leading Economic Indicators LEIs. Although most reports lag the market because they are based on past data, LEIs are a composite index of ten economic indicators that predict the health of the U. Individual indicator readings may not provide much evidence of growth or weakness but can be helpful when combined with other indicator data. Gross Domestic Product GDP.

Any of these numbers can draw a reaction from traders in financial markets. Balance of Payments. The monthly release of U. trade figures is a key day for forex traders. There are several aspects involved in the interaction between nations.

The first involves the value of imports versus the value of exports in the monthly release of trade figures. The United States has been running a consistent trade deficit in recent years, and increases or decreases in that figure can move forex markets.

Nations would naturally like to export more than they import, but the United States is in a crucial position as it is often regarded as the engine that drives world economies.

Strong imports may be a sign of a booming U. economy and good news for those nations sending goods to the United States, but it may not be good for the value of the dollar. The second important part of the interaction between nations involves current account flows, the amount of money flowing into a nation versus the amount of money flowing out. Large amounts of cash may flow into a country to buy stocks or Treasury instruments or other financial or physical purchases such as real estate.

Cash has generally flowed. into the United States and has been larger than the trade deficit, offsetting the negative aspects of that deficit on the dollar.

Employment Reports. The report with perhaps the biggest single impact on financial markets is the monthly report of U. non-farm payrolls released on the first Friday of each month. A key number in the report is the number of new jobs created. Generally, the more new jobs, the more money consumers can be expected to spend, propelling more robust economic growth. However, a number that is too big can raise concerns about high inflation rates and have ramifications on interest rates that affect the forex market outlook.

Traders also analyze components of the report, such as the average hourly workweek and average hourly earnings. Consumer Price Index CPI and Producer Price Index PPI. Mention inflation rates, and traders usually think of the CPI or PPI, which measure price levels of various goods and services against levels that existed during a base period. These reports are usually considered to be the best gauges of inflation. However, some analysts do not put a lot of credence in these numbers because they exclude prices for fuel or food, which may vacillate wildly due to weather or other circumstances and often comprise a large portion of consumer budgets.

Consumer Confidence. Consumer spending accounts for about two-thirds of the U. economy so what the consumer is thinking is vital information to forex traders because of the impact on many other economic reports. Consumer sentiment surveys are conducted regularly by the Conference Board, University of Michigan, and others to get a reading on consumer attitudes about the economic outlook.

Retail Sales. One area that may be affected directly by consumer sentiment is sales by retailers, especially at critical times of the year such as the Christmas holiday season. At these times, analysts pay particular attention to same-store sales for comparisons with previous years. Housing Starts and New and Existing Home Sales. People have to feel pretty comfortable and confident in their financial position to buy a home.

More housing means more demand for raw materials such as lumber or copper and for appliances and all the other items needed to build and maintain a home. Sales of all those items affect economic growth and, in turn, the course of the U.

Durable Goods Orders. With increases in new housing and home sales comes the need to furnish those houses with refrigerators, washers, dryers, other appliances, carpets, couches, and other big-ticket items. Construction Spending. This report analyzes spending for office buildings, shopping malls, and other business purposes. As with the housing market and consumer confidence, the amount of building construction reflects how confident business owners are about the economy.

They are likely to build new facilities or factories only if they think business will be good enough to justify expansion.

Institute of Supply Management ISM Index. This is one of the first reports each month that provides a composite index of national manufacturing conditions. Often, as manufacturing goes, so goes employment, which can have a major effect on other components of economic health. ISM reports are also available for various sectors and regions of the country, with the Chicago Purchasing Manager Index regarded as an early indicator of the national figure.

Industrial Production and Capacity Utilization. and utilities while capacity utilization estimates how much of factory capacity is actually being used. The manufacturing sector accounts for about a quarter of the U. Factory Orders. This report combines the dollar level of new orders for both durable and non-durable goods and also reflects the health of the manufacturing sector and, in turn, its effect on the job market and other areas.

Business Inventories. Once a factory produces goods, they have to be sold to businesses and consumers to produce profits. What is left on the shelves of manufacturers, wholesalers, and retailers is an indication of how strong or weak economic demand is and provides clues about the direction of factory production in the future.

Personal Income and Personal Spending. Comparing the estimated dollar amount of income received with the amount of dollars spent on durable and non-durable goods and services provides a good clue about whether consumers will be able to spend more or less in the future.

If spending exceeds income, buying will naturally slow, perhaps leading to a downturn in the economy. If consumers have a surplus of income over spending, they will have money to buy more goods or bid up prices or put into investments such as stocks or savings accounts.

International Watch List Because of the dominant role of the U. dollar in forex trading, the U. reports and events listed above tend to get much of the attention in the financial press.

Japan The Ministry of Finance MoF is probably the single most important political and monetary institution in Japan and, in fact, the world when it comes to guiding forex policy.

It may take just a statement from a MoF official about the economy or the value of the yen to drive the forex market. The BoJ uses the call rate to signal monetary policy changes, which impact the currency. The BoJ also buys ten-year and twenty-year Japanese Government Bonds JGBs every month to inject liquidity into the monetary system. The yield on the benchmark ten-year JGB serves as a key indicator of long-term interest rates.

The difference between ten-year JGB yields and those on U. Another Japanese government institution that has an impact on the forex market is the Ministry of International Trade and Industry MITI. MITI looks after the interests of Japanese industry and defends the international trade competitiveness of Japanese corporations.

It formerly played a bigger role than now in forex markets. In addition to the normal stream of data i. Europe The single most important financial agency in Europe is the European Central Bank ECB , which sets interest rates to maintain an economic growth rate of about 2 percent.

In light of votes by several countries to reject a common constitution for the European Union, the authority and role of the ECB is not as clear as that of, say, the U. Federal Reserve. Europe is comprised of a number of diverse economies and nations, which are still trying to work through the process of forming the European Union. A forex trader may be able to look at composite economic statistics for Europe but also has to keep in mind the numbers for Germany, France, Italy, and a number of other individual nations.

What may help one nation could hurt another and vice versa. Although the effect of some policies and decisions by European officials in Brussels may not be so clear, ECB actions in setting interest rates and determining other financial matters seem to be more accepted by financial traders.

As a result, the euro has already become a major factor in the forex market although it was only launched on January 1, Even with its short history, the euro is considered by more countries as a possible reserve currency in place of, or in addition to, the U. It is one of the most actively traded currencies today. The BoE has a monetary policy committee that makes decisions on the minimum lending rate base interest rate , which it uses to send clear signals on. monetary policy changes during the first week of every month.

Changes in the base rate usually have a large impact on sterling. The spread between the yield on ten-year government bonds, known as gilt-edged securities or just gilts, and the yield on the ten-year U. Treasury note usually impacts the exchange rate. Switzerland The Swiss National Bank SNB sets monetary and exchange rate policy. The SNB sets its targets for the Swiss franc based on annual inflation rates.

However, the Swiss franc is unique among currencies in that it is often considered a safe-haven investment in times of international turmoil and geopolitical tension. Because of the proximity of the Swiss economy to the Eurozone specifically Germany , the Swiss franc tends to be highly correlated with the euro, providing one of the most aligned currency pairs in the forex market.

How Can Traders Keep Up? There is a way that you can include all of these fundamentals in your trading by observing just one thing: price, which is covered in Chapter 4. Applying Technical Analysis to Forex Traders may find the long list of fundamentals that affect forex trading introduced in Chapter 3 somewhat daunting.

That is why many traders tend to prefer technical analysis, a study of price action that can be applied to any market. Technical analysis combines the influence of all the fundamentals affecting a market into one element, the current price. Rather than keeping up with all the fundamentals, traders can analyze price movements on a chart, knowing that the price synthesizes every factor known to the market at the present time—at least, in the perception of traders.

Fundamental analysis alone cannot provide these answers, especially when traders are looking at only one market at a time. In an effort to find the answers to these questions, new traders seem to follow the same path. After attempting to analyze and understand the fundamentals of a market, they realize that it is virtually impossible for individual traders to match their knowledge of the fundamentals with the professionals in the marketplace.

Even for one market there are just too many fundamental factors with which to keep up in a timely manner. Starting with Chart Analysis Many traders start with basic chart analysis such as trendlines and chart patterns. Perhaps they were enticed by the if-you-bought-hereand-then-sold-there arrows in a promotional piece that showed them how they could become independently wealthy based on a hypothetical track record. Much of the basic charting educational material today has not changed in more than thirty years except for the updated charts, graphs, and revised hypothetical track records.

Traders new to technical analysis are usually first advised to find the price trend. This is a particularly important tip for the forex trader as long-term trends tend to persist in currencies as compared to many other markets because government policies and economic developments usually do not change that dramatically overnight.

Looking back at the price action from the right side of the chart, the downtrend from. March until late May and the uptrend from mid-May to August seem rather obvious.

However, viewing the chart from the left side as the price action unfolds daily, where would a trendline be placed? That is a subjective decision technical traders have to make.

Figure 4. Where should a trendline go? If the trendline is placed too tightly along the tops or bottoms and trading decisions are based on penetrations of the trendline, traders are likely to be in and out of positions several times, which could prove costly. This means traders would have surrendered a large potential profit if they waited for prices to fall and penetrate the trendline to exit a long position. Art, Not Science With such erratic up and down price movement, it usually does not take long for many traders to realize that chart analysis is a lot more art than science.

This is evident with other chart patterns as well. One popular chart formation that gets a lot of attention is the headand-shoulders bottom or top Figure 4.

Added to the neckline, the projected target is about Is this really a head-and-shoulders bottom after prices kicked back below the neckline to test that breakout point? It is too early to jump to that conclusion on this chart. It may be a subjective observation on this euro chart, but this is a head-andshoulders, a chart formation popular in traditional technical analysis that helps traders spot breakout points and potential price targets. First is the flag, a brief correction in the uptrend that traditional analysis suggests is the halfway point of the move.

At the time the flag occurs, that is not known, of course, but in this case that market axiom did turn out to be a correct assessment of the situation.

Chart formations come in many forms. The next pattern in Figure 4. The market hits a high, backfills, and then makes a new run at that high, which proves to be tough resistance. With the M top, the second high is usually lower than the first high.

When prices drop below the interim low, the top is confirmed, and a downtrend is expected. As with the head-and-shoulders pattern above, prices do not exactly cooperate, rallying back to the breakout line on this chart.

Such is the fickle nature of chart patterns. The third technical analysis point to note on Figure 4. In this case, it was. Prices bounced off that support on schedule, just as analysts who look for that type of retracement would have expected. It is one of several retracement areas that analysts project by using Fibonacci numbers and ratios. Having prices perform as technical analysts expect them to is far from a sure thing. Spotting trendline breaks and top or bottom formations tends to be quite subjective, relying on the eye of the beholder.

Chart signals usually are not as obvious as they might seem when you look at the price action with the benefit of hindsight. Even if you recognize a chart pattern, interpreting what it projects and then making a trading decisions based on that analysis are just as subjective.

Because the chart pattern aspect of technical analysis is so subjective, back-testing is not really possible, so there is no way to measure the accuracy of this method of analysis. Adding Technical Indicators Traders then typically start to look for something more quantitative on which to base their analysis. In looking beyond basic chart patterns, many traders turn to technical indicators, which may be able to detect changes in market momentum or strength or weakness that are not obvious when looking at a price chart.

As a result, they are all lagging indicators and not forwardlooking indicators. When traders examine historical price data, they may adjust the parameters to find those that performed best in the past, only to discover that they do not work quite so well in actual trading.

Momentum or Trend-following? These indicators include moving averages, moving average convergence divergence MACD , and directional movement index including the ADX indicator, which measures the trendiness of a market. Moving average crossovers can also be very useful in spotting market turns, as will be discussed later. The momentum oscillators evaluate how current prices compare to previous prices and provide clues about overbought or oversold conditions that suggest a possible change in price direction.

These indicators are most reliable in non-trending situations when prices are moving up and down. However, in trending situations, these indicators may give a buy or sell signal early in the move and then just remain stuck on that signal as long as the trend continues. Look at the euro chart with the stochastics indicator as an example of this problem Figure 4.

A downside crossover of the two stochastics lines above a reading of 80 indicates sell, and an upside crossover Figure 4. Indicators provide more objective information. Indicators such as stochastics can provide timely signals in choppy markets but become unreliable when markets trend, as this euro chart illustrates. below 20 indicates buy. Stochastics indicators give a good crossover sell signal at the high in April, but then show a crossover buy signal in May during the middle of the downtrend.

After giving a signal too early, the buy signal provided by a stochastics reading below 20 persists for more than a month until the market finally does bottom in early July, making that indicator relatively worthless to the euro trader during the time the market was trending downward.

Divergence is a visible signal that the indicator is seeing some underlying weakness or strength not revealed by the price action. On the right side of the euro chart, note that the price rises to a new high, but the second stochastics high is lower than the previous high, a divergence from price action, suggesting the downtrend that followed.

For these types of clues, forex traders may want to include some type of momentum oscillator in their analysis to confirm a signal provided by another indicator. Moving to Moving Averages Probably the most widely used indicator is some form of moving average. Moving averages are rather simple to understand and easy to calculate. Traders who do not want to do the math can just choose simple, weighted, or exponential moving averages from their analytical software.

A simple moving average is the sum of prices for number of days N divided by the number of days N. As each new price is recorded, the oldest price is removed from the average and is replaced by the new.

price as markets move through time. Weighted and exponential moving averages are structured to give more weight to the newest price, based on the assumption that current price action is more significant to the near-term outlook than an old price that happened N periods ago.

Traditional technical analysis with moving averages is rather straightforward. In the simplest arrangement, if prices move above the moving average, you buy and remain long while prices stay above the average; if prices fall below the moving average, you sell and stay short while prices remain below the average Figure 4. Many traders use a combination of several moving averages, buying when the shorter average crosses above the longer average and selling when the shorter average drops below the longer average.

Traditional moving averages: a lagging indicator. Perhaps the most popular technical indicator is a moving average, shown on this Japanese yen chart. However, because it is based on past prices, it is a lagging indicator subject to whipsaws and does not provide the forward view a trader really needs. Moving averages have the same problem as other indicators in relying on prices that have already occurred, meaning a moving average is another lagging indicator. Some analysts use displaced moving aver Although this gives some semblance of a price forecast, it is a forecast based on past prices and prices that have not yet occurred, giving it a shaky foundation as a forecasting tool.

In addition, while the momentum oscillator indicators lose their value in trending market conditions, moving averages have the disadvantage of being subject to whipsaw moves when market conditions are choppy as prices vacillate above and below the moving average.

Despite advances in technology and more sophisticated software, moving average analysis has remained much the same as it was years ago, and most traders still using traditional approaches to moving averages are no more profitable than ever before.

Broadening the Moving average View In order for traders to gain an edge by taking a position just as a price move begins to develop, they need indicators such as predicted moving averages that not only look back at past prices and patterns but also look forward to anticipate market action. In addition, they need tools that can look sideways at related markets to see how price action in those markets is affecting price action in the market that is being traded.

Weather forecasts for thirty days or ninety days into the future often are not that accurate, but forecasters have used technology in recent years to predict the weather accurately for tomorrow or the next few days. They forecast accurately the temperature highs and lows and the likelihood of storms or sunny weather. Their forecasts still are not perfect, of course, but the probability for the predicted conditions to occur has become quite high.

Most traders would be very happy to have a similarly reliable forecast for prices for the next two to four days. Using leading indicators that incorporate intermarket data, predicted moving averages can be calcu lated for the next few days. Through such financial forecasting, traders can develop mathematical probabilities and expectations of the future, which can give the traders a tremendous advantage over others still relying on single-market indicators that tend to lag the market.

Then, if the predicted moving average is above the actual moving average, the trend is expected to be up and vice versa. Because the predicted moving average is being forecasted for four days in advance, note how closely it tracks market action and does not lag behind price turns as the actual ten-day moving average does.

When the predicted ten-day moving average suggests that a top or bottom is forming before the actual ten-day moving average does or when the predicted average crosses the actual ten-day moving average, that is a signal to buy or sell because it means that the market is expected to make a turn.

It is still necessary to analyze each market to observe its chart patterns, trendlines, indicators, and so on because they are pieces of information that other trad-. Predicted moving averages give traders an edge. ers are watching and using for their trading signals and can provide further insight about internal market dynamics. Intermarket Analysis of Forex Markets The previous chapters stressed the role of fundamental information and historical single-market price data in market analysis and the value of using these forms of analysis for the purpose of price and trend forecasting.

As indicated earlier, traders must look at past price action to put current price action in perspective. However, in the real trading world, they must anticipate what will happen to prices if their analyses are to pay.

To look ahead with confidence, however, traders must look sideways to what is happening in related markets, which has a major influence on price action in a target market.

Moving beyond Single-market Analysis Intuitively, traders know that markets are interrelated and that a development in one market is likely to have repercussions in other markets.

Single-market analysis, focusing on one chart at a time, has been traditionally emphasized. However, it fails to keep up with structural changes that have occurred in financial markets as the global economy has emerged with advances in telecommunications and increasing internationalization of business and commerce. Many traders still rely on mass-marketed, single-market analysis tools and information sources that have been around since the s. As a result, a large percentage of traders lose their trading capital.

If traders continue to do what the masses do, is it not likely that they will end up losing their hard-earned money, too? In the forex markets especially, traders cannot ignore the broader intermarket context affecting the market in which they are trading. Traders still need to analyze the behavior of individual markets to see the double tops, broken trendlines, or indicator crossovers that other traders are following because these are part of the mass psychology that drives price action.

It is increasingly important that traders factor into their analysis the external intermarket forces that influence each market being traded. Historical Roots Intermarket analysis is certainly not a new development for traders, having roots in both the equities and commodities markets.

Futures traders are probably familiar with equities traders who compare returns between small caps and big caps, one market sector versus another, a sector against a broad market index, one stock against another, and international stocks against domestic stocks. Portfolio managers talk about diversification as they try to achieve the best performance. Whether they are speculating for profits or arbitraging to take advantage of temporary price discrepancies, intermarket analysis in this sense has been part of equities trading for a long time.

Traders in the commodities markets have used intermarket analysis for a long time, trading spreads that have a reliable track record. Farmers have been involved in intermarket analysis for years although they may not have thought of what they do in those terms.

When they calculate what to plant in fields where they have several crop choices—between corn and soybeans, for example—they typically consider current or anticipated prices of each crop, the size of the yield they can expect from each crop, and the cost of production in making their decision.

They do not look at one market in isolation but know that what they decide for one crop will likely have a bearing on the price of the other, keeping the price ratio between the two crops somewhat in line on an historical basis.

The commodities markets, in turn, have a tremendous effect on the financial markets such as Treasury notes and bonds, which have a powerful effect on the equities markets, which have an effect on the value of the U. dollar and forex markets, which has an effect on commodities. The ripple effect through all markets is a circular causeand-effect dynamic, involving inflationary expectations, changes in interest rates, corporate earnings growth rates, stock prices, and forex fluctuations.

You cannot name a market that is not affected by other markets or, in turn, does not affect other markets. Whatever the market, assets tend to migrate toward the one producing or promising the highest return. That is as true for forex as any other market. economy is the engine that drives the global economy. It works both ways as a sneeze elsewhere in the world can have a significant impact on U. Intermarket Analysis: The Next Logical Step A quantitative approach to implement intermarket analysis, which has been the basis of my research since the mids, is neither a radical departure from traditional single-market technical analysis nor an attempt to undermine it or replace it.

The bottom line is if traders want to trade forex markets today, they have to use a trading tool or adopt an approach or trading strategy that incorporates intermarket analysis in one way or another. An important aspect of my ongoing research involves analyzing which markets have the most influence on each other and determining the degree of influence these markets have on one another. Hurricaneomic Analysis is a perfect example of the interconnectedness of events and markets and how nothing can be viewed in isolation.

Take the spate of hurricanes that hit the Gulf Coast and Florida in They did not simply cause local damage to the economy of those regions. On the contrary, there are hurricaneomic effects that will ripple throughout the world economy for months and years, impacting the energy markets, agricultural markets, building materials including lumber, the federal deficit, interest rates, and, of course, the forex market as it pertains to the U. So, hurricaneomic analysis goes SM. hand-in-hand with intermarket analysis in looking at events such as natural disasters and their effects on the global financial markets.

Our research in the ongoing development of VantagePoint since its introduction in indicates that, if traders want to analyze the value of the euro against the U.

Technical analysis in the past focused on one market at a time, but as this diagram illustrate, data from related markets have a bearing on the price action of a target market in intermarket analysis. Source: Market Technologies, LLC www.

Additionally, through hurricaneomic analysis, data related to events such as the recent natural disasters in the U. can also be incorporated into forecasting models, along with single-market, intermarket, and fundamental data. This results in an analytic paradigm that I call Synergistic Market Analysis see Chapter 8. Gold, Oil, and Forex In some cases, the correlation is inverse, especially for markets such as gold or oil that are priced in U.

dollars in international trade. The chart that compares the price of gold and the value of the U. dollar Figure 5. dollar declines, not only do foreign currencies rise but gold prices also rise. Studies on data from the last few years have shown a negative correlation between gold and the dollar of more than minus 0.

Figure 5. Gold and the U. This chart clearly shows that gold prices and the value of the U. dollar go in opposite directions most of the time, an important input in intermarket analysis.

When the value of the U. dollar rises or sinks, the euro often does the opposite, making it a good match with gold prices if you are looking for two markets moving in the same direction.

Thus, gold prices are an important component in performing intermarket analysis of the forex market.

Đang tải xem toàn văn. Tài liệu hạn chế xem trước, để xem đầy đủ mời bạn chọn Tải xuống. Trang chủ Tài Chính - Ngân Hàng Đầu tư Chứng khoán. Báo tài liệu vi phạm. Thêm vào bộ sưu tập. Xem thêm. Tải xuống 1. Kích thước tài liệu: - Tự động - x x Đóng. Tải xuống. pdf 1 14 trang. The key is determining which way the breakout will occur. If you put current market action into the context of overall market action — prox- imity to prior highs or lows, relationship to historical values, position in a trend, and other reference points — you should be able to get some clues about the likely breakout direction.

In this case, the smaller-range period included a hammer, doji and several spinning top candlesticks. All suggest some market uncer- tainty and indicate that the momentum from the previous trend is dry- ing up. The moving average crossover to the upside and the big white bullish engulfing candlestick confirmed it.

A couple of harami candle- sticks inside days to Westerners followed as the uptrend signaled by the predicted day moving average began to move out of its starting blocks. A logical point for a buy stop might have been above the high of the bullish engulfing candlestick, low enough to get an early entry into a longer-term uptrend if it developed but high enough to reduce the chances for getting caught in another choppy period.

A shooting star — a candlestick that reaches a new high and then fades, leaving a long upper shadow — and several black candlesticks suggest the move might be over or at least weakening, a clue to tighten protective sell stops.

In addition, for the trader keeping an eye on the bigger picture, the high at Candlestick 9 is approaching the previous high before Candlestick 7 several months earlier, which could become a resistance zone that may be difficult to penetrate.

As before, a nervous, risk-adverse trader might have had a sell stop below the low of Candlestick 10 to protect profits. However, for a new short position, it usually is not a good idea to anticipate a signal but is better to wait for the crossover signal to become evident before entering a trade. That means you may have to sacrifice some potential profit, assuming your signaled move develops, but it reduces the chances of being caught in a costly whipsaw trade if the new trend does not materialize.

Of course, you can use the pre- dicted 5-day moving average to get an earlier signal, or as you watch a potential turn shaping up, you may decide to enter a position near the end of the day if you expect that the close will result in a crossover signal on that day. In candlestick analysis, this pattern is known as eight or ten records down, but the criteria for the number of candle- sticks varies. In this case, there are only seven black candlesticks, cul- minating in an interesting final candlestick bottom.

On the final day of the downtrend, the market opens near the previous close, rallies above the highs of the two previous days and then collapses to close near the low of the day. At this point, the situation looked exceedingly bearish. As I mentioned before, no market moves only in one direction or with such velocity forever.

First, after an extended, rapid move like this, the market is probably oversold and due for at least a pause or bounce. Second, the slide took prices close to the lows established a month earlier, a strong support zone for starting a recovery in the opposite direction.

After a couple of harami candlesticks, the market had a breakout day to the upside with a big white bullish candlestick, reaffirmed by strong followup action over the next few days. A potential buy stop TRADE SECRETS 86 might have been placed above the high of the erratic last day of the downtrend horizontal line to protect profits from the short position.

The moving average crossover signal to establish a new long position occurred a couple of days later, still in time to jump on the unfolding uptrend but with a caution sign as the market approached likely resis- tance from the previous highs. There is no one magic bullet or Holy Grail that will assure your trading success. I have previously emphasized intermarket analysis using predicted moving averages because forex markets are especially influenced by intermarket relationships and because forecasted moving averages do exactly what an effective technical indicator is supposed to do: help you identify the onset of a trend in its beginning stages so you can get on board early and then tell you when to get out before there is a sub- sequent trend reversal.

Beyond the effort to develop leading indicators that can provide more accurate market forecasting, I also recommend using multiple confirming indicators in conjunction with each other. In a broader sense I believe that the next major frontier in the effort to expand the scope of market analysis will be to address the challenge of amalgamating single-market data, intermarket data, and funda- mental data on global forex markets as well as futures markets into one coherent and quantitative framework that can be computerized and automated.

I refer to this comprehensive analytic framework as Synergistic Market Analysis, which I will talk about a little bit more in the next chapter. Futures on currencies, gold, interest rates, energy, and options on stocks were all still in their infancy.

There was no electronic trading and there were no personal computers to analyze the markets that I was actively trading. The trading world has evolved considerably since then, offering many new markets to trade, especially in the financial arena; lots of differ- ent trading instruments; lots of trading software, and a global market- place that features electronic trading around the clock.

It is difficult to imagine that the next twenty-five years could offer as many trading innovations as those of the last twenty-five years. Years ago the forex market was limited to banks and financial institutions; individual traders were not part of the picture. Then came the trading prowess of George Soros and other currency speculators who were credited with bringing down the British pound in , the Asian financial crisis in , the launch of the euro in , and other events that brought increased attention to the forex markets, both for speculation and as a means for knowledgeable traders to protect or hedge themselves against adverse changes in currency values.

The introduction of the Internet in the mids gave forex trading a big boost as it made it possible for individual traders to get informa- tion and to trade on a level playing field with any trader of any size any place in the world at almost any time of the day or night.

As a result, numerous cash forex firms popped up in the late s and early s to accommodate this exploding interest in forex trading, making forex trading available to almost any pocketbook. Electronic forex trading volume has skyrocketed, and the growth in trading forex options promises to be just as dramatic in the next few years as exchanges facilitate that type of trading. The global war on terrorism and other geopolitical, economic and hur- ricaneomic shocks and events will undoubtedly keep forex markets at the center of the global financial marketplace.

The growing influence of China and other Asian markets on the global economy will affect many markets, the forex market foremost among them. Looking at one market means looking at a number of related markets to get the full story about the market forces driving any one market. With forex, that obviously means other currencies, but it also means interest rates, equities markets, and commodities, particularly international markets such as gold and oil.

Single-market analysis just is not sufficient anymore. Because of their trending tendencies, forex markets are especially good candidates for such market forecasting. Failure to incorporate leading indicators and information on related markets into trading strategies puts traders at a great disadvantage in compet- ing with other more sophisticated traders, including professionals who make their livelihood trading forex markets.

Neural networks are not only well-suited to analyzing these markets from both a single-market and intermarket perspective but can also incorporate fundamental data as inputs. By using the computational modeling capabilities of neural networks in a structured framework that synthesizes these three approaches and integrates seemingly disparate technical, intermarket, and fundamental data, quantitative trend and market forecasting will continue to be at the cutting edge of financial market analysis in the early decades of the twenty-first century.

Even hurricaneomic data can be incorporated into forecasting TRADE SECRETS 90 models. Literally any data that may have a bearing on financial mar- kets can be used to determine its relevance to market forecasting.

com for valuable assistance and free information on trading see also the list of important web sites on page These include mass psychology, judgment, trading experience, risk propen- sity, fear, greed, and amount of risk capital available. I am, nevertheless, determined to continue my research to push the forecast accuracy envelope as far as it will go; this has been my intellectual passion for the past several decades and continues to excite me.

Fortunately, now, I am no longer a one-man research shop since forming the Predictive Technologies Group years ago, which is comprised of a team of analysts, researchers, and programmers, including Ph.

s who can read books on neural networks as light bedtime reading. By broadening their perspective to include intermarket analysis and various forecasting techniques that have been outlined in this book, I am confident that traders will be able to improve their trading performance by gaining more self-confidence to make better trading decisions, whether trading only the forex market or also trading equities, options, or futures.

TRADING RESOURCE GUIDE TRADING RESOURCE GUIDE [ information on intermarket analysis, forecasting, VantagePoint, free sample forecasts, and much more Trading Education www. com Educating traders in stocks, futures and forex markets News, quotes, trading courses, software, and bookstore Let Editor-in-Chief Darrell Jobman guide you to success Forex Trading Software www. com Trading software making predictions for thirteen forex pairs com The 1 source for trading and investment books, videos, and related products Louis free samples available at the site Chicago Board Options Exchange www.

com Provides market data on indexes and stocks, quotes, charts, company reports, market commentary, and information on options trading Chicago Board of Trade www.

com Provides news, market information, background on the exchange and various educational programs and seminars offered by the CBOT trading decisions, whether trading only the forex market or also trading equities, options, or futures. I call Synergistic Market Analysis, the synthesis of technical, intermarket and fundamental approaches.

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By the mids, through my observations of changes in how the markets interact, it had become apparent that the prevailing singlemarket approach to trading software was already becoming obsolete. VantagePoint accuracy figures for each market. com, author of Big Trends in Trading. The moving average crossover signal to establish a new long position occurred a couple of days later, still in time to jump on the unfolding uptrend but with a caution sign as the market approached likely resis- tance from the previous highs. In this case, the smaller-range period included a hammer, doji and several spinning top candlesticks. Then it moves on to the three prominent schools of thought in market analysis with discussions of: - Economic analysis, which is primarily concerned with the state of business, and anticipates phases of economic expansion and contraction by focusing on economic indicators - Fundamental analysis, the most widely followed and practiced form of analysis, it looks at the accounting and financial position of companies in an attempt to evaluate intrinsic worth and true stock value - Technical analysis or the market-timing school, practiced by "believers in the supremacy of trend analysis," and followers of the ticker tape.

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