Forex Education -


How to trade market sentiment

Understand the mood of the market Emotions are the key to understanding financial markets. However, it's tough to make rational decisions based on them. Even if you think you read your emotions or other peoples emotions, you may get lost in trying to comprehend the feelings of the crowd. And the market sentiment is the emotions of millions of traders around the world. If you'd like to know more about it, read the guide by SimpleFX WebTrader. The behavior of the masses works differently from the mechanism that determines individual actions. The discovery is quite old and well described in a book by a French anthropologist Gustave Le Bon in 1895 "The Crowd: A Study of the Popular Mind." The author states some of the characteristics of the psychology of the crowds: "impulsiveness, irritability, incapacity to reason, the absence of judgment of the critical spirit, the exaggeration of sentiments, and others..." Trying to take advantage form market sentiment is a common mistake by individual traders, source: SimpleFX WebTrader Every trader knows the importance of emotions. You can see it in market volatility; you can see that some stock is overvalued in comparison to the company's fundamentals, and others are undervalued. Just like people on a rock concert, football game, or political demonstration transcend from individuals to a crowd, traders around the world create an entity that has its emotions and moods. The state of mind of the crowd of traders is called market sentiment. The market sentiment is one of the three possible pillars for any trading strategy: Technical Analysis Fundamental Analysis / Trading the News Reading Market Sentiment For Forex and especially cryptocurrency traders fundamental analysis is much more difficult to apply than on the stock market. That is why these markets traders focus on technical analysis. Bulls, bears and "dumb money" Understanding the sentiment will let you know whether the crowd is optimistic (bull market), cautious or pessimistic (bear market) about a currency, stock or crypto. Identifying the current trend can help you predict the future overall market sentiment and will open sentiment-based trading opportunities. Market sentiment works for all kind of markets, but it is very difficult to read. There are big players, such as institutional banks that can play against the prevailing sentiment, and seek for so-called "dumb money." Wait until the crowd gets all in on a particular position - be it long or short - and use the trading power to incite a reversal. Follow or go against the market sentiment There are two possible strategies for using the market sentiment. You can go with the current and try to join the crowd or trade against the sentiment. The first strategy would include tactics involving the Fibonacci retracement tool, that can help traders profit from local price corrections. The second strategy is all about hunting for reversals identifying support and resistance levels and taking into consideration the overall market sentiment to decide whether a breakout may happen. Safe-havens play an important role when the market sentiment goes to extremes, or there's an overwhelming uncertainty. Assets like gold, USD, CHF or JPY are considered an excellent shelter in case of too much risk. When more volatile assets are entering a bear market, traders (including the most prominent players) tend to seek these safe-havens, which automatically creates a bull market on ultrasafe assets. The two most dominant emotions Fear and greed are the most dominant emotions among traders. They are either afraid of losing money, or they want to earn more. Greed is overwhelming at market peaks when the bubble is created.A classic example of greed taking over in the peak of 2017 Bitcoin bubble, source: SimpleFX WebTrader More and more people open the same long position on a hot asset be it a tech company, a currency of a fast-growing economy or a popular cryptocurrency. Just take a look at the most significant burst in crypto. On the other hand, fear takes over when the market hits bottom. Traders are panicking underestimating the real value of an asset. A savvy investor can see an opportunity for opening a long position in these situations. However, trading against the trend always involves high risk. How to identify fear or greed? When you see a trend accelerating breaking new resistance levels without any fundamental explanation - no critical information that would justify it - you may expect the greed is in action. The same mechanism works the other way around with fear. If during a downtrends support levels are broken without an apparent reason, the fear may have taken over. How to spot "dumb money" "Dumb money" is where traders are taking the most popular and the most obvious moves. Everyone takes the hottest position, more and more people join and put themselves in a very vulnerable position. Let's take a look at Forex, a market where individual traders compete with the largest banks to make successful trades. Forex is as susceptible to market sentiment. Both the biggest institutional traders and the smartest individual traders see where the "dumb money" goes. Then when there's the right time, the most prominent players open an opposite position and take the profit. You can find indicators that show the number of traders having a short or a long position on an instrument. It turns out that the market almost always suddenly goes the other way rapidly cleaning the trading accounts of those who "hang out with the popular kids," that follows the crowd. Hindsight bias The market sentiment is very easy to read if you take a look back. Everything seems to be visible. Even if you are new to trading, you can easily spot greed taking over just when the bubble is about to burst. However, at the time of the bubble, hardly anyone notices it, even the wisest and most experienced traders. It's difficult to profit directly from fear or greed taking over. Even if you can read the past and present sentiment correctly, you need to know what the collective traders' mood will be like tomorrow. Without any insider knowledge or ability to influence the prices with your trading volume it's impossible to do it repetitively. What is the best market sentiment strategy? Keep away from it. If you don't use the most popular technical analysis tools and don't trade reversals, you can avoid the riskiest moves. If you don't want to play the "dumb money" but avoid it, you can focus on developing an effective trading strategy. You don't have to know where the "dumb money" will go. All you need to know is where the "dumb money" is usually and at present. There's no good way to chase sentiment. It doesn't matter if you want to trade along with it or against it. Guessing the future sentiment is a risky move, that's why avoiding market sentiment at all may prove to work best for you. Doing so you could develop a sustainable trading strategy with the right mixture of technical and fundamental analysis. Don't chase the sentiment. Invest not in the most popular assets, such as EURUSD, but the ones that are more off the radar. It's best to find your own niche. Don't be a herd trader. Choose one of the hundreds of instruments available at SimpleFX WebTrader, and use the best technical analysis UX and tools to learn how to trade effectively and don't get disturbed. This article was submitted by SimpleFX.

Entries: To fight for every pip, or not?

Deciding how to manage your entries Trading successfully can be quite a challenge. Interpreting sentiment, understanding the fundamental outlook for a currency, pairing it suitably with another currency, and then managing your risk are all hard enough. However, once you have done all that a key question still remains: when and where should you enter the trade? How do you manage the entry, so you don't have to a) endure lots of drawdown and b) suffer too much financial pain if you are wrong? This article will consider when you shouldn't be for fighting for every pip in your entry, and when you should be. Times when you shouldn't fight for every pip Trading the squawk There are definitely times in your trading when you should not be overly concerned with your entry price. There are times in trading when you want to be in as soon as possible. When might these occasions be? This is particularly true in trading headline news. For example, there has recently been a good deal of tradable news headlines on two key political and financial events; namely NAFTA and Brexit. Now, when the news first came out in the squawk a couple of weeks ago that Mexico and the US had ironed out their disagreements over the NAFTA deal there was an immediate reaction as the Mexican Peso gained value. This would be an instant when you would not want to worry about your entry value, just get in as soon as possible, USD/MXN short. Similarly, when the EU's negotiator Michel Barnier stated that he was prepared to offer Britain a deal with the EU, like no other country, the GBP rallied quickly. This was not the time to wait for a 'perfect entry', as the news was so significant that the GBP would rally for a good 50+ points. Not bad for a headline. Trading surprise announcements You have an interest rate announcement coming up for a central bank. The chances of a rate hike are seen as 2%, but then the central bank makes a massive surprise move and hikes their interest rates. This is the sort of time when you just enter in as soon as possible. In the chart below you can see when the Bank of Canada surprised markets with an interest rate hike CAD appreciated for the next few weeks on the back of that one decision. That is not the time to be concerned about a 'perfect entry', simply make sure you are in the trade. At first, this can seem hard, but overtime you develop a good understanding of which trades you just want to get in straight away. Times when you should fight for every pip Technical entries Say, you are trading a currency pair in the Asian session. Perhaps you don't want to be awake/at the screen during the session and you know that ranges tend to narrow during that session. Well, you might choose a currency pair that is unlikely to be affected by any Asian session news and try a technical bounce off a key level. In this instance you would want to make sure you set your entry very carefully, as overnight moves tend to be smaller and technical ranges come into play when there is no market news to move price in a strong direction. When you want to be in, but not at any price A recent example of when it would be appropriate to do this can be seen in the USD/CAD chart when there was a significant deviation for Canada's CPI reading. It was expected to be 2.5% y/y and instead it was released as 3.0% y/y.Say you came to the chart and you saw that price had already traveled a long way from the news announcement. By drawing a fibonacci level on the chart you could have entered in at the 38.2% level and round number of 1.31000. In this situation you may not want to chase price, but instead 'fight for your entry'. The only weakness with this approach is price may not retrace to your fib level and you may miss out on a potentially profitable trade. When you correctly analyse a currencies direction, but it's extended Sometimes you will quickly analyse a currencies direction, but you will see that price is already heavily extended in one particular direction. In this instance, you don't want to simply jump into the market as there is always a natural ebb and flow in price. Not every interaction with the market is due to speculators. There are many currency transactions that take place every day for a variety of business and government reasons. Staff have to be paid, currencies need to be converted, and balance sheets need to be adjusted. So, prices will often pull back in a trend. If you get into the habit of buying at any price, you make your risk of drawdown considerable. Also, you will have to use a large stop to allow for a normal technical pullback, say to a moving average. This is when you want to take an entry that allows for a reasonable, but not too large a stop.For more on how to trade, check out our new forex education section and let us know what you think. ForexLive

Trading and probability - odds in your trading

The psychology when it comes to making choices "Probability is not a mere computation of odds on the dice or more complicated variants; it is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance." ― Nassim Nicholas Taleb, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets Forex is all about choosing a trade idea with the highest probability of success. However, human intuition and common wisdom can be rather deceitful and lead to poor judgments. In this article, we will revisit the main laws of probability that can be applied to trading and learn from them. The flaws of intuition The problem is that many times when we go with our intuition without giving it a deep thought, we make a poor estimate of probability. Let's resort to the prospect theory developed by Daniel Kahneman and Amos Tversky. This theory explores the ways we make decisions which are associated with risks. Imagine that you face a choice: 1. A 75% chance to win $100 with a 25% chance of getting nothing. 2. A sure profit of $70. There's one more test. This time necessary to choose between: 1. A 75% chance of losing $100 with a 25% chance of losing nothing. 2. A sure loss of $70.  Logic would say that a risk-averse person would choose option 2 in both cases (limited profit plus limited risk). However, in reality, the majority chooses 2 in the first choice and 1 in the second choice. The prospect theory shows that people overestimate the probability of getting no gain but overestimate the chance of losing nothing. They seek to reduce their risks and in doing so they may get a smaller profit and a bigger loss.  In other words, losses psychologically affect people more than gains. If the probability of success is low, people tend to risk more, while if the probability of success is high, they, on the contrary, are reluctant to take risks. It's clear, that to maximize utility, one should do everything the other way round. The same bad tendencies are observed with losses. The higher the probability of loss, the more people tend to risk. When emotions are ruling your trading decisions, you are not really trading, you are gambling. You are tempted to limit your profit and let your losses run. The solution that can help improve the situation self-control, a decent trading system (we'll return to this later) and the respect of risk management. Amanda Cox, the editor of the New York Times' The Upshot, provides a nice visual of the human fallacy in judging probabilities: The problem arises when we move from probability to predictions and actions based on these predictions. If we estimate the chance of profit by 80%, we may be carried away and disregard a protective stop. Even though it's hard to think probabilistically, traders should make this effort. The gambler's fallacy Let's make sure that the concept of probability started to sink in. Imagine that you toss a coin. The outcome is random, so the probability of either heads or tails equals to 50%. For example, you are betting on heads. Will the probability of your success decline after 5 heads in a row? The answer if no, it will still be equal to 50%. The reason is that we don't count the probability of several events at once, but start anew with an independent event, so the possibility of success is 50% each time. This is called the gambler's fallacy (the mistaken belief that, if something happens more frequently than normal during a given period, it will happen less frequently in the future) and was witnesses in Monte Carlo often enough.  Traders should also remember it when chilling after a set of gains or brooding over a series of losses. Befriending mathematical expectation Of course, a trading decision is more complicated than a coin flip. And yet, it all comes to probability. The goal of a trader is to build a trading system with a positive expectation and combine it with sound risk management. Regrettably, the maths doesn't allow us to predict the future performance of a trading system. All we can do is to study historical data gathered during the period when you backtested your strategy. The formula of positive mathematical expectation will be something like: [1 + (W/L)]xP - 1, where W is the amount of average winning trade, L is the amount of average losing trade and P is the probability of winning. Remember that mathematical expectation is not predictive in nature, but a system with a positive expectation is your basis for successful trading. The other crucial element is proper risk management. Incidentally, risk exposure is the one thing we can actually control in trading with tools like position sizing, risk-reward ratio, and stop loss orders. Risk management allows maximizing the gains provided by the trading system with a positive expectation while limiting risks. It's wise to use your power when it can be used and make it yield you the benefits. It's a way for a trader to stop looking for a "holy grail" (a 100% success system) and start actually making profits ― thinking probabilistically as he/she is doing so.   This article was submitted by FBS.ForexLive

Trading and probability - making choices

Embrace the odds in your trading "Probability is not a mere computation of odds on the dice or more complicated variants; it is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance." ― Nassim Nicholas Taleb, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets Trading is all about choosing a trade idea with the highest probability of success. However, human intuition and common wisdom can be rather deceitful and lead to poor judgments. In this article, we will revisit the main laws of probability that can be applied to trading and learn from them. The flaws of intuition The problem is that many times when we go with our intuition without giving it a deep thought, we make a poor estimate of probability. Let's resort to the prospect theory developed by Daniel Kahneman and Amos Tversky. This theory explores the ways we make decisions which are associated with risks. Imagine that you face a choice: 1. A 75% chance to win $100 with a 25% chance of getting nothing. 2. A sure profit of $70. There's one more test. This time necessary to choose between: 1. A 75% chance of losing $100 with a 25% chance of losing nothing. 2. A sure loss of $70.  Logic would say that a risk-averse person would choose option 2 in both cases (limited profit plus limited risk). However, in reality, the majority chooses 2 in the first choice and 1 in the second choice. The prospect theory shows that people overestimate the probability of getting no gain but overestimate the chance of losing nothing. They seek to reduce their risks and in doing so they may get a smaller profit and a bigger loss.  In other words, losses psychologically affect people more than gains. If the probability of success is low, people tend to risk more, while if the probability of success is high, they, on the contrary, are reluctant to take risks. It's clear, that to maximize utility, one should do everything the other way round. The same bad tendencies are observed with losses. The higher the probability of loss, the more people tend to risk. When emotions are ruling your trading decisions, you are not really trading, you are gambling. You are tempted to limit your profit and let your losses run. The solution that can help improve the situation self-control, a decent trading system (we'll return to this later) and the respect of risk management. Amanda Cox, the editor of the New York Times' The Upshot, provides a nice visual of the human fallacy in judging probabilities: The problem arises when we move from probability to predictions and actions based on these predictions. If we estimate the chance of profit by 80%, we may be carried away and disregard a protective stop. Even though it's hard to think probabilistically, traders should make this effort. The gambler's fallacy Let's make sure that the concept of probability started to sink in. Imagine that you toss a coin. The outcome is random, so the probability of either heads or tails equals to 50%. For example, you are betting on heads. Will the probability of your success decline after 5 heads in a row? The answer if no, it will still be equal to 50%. The reason is that we don't count the probability of several events at once, but start anew with an independent event, so the possibility of success is 50% each time.  This is called the gambler's fallacy (the mistaken belief that, if something happens more frequently than normal during a given period, it will happen less frequently in the future) and was witnesses in Monte Carlo often enough.  Traders should also remember it when chilling after a set of gains or brooding over a series of losses. Befriending mathematical expectation Of course, a trading decision is more complicated than a coin flip. And yet, it all comes to probability. The goal of a trader is to build a trading system with a positive expectation and combine it with sound risk management. Regrettably, the maths doesn't allow us to predict the future performance of a trading system. All we can do is to study historical data gathered during the period when you backtested your strategy. The formula of positive mathematical expectation will be something like: [1 + (W/L)]xP - 1, where W is the amount of average winning trade, L is the amount of average losing trade and P is the probability of winning. Remember that mathematical expectation is not predictive in nature, but a system with a positive expectation is your basis for successful trading. The other crucial element is proper risk management. Incidentally, risk exposure is the one thing we can actually control in trading with tools like position sizing, risk-reward ratio, and stop loss orders. Risk management allows maximizing the gains provided by the trading system with a positive expectation while limiting risks. It's wise to use your power when it can be used and make it yield you the benefits. It's a way for a trader to stop looking for a "holy grail" (a 100% success system) and start actually making profits ― thinking probabilistically as he/she is doing so.   This article was submitted by FBS.

No one was born to win. It's all a matter of technique

Winning and Losing in the Markets How do you handle the stress of trading? Have you ever felt like throwing your computer out of the window with a losing trade? Or have you ever felt the elation of a winning trade that's run and run? Woohoo , Warren Buffet watch out, here I come. And then you come down to earth next week with a thump. If you have traded, you would recognise the stresses of winning and losing.  Winning and losing is stressful and emotional. It can also be very lonely, especially as a retail trader or private investor. Think about the effects of trading on your body. The uncertainty of the markets is a constant strain. Taking risk is also a burden on us. So, stress and trading go hand in hand. How do we manage this stress? Fight or Flight The 'fight or flight' phenomena is widely recognised and we all understand that stress feeling. Adrenalin surges through the system,  we might feel sick and have a dry mouth  as our body prepares for a response. The problem for us as traders is that 'fight or flight' response is not always helpful for us as traders. Literally a different part of our brain is in use when we are in our 'fight or flight' mode. This area  is our Brain Stem and governs our survival instincts. However, as trader we want to be using our Neocortex part of our brain as this is where the majority of our more developed thinking takes place: planning, thinking, and rationalisation. The impact of winning and losing You know the saying, 'when you smile, the world smiles with you?'. Well, when you win you feel different. There is a book called The hour between Dog and Wolf written by a former Goldman Sachs trader and neuroscientist, John Coates. He wrote about the different effects of the winning and losing cycles. You will recognises them:  Winning streak Excited, embracing risk, feeling extremely confident, higher testosterone Losing streak  Risk avoidance, fearful, deeply pessimistic, losing confidence Both winning and losing streaks create dangers for traders. So, we need to work at managing our emotions in order to avoid extremes of thoughts and response to both winning and losing. Managing stress from trading  Below are some tips to help us avoid making trading overly stressful. Define and limit risk Certain things we can't change about trading, like risk. We must take risk in order to trade. However, we need to always manage it. You know Greg has this down when he constantly reminds traders to 'define and limit' risk.  Trade from competence One key aspect of trading is to be competent. In other words, just trade when you know 100% what's going on. Sometimes the market is weird and complex. Not all fundamental narratives are clear. So, avoid trading when you don't understand what's going on. Stay out. It is ok to say, 'I don't understand what's going on in the market'. No-one has complete mastery  Never over-leverage If you are taking too much risk, you are are going to put your body under enormous stress and your brain will flick into survival mode and take unwise decisions. My advice to you is to stop using leverage. Your thinking will improve as you do this. Prepare Develop a plan that you start to follow. Write it down, do it each day and develop a daily competence through daily discipline. Change your perspective and try to find an opportunity Ok, you have had a tough trading spell. It's tough. You will probably be feeling down, worry about how this will affect your job or position with the firm, but what can you take from it. Maybe you have become more selective in your trading, or managed risk better. Don't add to the losing trade by feeding negative thoughts to yourself. Breathe Sounds silly, but deep breathing is extremely helpful for your body. It is being more widely reported these days and genuinely reduces stress. Practise taking deep, belly breaths by  pushing your diaphragm out as you breathe in. (You can google the technique if you are unsure of how to do this). As you breathe in and out you will notice that your out breath is your longest breath. It is also your 'relaxing' breath. You heart rate will drop and you will optimise your brain's thinking. One technique is the 4, 4, 4, 4, technique. It as follows:  Breathe in for 4 seconds Hold in for 4 seconds Breathe out for 4 seconds Hold for 4 seconds. Doing this will help 're-set' a stressed system.

Here's the easiest, cheapest thing you can do trade better

Have a glass of water (or a cherry coke) Feeling thirsty? You should probably avoid making decisions and complex mental tasks. We know that dehydration affects physical performance but a new study from the Georgia Institute of Technology shows how it diminishes mental acuity as well. "We find that when people are mildly dehydrated they really don't do as well on tasks that require complex processing or on tasks that require a lot of their attention," said author Mindy Millard-Stafford. The test involved a women playing a card game that required focus. "When the women were dehydrated they had about 12 percent more total errors" in the game, said Stachenfeld. She repeated the tests after the women drank sufficient water, and their performance improved. "We were able to improve executive function back to normal - in other words-- back to the baseline day - when they rehydrated," the scientist said.

Forex Education: Algos vs. the lowly retail trader. Can you compete in an algo world?

It is a matter of fighting the fights that you can win One of the things many retail traders complain about is the influence of algorithmic (or algo) traders on the market and their trading.   As is typical with retail traders, the algos always seem to hurt them.  They always are responsible for losses. Most retail traders think the deck is stacked against them and the algos. "Damn algos" is a common comment by many.  I was guilty at one point as well. Then I started to think more about the enemy (i.e., the algos) and what they were trying to do. To be honest, it is kind of hard to define the enemy.   Who is the algo enemy?  The High Frequency Trader Is the algo a High Frequency Trader (HFT) that is scalping the ups and downs in the market by using a computerized program, and advanced technology that makes execution easier and faster than a speeding bullet (and most/all retail traders)?   At the point of every trade is a counter party. If the HFT trader can get right next to the counter parties through a direct connection, and if they have a lot more internet speed, their trades can be executed quicker. As a result, they have an advantage of the raw power to scalp the markets.   What is a retail trader to do?   Nothing.    Just like you and I, are not likely to win a 100 yard dash vs. Usain Bolt, you and I will not win a sprint vs. a HFT who has "trained to run" a short distance (at a great cost) in a incredibly fast time.    Plus if you think about it, if there is a HFT buying, there may be another selling at the same time.  Both could end up winning in an up and down market, but not at the same time. If the market trends away, it could go horribly wrong for one of the traders - that could be you.   Most "professional" (i.e. Usain Bolts) HFT could just throw more trades, throw more capital at the losing trends and simply ignore the losers until the market eventually returns. They may have filters to stop and start trading given certain parameters that kick in.  But they also keep the "program" going 24 hours a day, every day.   True HFT traders who apply lots of resources and capital, have the ability to run the races each and every day with pretty consistent result. Do you have the ability and resources to do all of that 24 hours a day? Not likely.  You and I just don't have the pedigree to be the "Best at Show" in this type of competition.  But don't let it bother you. Look for another way you can compete. Can you compete against the Algo trader that applies an algorithm to pockets of volume? The next type of algo trader is the HFT who will apply some "algorithm" to the buy and sell data.   For example, a program might be designed by a HFT to find pockets of volume that enter the market from the buy or sell side. This is more doable in the stock market where volume flows can be seen (outside the dark pools of course).  That type of trading is harder to do in the forex market especially for retail traders. Banks, larger traders with "contacts", and brokers may have an advantage of seeing more of the volume and where it is happening in real time.   Knowing that volume and where it is happening in real time, gives them opportunities to profit from that knowledge.   Of course there are rules of "front running" those orders, but quite frankly it is hard to police> In addition, they may be able to piggyback the orders too.  Can you as a retail trader do that? No.   Again, there is not a lot you (or I) can do.  If you can't do something, don't sweat it.  It is simply part of the game.  In any athletic game, there are things beyond your control. The best teams/athletes deal with it and find where they an play, compete and have an advantage.   Algo traders that use technical tools. Can you compete with them? Another kind of algo trading is the use of trading tools like technicals.  Traders have always tried to use technical tools as a way to determine a swing in the bullish or bearish bias.  Trade above is more bullish. Trade below is more bearish.   I like to think of this type of algo trading, as the act of finding a definitive place where traders will tend to gather.   If traders all gather at a spot/area, there tends to be a reaction. That reaction brings volume and a movement away frpm that area. If you know, the price will move away, that is an advantage to you and your trading.    Think of it as a some scientific lab experiment where if you add XYZ to ABC , there will be a chemical reaction. The beaker will boil over or even explode.   The same thing happens in trading. If you know that in a normal market, there will be a reaction when this situation exists, you as a trader can take advantage of that "market reaction" (i.e. move).     The question is "What ingredients cause this market reaction to happen?"  Where will the reactions be that bring the crowds of traders? That bring the volume? That moves the market away - either higher or lower? For me, it is a technical levels that use technical tools that lots of traders (i.e.., algo traders) will use, see, and react to.   For example, the GBPUSD price chart above shows 6 separate swing level around the 1.32895 level.  It all started back on June 25th and 26th (see red circles 1,2 and 3), when a clear ceiling was established. The price moved lower away from that ceiling.    Fast forward to July 6th when the price stalled at the level on the first test.   Today (July 9th) the price broke above on the opening, stalled near the level in early Asian trading. Later in the London session, the price stalled against the level twice, before moving to the high for the day at 1.33615.    With 6 red numbered circles all around the same area at 1.32895, that area becomes a "algo area" where a large amount of traders (with volume) could be expected to enter on a test or a break.  Does a retail trader have the ability to see that area, easily?   Yes! Can the retail trader take advantage of that algo area where sell orders kick in on a break below?   Yes! Now, if the "kick through" the 1.32895 area is a fundamental report like Boris Johnson resigns from the PM May's cabinet.  If you know that too (because you read FXL), you are not only joining the algo's (who just look at the technical tools), but you are also adding a fundamental layer that increases your confidence on the break and increases your chance for a profit.  Does it take "work"? Yes. Is it hard work? No.  If you are not willing to do that, you are not ready to trade.     The reward is that combination (technical and fundamental) can be powerful to you as a retail trader, and put you ahead of the pure algo trader too.   And you thought you had no way to compete vs the algos. ; )  Now moving forward, a sell on the break of the 1.32895 level can lead to another algo level. In the chart above that comes in at the combination of the trend line at 1.3245, the 38.2% at 1.32422 and the 100 hour MA.at 1.3238.    Not surprisingly, the crowds gathered at that 1.3238-45 area.  There was a bounce up to 1.3268 off the algo area that uses technical tools.   You as an algo trader could play the levels just like a pure algo trader.  You might also apply your technical trading acumen, along with your fundamental acumen, to squeeze more from the combination.  In fact, the algo area has since been broken and trades down to the 200 hour MA (another algo area) of interest (see green line in the chart below). You can be an algo trader and more Can you the lowly retail trader play the algo game and not only compete, but win? Sure.   It is a simply a matter of recognizing your weaknesses and strengths and using your strengths to win.   Remember, you don't need to be the best at everything in your trading, and there are certain things that most retail traders can simply not do and compete - especially against some of the things the algos/HFT do. That is just a fact of trading. However, if you look close enough and find those situations where you can join the algos - and maybe add your own value added -  you can not only compete, you can win too.  

Video: From good to great in fishing or forex trading

Does it take time, or talent (or neither)? I took a week off in Northern Canada and that gave me some time to think about how to get better at trading and fishing. Whether it's catching fish or pips, the principles of getting better are similar. It's not just about putting in the time but how you structure that time and stay focused on getting better.

Trade like a pilot with this one simple technique

In this video I talk about a trading taboo Affordable, safe commercial aviation might be humanity's most impressive achievement. We discovered flight just over a 100 years ago. One in 11 million people die in a plane crash. One in 5000 die in a traffic accident. You're 10 times more likely to be hit by lightning than in a commercial airplane.There's one simple thing you can do in your trading to be more like a pilot and it will help you fly higher. Sign up for our education newsletter to get videos like this one in your inbox.


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