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FUNDAMENTAL STRATEGY Sun 12 Jan

JP Morgan on the yen - narrow ranges to persist

JPM client note on the Japanese yen, say its losing its attraction as a safe haven play USD/JPY annual range of less than 10% for three consecutive years 2019 range less than 8% (smallest since 1980) Yen: "when a risk-on mood was strong, market participants would normally actively engage" in the yen-carry tradebut when risk-off hit "investors would be pressed to close their positions"  - to sell the higher-yield currency & buy back yen they had sold, which is why the yen would strengthen in risk-off environments "But because in recent years the yen is no longer being sold off in the first place, it is not acting as much like a safe-haven currency as in the past" JPM on what will prompt wider ranger: if interest rates increase in other countries (opening a wider gap with rates in Japan)would encourage yen-carry trades Yeah 1980 might have been a narrow range but as the 80s went on things did hot up (check your historical charts …. google the Plaza Accord) Probably not about the yen range but its from the 80s (ok, 1979) ForexLive

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MARKET WISDOM Sat 11 Jan

What were the financial lessons of the 2010s?

The next decade is often different from the prior one "Financial markets tend to base their expectations of the future on the experiences of the recent past" That's a part of human nature that has repeatedly led to folly. Nowhere moreso than in financial markets. We've started a new decade with the same enthusiasm that ended one of the greatest decades in stock markets. Yet few people are out there to remind market participants that the S&P 500 had an average annual total return of negative 0.95% from 2000 through 2009. One is the WSJ's Jason Zweig who wrote the Heard on the Street column edited the latest edition of Benjamin Graham's classic the Intelligent Investor. In a recent article he highlighted how investors (and traders) tend to pile into trades that have worked recently. A parallel from the 2000s decade as the carry trade. Buying NZD/JPY was a spectacular trade, until it wasn't. In the most-recent decade the market fell in love with the US dollar. Market patterns don't reverse in 10-year cycles like clockwork; there's no guarantee that the coming decade will be the opposite of the one that just ended. But before you bet that the future will be like the past, it's worth remembering that this decade hasn't turned out the way investors predicted it would 10 years ago. Here is how FX returns looked in the past 10 years: What that doesn't include is emerging markets. The South African rand lost 48%, the Russian ruble 52%, the Brazilian real 56.5% and the Turkish lira 75%. ForexLive

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EDUCATION FROM BROKERS Mon 6 Jan

Gold gives back gains as the fear trade fades

Gold gives back $25 in gainsGold remains in positive territory but has given back the bulk of its gains. It's up $10 to $1562 from a high of $1588.The move is part of a broader fade in the fear trade that started in European trading and has picked up in the past hour.   This chart is beginning to look ominous.

TRUSTED GURUS Mon 6 Jan

Guest trader: Martin's 8 principles to trade by

Martin Nikolov is our guest trader this week In a series of articles this week, Martin Nikolov will share his trading philosophy and then guide us how he sees markets unfolding with real-world examples. Martin is a long-term professional senior trader at Varchev Finance a firm in Bulgaria with a trading office in the City of London. He trades indexes, commodities and stocks on the basis of technical analysis, but does not ignore the fundamentals. My trading philosophy As each art, trading is also a craft that requires knowledge, skills and discipline. All of these three aspects of every craft form a philosophy that is individual for everyone. You actions, decisions, thinking and idea - birth process will revolve around that philosophy. As practise comes it forms principles and a routine. Being a professional trader, you will be required to form and exceptional routine and principles. That will get you to the long - term path of being profitable and successful. I will share with you my eight trading principles that I believe in and why. Let my profits grow  I don't use take profit. Simple as that. My trading technique as a short to long - term trader doesn't need from me to limit my profits. I am a trend follower as well so I open positions only in the direction of the trend. I am backed by the motto: "Trend is your friend". I let go of my profits to grow, building on the initial entries. I exit when I am psychologically satisfied with the results or when the trend starts to get exhausted. I don't use limits, because they are putting stress on me and who ever wants to limit their potential of profit? Cut my losses fast  As letting go of my profits to grow, also I have learned to let go of the positions that are not doing well. Fast. Without hesitation and never putting the trade to stay on hopes and wishes. If for some reason - mostly unpredicted fundamentals are set in to place and the trade stalls, can't execute my technical analysis as well, and I am in to a loss I just close the position. This is healthy for your mental state and for your balance. The market will always present to you the next opportunity to recover and to grow. I also answered your question "Why?". Because I do not hope for a miracle. If a trade doesn't go well, close without hesitation  A repetition to the upper paragraph, but this is very important. Forging a strong mental state requires for you to take fast decisions to protect your money. Like in life, saying "No", letting go of toxic people or sacrificing something that brought you comfort for years, so in trading you need to CUT AND LET GO of negativity, losses and always confronting your comfort and safe zones. This will fine your character, mental state you will feel more confident. Forging a "Warrior - fighter" attitude towards trading will reflect in your personal and professional life as well. So that's why I let go of emotions and bad trades. Trade with the trend  "Trend is your friend" is a sentence that has turned as a cliche but for me it my axiom in trading. I don't go below 4H chats - I precise the entry there. I chart and stare the daily and weekly charts. Noise is limited and pretty much you don't care about news and fundamentals. The TREND is THE most powerful indicator. Finding it, charting it and discovering the support and resistance levels is enough. If the trend is just forming - that's the perfect entry. If there is a correction, enter on the end of the correction. Never enter in a trend that's too steep and the price is no where or at the consolidation phase, signaling that the trend potentially ends. Some trends continue with months or even years and building positions in the direction of the movement can lead to some very outstanding profits. Some may say "Yeah , too long for me to get my profits". Trust me, if you want to distinguish yourself from the gamblers, take it as a real business and to achieve something, you need patience. Don't rush it. Why? No one became rich in a night or couple of days - in the retail branch. Follow a strict, company money and risk management Even though I work as a professional trader and I follow strict company and risk rules, same applies to the retail traders and everyone else. Proper money and risk management go side - by - side with your discipline and trading routines. There are standard risk rules: Follow 1:2 at least risk - reward ratio, don't risk more than 1% and so on. Understand that trading in the markets exposes your capital to 100% risk if not managed correctly. You are managing your own money. MANAGING. Let that sink in. You on you own are a fund manager. So not following risk discipline is a true disrespect towards your money, the art and to the markets. It may be as much just to go tot he casino. You don't deserve your money and to have the opportunity to trade. You need to be grateful that first you've saved money to enter the markets and secondly - that you CAN actually have access to the markets. From there on you are obliged to respect that opportunity, the spirit of money and trading business. That's why you need to follow a strict risk and money management, even as a retail. Buy low, sell high, look for a correction The tricky part. As mentioned - look for a correction. Observing correction is the way for you to discover the cheapest price to buy and the highest one to sell. For corrections I apply Fibonacci levels on the main trend and on the retracements. In addition I chart the trend lines on the spikes and on the bodies on the candles and I chart the insider (fractal) diagonals as well. Doing that gives you a roadmap of the potential movement of the price. Never trade news Simple as that. Never. It's a complete gamble and I've heard a lot of people saying to place limits and stops for both of the direction to catch the move... Never. Trade. News. Why? Spread can go super wide, lack of liquidity, slippage, platform stall, extreme volatility. You can't use proper management. Anxiety will kick in, stress, 100% risk for your money and mistakes that can lead to a complete wipe out. Never trade before earnings This is mostly for the traders that trade stocks like me. As with the news, earnings can be a true gamble as well. Even though they can be more predictive because they rely on actual and real accounting and numbers, and real fundamental facts, for example a trade war, they can lead to surprises as well. The negative surprises can be a lot more volatile and crushing the price of a stock and the positive. Also earnings are publishes before the opening of the stock market or after the close. In these cases you can't react at all to your opened orders. If you have stop loss on a certain level and price before the opening or after the closes reaches it and passes trough, it will be executed on the next opening and on the first AVAILABLE PRICE! Which can a lot below your initial stop loss. Have that in mind. Conclusion Trading is not simple. But it can be easy and comfortable if you follow strict rules and be disciplined. Do not listen to others, do not follow other analysis and do not follow signals. I don't need to explain why... Trading requires an individual approach, emanating from your character. Trading is a lone profession even working in the proper office or floor environment. Only YOU are responsible for your actions and do not blame other people, persons or events for your mistakes and losses. Check back tomorrow where Martin will write about what he's trading right now. If you're interested in participating in our guest trader series, email me at adam(dot)button(at)forexlive(dot)com. ForexLive

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BASICS Mon 6 Jan

Expect gold buyers on any further US/Iran military strikes

Trading 101 Over the weekend we looked at the power of doing nothing in our trading and how unexpected events can provide unexpected opportunities. Sadly, the drone attack on one of Iran's top generals provides a good basic learning point for investors In this instance when the US President Trump directed the killing of top Iranian general Qasem Soleimani in a drone attack at Baghdad airpot during last week escalation of the situation seems inevitable now. I can't see a situation where there is not a response. The only question is, 'to what degree is that response and what will the knock on impact be?' Look our for a reaction from the following markets on any further escalation or retaliation of the present situation  Yen The Japanese Yen is a safe haven currency which investors rotate into during times of uncertainty. The Yen is most probably the largest risk sentiment mover and is the go to currency of choice for risk on and risk off moves. Risk off= YEN strength GoldAdam has continually reminded us of the strong bids in gold during January over the last few years and any risk off flows only add extra fuel to that fire. Expect bids at market for gold on any further military reaction from either the US or IranOilOil is bid on supply issues with a middle eastern crisis liable to spill over to Iraq and Saudi Arabia. so again look for bids here. In terms of risk off moves, these are some of the key markets to focus on should the situation deteriorate further.  Also, look for reverse moves should the situation surprisingly de-escalate.  A simple playbook.  ForexLive

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TRADING TECHNIQUES | TRADING PSYCHOLOGY Sat 4 Jan

The positive power of doing nothing

We find doing nothing very hard  It seems that we find doing nothing incredibly hard. In fact a paper in the journal Science found that people found being alone with their own thoughts extremely hard. The surprising conclusion of the study was that many people would rather give themselves an electric shock than be left alone with their own thoughts and nothing to do. One man in the study even gave himself 190 shocks during his brief time of being forced to do nothing. Ok, he was clearly a bizarre individual or just having a funny half hour, but the conclusion of the study was that, 'most people seem to prefer to be doing something rather than nothing, even if that something is negative'. This study would show that we are psychologically hard wired for action, even when that harms us. That makes sense because generally speaking action in life is helpful. However in trading it isn't always the case. In fact, nothing can pay.   Why nothing can pay Jack Schwager wrote the famous trading book Market Wizards in which he tries to answer the question about what it is that, 'separates the world's top traders from the vast majority of unsuccessful investors?' Jack Schwager interviews some fantastic traders in a bid to answer that question. One of the key principles that emerges from that book is the ability to have patience to wait for the right trading opportunity. The flip side, of course,  of waiting for the 'right opportunity' is avoiding the wrong ones. So, there are times when we literally need to be doing nothing. In an interview for the Street, Jack Schwager was asked about this principle of doing nothing and in particular why investors found it so hard to do? The first part of Jack's answer to that question was: Because doing nothing requires the patience of a saint. It is common for traders who develop good methodologies that signal trades infrequently to take other trades that lack the appropriate criteria because of a need "to do something."  The need to do something...Is that a problem that you have with your trading? I have got better at this over the years simply because I have learnt the hard way that I can easily give away the money I made on one no-brainer trade with three or four bad trades taken on impulse. Below are some tips that I have to to help you do nothing.  Expose yourself to multiple markets One aspect that can help you do nothing is by exposing yourself to multiple markets. If you are primarily a currency trader and wake up to a sleepy Thursday with no data, no driving news and narrow ranges you can easily start putting on silly trades. However, if you trade multiple markets you might notice that a particular commodity has some strong fundamental news or an individual share has outperformed some fundamental data point. You can chase other rabbits for the day. The more markets you have access to, the wider pool you have to chase that high probability trade.  Find another project This is where being a currency analyst helps me which I really enjoy as I get a boost out of guiding people in navigating the markets.  There is always plenty for me to do in writing an article, meeting a client, teaching a core concept or conducting research. However, there are many different things that you could do, so having another hobby or project can distract you by doing something else. Reward yourself for doing nothing When you manage to not take a trade all week because there was nothing to trade give yourself a reward. You have saved your powder for when you need it. Reward yourself. Imagine that something big is just around the next corner  This thought helps me. When nothing is happening I think, 'there could be some really big market moving news just around the corner'. The uncertainty of the market is really an asset to me in this respect. One of the market maxims that I teach in an event I run in Dubai 5 times a year is that , 'unexpected events can and do occur in the market'. My go to illustration of this is the removal of the 2015 EURCHF 1.2000 peg. However, as well as a cautionary tale, the uncertainty of the market can also provide opportunities. Just because the day is scheduled to be quiet it doesn't mean an unscheduled surprise event won't provide a great trade. As long as President Trump and Twitter co-exist, then there is one permanent source of potential rapid market change.  Of course this is also a cause of sadness. It always feels odd to me that 'bad news' for the world  can be 'good news' for a trade. This conflicted feeling recently occurred with the latest tensions in the middle east causing an extra bid into some gold longs I have.  In FX markets we only risk our capital when we take action. Taking no action at all means that we risk none of our capital in direct market exposure. Doing nothing may be your most powerful weapon. Now over to the great and good of Forexlive readers. What have you found helpful to keep you out of silly trades and harness the positive power of 'doing nothing'? ForexLive

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MARKET WISDOM | FUNDAMENTAL STRATEGY Sun 29 Dec

Am I addicted to FX trading?

The hidden dangers in plain sight  With the holiday season upon us it is worth reflecting on the psychological impact that FX trading can have. One of the most neglected areas to talk about amongst retail traders is the addictive nature of FX trading. The reasons for the neglect are obvious. Brokers want traders to trade as much as possible, as this increases their revenue. As a result they is a financial incentive to not bring it up. For the unscrupulous broker FX addiction is just an added bonus in their exploitation of the hapless retail trader. On the other hand,  retail traders don't want to acknowledge what they already know to be true, namely that FX trading is taking up too much time. Especially as a breakthrough is just around the next corner.  This article will explore some of the reasons FX trading is addictive, the signs it is impacting us and ultimately what can be done about it if you are currently under its influence.  The addiction of trading  The first aspect to be aware of is that FX trading is addictive. In a very similar way to the way that alcohol, drugs and sex can be addictive, FX trading can consume our attention and focus. The difference is that FX trading does not initially raise alarm bells in the way that alcohol and drugs would for most people. FX trading's pull is powerful, but not initially obvious.  The pull of trading  If drink and drugs promise  an escape from a painful world, FX trading offers the promise of escape in a different way.  Just think for a moment of some of the benefits that trading offers: working for yourself, working remotely from anywhere with an internet connection, the hope of financial freedom and the potential to make huge sums of money. Some key indicators that you may be addicted to FX trading Present in body, but not in mind Assuming that you are holiday with your loved ones and family,  you will not be able to give them your proper attention. If you are worrying about your position in the markets when you should be giving your attention to your friends and family then you really have to ask yourself some hard questions. Just because you can trade from any location at any time, it doesn't mean you should. As a father myself with teenage children remember that if you have children you will never get that time with them again when they are little, so make the most of it while you still have it. If you can't disengage from the markets to spend time with them on holidays, then that is a sure signal that something is wrong. Ask your family and loved ones Perhaps you could ask your family what they think about your trading? Perhaps they might say , yes, you can trade but can it be when we are in bed or after we have gone to sleep? You may find that they have very strong opinions on whether you do or don't trade. That may help make the decision clearer for yourself and it also might help you set boundaries or parameters for your trading during normal hours. I have met hundreds of aspiring traders and from time to time I meet a person who brings their spouse along to my trading events. The spouse is there to help with accountability and support. I always compliment people who do this and their strong marriage will help shield against some of the pitfalls of a potential FX addiction. At least the communication channels are open and accountability is sought rather than avoided.  Has trading become all consuming?  You don't have to be active in the the financial markets very long before you notice that they have a curiously absorbing affect pulling you in and consuming your thoughts. This is never so true as when you are actually in a trade, How is my trade going? Has Donald Trump been tweeting anything recently? I mean he tweets a lot .  So, should you really inflict that level of distraction on your and possibly your loved ones on holiday? Trading intraday, with a regular job is not something that you should really attempt. It will lead to distraction from either your regular job, your family, or both.  Ask other traders Finally in making the decision why don't you ask some other traders that you know. Do they trade on holiday? If they do are they happy that they do? How does their FX trading impact their family>  If they don't, why not? You may be helped in your thinking by listening to others around you who are thinking through this same issue. Loss of finance, home and relationships.  This is a tough one. Have you lost significant finances through  FX trading. I have met a number of people who have lost significant finances through FX trading. What is significant is very different to people. Some people can lose £50K in an afternoon and it is no big deal for them or their finances. Others can lose £10K in a year and it is a disaster. So, what counts here is have you lost a significant amount of money for you? Has it impacted your relationships? Lost a spouse or partner because of it? Back in the early 2000's I volunteered for a homeless shelter and saw the upfront costs of drink and drug addiction. Loss of friends, sleep, spouse, home and health. It is sobering to realise that FX trading can have some of the very same impacts.  What can you do about it? Well the first thing you could do is consider quitting FX trading. Chalk it up to experience and move on to something else. Never any shame in folding your cards if you have a losing hand. The second thing to do is to admit if you have a problem. Tell someone and try and get some support. The third thing to do is to re-evaluate your trading. Are you trying to trade intraday, when you don't really have time? Then look at swing trading. The number one thing you can do to minimise the impact of FX trading on your finances while you learn the ropes is to not over leverage. Don't over leverage This is the number one way halt a trading addiction. It is also the number one aspect that regulation has been tightening up over the world. Stop the leverage and stop the car crashes in people's lives. I have written about it here and here. If you have never read it and you think you may be showing some of the signs of an FX addiction then check it out now. It may help you in very significant ways and the holiday time can be a great time to help you reflect over your trading and what new directions, if any, you need to take.  ForexLive

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FUNDAMENTAL STRATEGY Sat 28 Dec

Recognise the trigger for a sentiment shift trade

When do you pull the trigger? This takes time to know when to pull a trigger on a sentiment shift trade. It is the combination of experience, planning, knowledge and good old fashioned bottle (or confidence for non-native speakers) to recognise and act upon a trigger for a sentiment shift trade. Trades that have an obvious 'trigger' can also be the trades that have the least drawdown and make their way quickly to obvious targets. So developing this skill is very important and is really an extension of an earlier article on recognising 'market context'.   First of all a disclaimer. This is important because everything in this article will appear in hindsight. So, for those of you who don't know me/the site generally/follow my posts you may be sceptical. You are a charlatan, snake oil salesman, purveyor of smokes and mirrors, and a hindsight trader. I understand your concern and sympathise.  So, why I am still  going to do it?  Simply because it will help people understand, through a worked example, how to recognise a trigger for a high probability trade. This skill takes time and you have to get it wrong before you get it right. I can't think of a better way to explain this short of having someone over sitting next to me for the day.  This will also give the retail trader an insight into how professional traders use a squawk service to execute high probability trades. This is a worked example where I sent a message to 80,000+ subscribers for HYCM just a few minutes after this example broke. So, I at least have some proof it is not all smoke and mirrors after all. It takes a high level of conviction to tell round 80K+ people that you are expecting buyers or sellers of a certain asset class. However, that conviction level is what you need to develop and, through time and practice, it will become a great asset to you.  So what was the trigger to recognise for our example?  The trigger can be any news that is either political or economic that changes market expectations. In this example I have chosen an example of a geo-political comment from US President Trump on December 3. Just after 10:00GMT on that day President Trump announced that, 'it is probably better to wait until after the 2020 presidential election for a China deal' and that there is 'no timeline on trade'. Justin reported on it here.  President Trump's comment seemed to indicate that a US-China trade deal was not that close after all. The baseline or market expectations had been that President Trump would soon sign a Phase 1 trade deal and then work on his Presidential campaign as the man who 'sorted the China problem' out and should be voted in again. That narrative was thrown into question by Trump's comment. So, President Trump's message changed that expectation and the market very quickly went to a risk off mood. Now, the playbook from here was simple. The market was going to turn 'risk off'. In a risk off market we expect: JPY, CHF, gold strength and AUD, NZD, CAD, oil weakness. That's the rules. The classic 'go to'  pair for the US-China trade dispute not working out is the AUDJPY pair. I heard the announcement on the squawk as the news broke and immediately flipped open a AUDJPY chart. Price was around 74.76 when I looked at it. You could literally feel the weight of the pair falling. Notice how little the drawdown was, virtually non-existent. Always good for the blood pressure ;-). I flagged the move around 6-8 minutes later on HYCM's Telegram channel where I put up this chart below.  This was the text I wrote:  'Breaking news: US President Trump on China dealUS President Trump has just said that it is probably better to wait until after the 2020 presidential election for a China deal and there is no timeline on trade. In an immediate reaction USDCNH made fresh highs and global equities have seen negative moves.Expect JPY and CHF strength across the FX board and watch for further headlines from Trump on this new shift. AUDJPY falls quickly on this headline. Expect sellers on this pair. Do you need a news feed to take these kind of trades? Yes and no.  Yes if you want to react straight away. If you want to day trade, I don't see how you can trade effectively without a news squawk service. Get one, even a delayed service. Even here on forexlive.com we can be a minute or two before we get key news out to you. No, you don't necessarily need a new squawk service if you want to swing trade. You could read up on the reasons for large moves and find the moves you want to join on a retrace.  There were a number of different approaches you could have taken on this trade. So, using the same example you could have seen that the daily close of the AUDJPY was a false break of a key overhead resistance level which formed a pinbar. You could have seen that the risk off tone was still in the market and took a short out of the NY close. Good old technicals to aid the fundamental story.  Make sure you recognise the reason for any retracement  This is important. If you have missed the initial move, but want to join in on a retracement make sure you recognise the reason for the retracement. In the example of President Trump's trade delay statement there were two retracements as AUDJPY sold off. The first one was for no significant reason, so it could be joined. See point 1 at the 38.2% fib level.  The second one at point 2 was on a changing sentiment shift. There was a Bloomberg piece quoting sources saying that the US and China trade deal was moving closer, despite the 'heated rhetoric'. This resulted in a pullback to 2. (see the chart below). Now, this raises questions. What sources are being quoted here? At the very least this causes some AUDJPY sellers to close positions and some AUDJPY buyers. The jury is still out whether President Trump will speak later today (December 04) and affirm a US-China trade deal or confirm a delay. Either way, the market will respond. The key is being ready to act, and pull the trigger, at the right moments. See here for some previous examples of trading with fresh sentiment trades. ForexLive

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MARKET WISDOM | BASICS Wed 25 Dec

How to improve your trading efficiency

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 Central bank speakers... how to prepare for them? 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. ForexLive 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. Summary 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.

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MARKET WISDOM | BASICS Sun 15 Dec

How to make FX trading work for you part 2

The final stages of a trader This is the second part of a two part series on 'how to make FX trading for you'. Part 1 is here for those finding this article by an internet search.  It is aimed at those people who are trying to evaluate if trading is for them or not. I used William Shakespeare's 'seven stages of man' to create a template of the five different stages of an FX trader.  In the last piece we covered two stages, 'Birth : The horrible world of the rookie' and 'Toddler: Finding your feet'. In this article we shall cover the three remaining stages starting with 'Adolescence and growing towards maturity'.    Adolescence: growing towards maturity   The teenage years can be painful. You are trying to find yourself and most teenagers are not sure who they want to be yet. They try to imitate a few of the latest stars, try to be like the 'cool kids' in school, and may cringe whenever their 'uncool' parents pick them up. For this age of life I am reminded of the quote, apocryphal or otherwise, attributed to Mark Twain. This quote really sums up this stage and attitude of life:  "When I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around. But when I got to be twenty one, I was astonished at how much he had learned in seven years." Funny, and relatable. You know some things, but lack the conviction to really follow through with your trades. You are now competent enough to make your own decisions, know and understand how the FX markets work and the gaps in your knowledge have now largely disappeared. Alongside the basics, which are firmly down, you now understand how the equity markets impact risk sentiment. You get the effect of Quantitative Easing on a currency. You can see what is supportive for gold and silver and have got it down how the commodity currencies are moved by shifts in the commodity markets. You know what the yield curve is and what is signifies etc etc. The gaps are few and far between. However, you are still not making money or you are making small % returns money and hovering around break even. What to do as a Adolescent Well done. You are nearly there now. All the hard work is starting to pay off and you are within reach of your goal.  Some key things to do here:  Try and develop a consistent routine and surround yourself with other traders who are committed to the same goal as you. Develop conviction. From here you know how the market moves. You now need conviction. Stop bringing the stops to break even when you are only 5 pips in profit. Stop taking 2 pips of profit out of fear. Stop getting in and out and then into a trade as you flutter between opinions. Work out your plan and execute it to the best of your ability.  Also, look back at those trades that you shouldn't have taken and assess what you actually did wrong. Be specific and use it as a learning curve. See this very simple sheet below which I use in my one on one coaching webinars for HYCM clients to help traders do this:  3. Actually do point 2. 4. Do not over use leverage. If you overuse leverage at any stage you will change the way your mind relates to trading and you will risk training your brain into a fight and flight response. Whenever you think about trading your mind will just associate it with stress. Good for fast actions, not good for well considered and measured trades. This was brought home to me when I set my new phone alarm one morning before a stressful event. Now, whenever I hear that ringtone from that day, I feel a level of stress. It is strange the way the mind impacts the body, but it does.  Let's now move on to the next stage of growth, 'Adulthood: Walk humbly'. Adulthood: Walk humbly  You know that you know that you know. You have persevered through ignorance, mistakes and failure to find success. Success here, for the purposes of this article, is the ability to make consistent annual returns in the market.  Leverage is now your tool, rather than your downfall. You stay out of nothing moves and your conviction levels are good. You learnt it through experience. If you have got here from a retail perspective you honestly deserve a medal. You have self taught yourself a profession. I applaud and respect your hard work and know what that took to work down an extremely lonely road.  What to do? Now it is all a matter of working on your trading pyschology and not destroying yourself in a moment of madness. All the mistakes of previous stages are still open to you and you can still fail through bad decisions. In other words leverage can still kill you. Don't get tempted.  Now is also a time to give back. You can be a 'successful trader' but a fool of a person. Aim to give back to all the traders who helped you get where you are today. Is there a new kid in the firm on the desk? Give him a 5 mins of your time and teach him a few things. See a guy in a forum who is making a real effort, but making an obvious mistake. Show him the right way.  Pass the knowledge on, as it was first passed to you. Conclusion and the death of a trader. So, there we have the five stages of FX trading. How long does each one take. Well, there is no set amount of time. It will largely depend on how good your trading environment is and support you receive as to how long you spend at each stage.   The canny among you will realise that I have only covered four stages. The final stage of a trader is the final stage for all of us. Death. Live life in light of your death. Trading is just one part of life. My younger brother died young and very unexpectedly on December 05 of this year (2019). It was a big shock and great sadness and a reminder of the brevity of life.  All traders die, so live your life in light of that coming death and manage your money well. Do what you can, with what you've got to be a good guy.  Here is a conclusion to an article I wrote for the site in September 2019 titled, 'Talking about the M-word' which seems a fitting way to end this piece:  Money is your tool You see, money is your tool in this world to serve others. It may be just your family. That's ok, and that's good to provide for them. Ideally you provide for yourself, your dependents and have some more for those who need it too. So, you see, you have no money to lose. Don't approach trading as though you have money to 'lose'. Yes, you have money to risk. That's different though.You should always try to make the most of what you have got. Taking a risk is part of life and as soon as you enter (or even don't enter) a market you are taking on risk. You can't, and shouldn't try to, eliminate all risk. Instead, you manage it. So, this is how I view my accounts. Whether I am trading my fund's accounts or my private account for my family. My aspiration is this: 'May I be a good steward of the funds entrusted to me'. So, copy me, and tell those trying to take advantage of you to go and take a long walk down a short pier. You have no money to lose, only money to manage. So, be a great boss. Your own. ForexLive

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