A couple of pointers on learning how to focus on the right things in your trading
If you ask just about any trader, most will agree that trading is an art form rather than a systematic profession - no matter if you rely on EAs or algos/modelling. One of the reasons for that is because the market is always changing and reacting all the time.
That means as traders we have to learn to adapt and also to try and "beat the market" or at least bet accordingly given the way the market is behaving. In essence, there is no right or wrong way to go about this because there is just no one way of trading.
However, despite the many varied approaches, there are still things that everyone can adopt to their trading arsenal to try and improve their overall efficiency. So, let's talk about that.
Understanding market themes
In many of my overview posts, I talk about the 'focus' of the market or the 'main theme' that is engulfing the market backdrop.
It is important to understand what this usually is - even if it means directionless/choppy trading, that's still a 'theme' - because it lets you get a sense of how the market is generally behaving and what you can expect moving forward.
In the context of this year, there have been many weeks where the market has been left paralysed amid US-China trade concerns or the lack of headlines from trade talks.
That has been an overarching 'theme' that doesn't just affect currencies - but it also extends across asset classes to equities and bonds as well. If a particular 'theme' is that overwhelming, it usually becomes the 'main focus' so it is important to recognise that.
This is because it leads to the more common themes of risk-on and risk-off sentiment or perhaps even choppy and indecisive trading in general.
The quickest way to get a sense of how the market is generally behaving is to catch a glimpse of how currencies, bonds and equities (and to some extent commodities) are performing and if there is a coherent message to gather across all asset classes.
Economic calendars never tell the full story
This is arguably my biggest pet peeve when it comes to trading. Plenty of traders - especially the newer ones - will attach too much significance to the importance of economic calendars; more specifically the colour codes highlighted on them.
It is important to distinguish that economic calendars only act as a guide and the onus is on traders to try and use that to our advantage by digging a little deeper.
One of the more common misconceptions this year is how many new traders anticipate that certain UK data (CPI, wages, retail sales) are going to produce fireworks upon release.
All this just because the economic calendar highlighted them as "High Importance" or "High Impact". But what the economic calendar doesn't say is that the market 'focus' is overriding the importance of the data - as we saw with Brexit for the most part this year.
As such, don't just take what the economic calendar says at face value. Be a little more diligent to try and understand in what context will the data move the currency.
Will it affect near-term sentiment? What is the main 'focus' of the currency? Will this impact the central bank outlook? How will a better/poorer reading change the main 'focus'?
Understanding that will save you a lot of time and effort in anticipating currency movements and it also helps you to manage your trading positions accordingly based on market expectations for that particular risk event.
Central bank speeches may not necessarily live up to the hype
This is something I've talked about before (⬆️) but it remains relevant because it is important to know what to expect so that you don't dwell on what a central bank member says or does not say when the time comes.
I'll use the most recent example in describing this where we had ECB president Christine Lagarde was scheduled to speak on 18 December. It was put on economic calendars and most new traders would think that it is a relatively important event as such.
However, all you had to do was dig a little deeper to find out that she will be delivering opening remarks (for 5 minutes only) at the ECB colloquium held in honour of departing governing council member, Benoit Coeure.
Needless to say, her five-minute talk was rather uneventful at the end of the day.
Once again, it is arguably just as - if not more - important to try and know what central bank speakers will be talking about than to just focus on who is delivering the speech.
That will help to allow you to better manage your expectations in trading and not sleepwalk into the next key risk event without knowing what it is really about.
Make a checklist
This is one of the more underrated things you can do to help your trading. Even if it is just
preparatory work, it can be important to help you get your affairs in order to start the day.
A good comparison is how when you cook a dish, you need to have your ingredients laid out and it is much better if you prepare them all accordingly before you start cooking.
I can't stress how much time and effort you actually save when you have everything within reach and all ready to go. That same logic applies to getting ready for the trading day ahead and also when you execute a particular trade.
Over time, you can wean off the checklist as you become more accustomed to the steps but this gives you more structure and confidence in your trading - and that helps a lot.
Essentially, doing a little bit more work to try and get a better understanding of the market, key risk events, and having a structured approach to that goes a long way in saving you time and effort spent on figuring out why the market behaves as it does.
It also helps you to manage your trading expectations in general and allows you to get a better understanding on how that affects your trading positions. That helps to save you the worry about if the market is going to be moving against you during the day.
Put all of that together, it gives you a better overview of the market and how you should trade accordingly as such.
In that sense, you can leverage off your better understanding of what the market is doing, the actual importance of key risk events, and market expectations in general, to help add to your trading arsenal - rather than focusing on the wrong thing.