Currency Markets offer some of the Best Trading Opportunities

EconMatters's picture

By EconMatters

 

Markets Going Nowhere

 

The last several years equities markets have been best characterized as buying the dips and selling the rips. The past three years the currency markets have probably offered the best trending opportunities when taken into context that the Central Banks purposefully telegraphed traders for market direction in helping them weaken the Japanese Yen and the European Euro currencies. There have been strong Central Bank coordinated Trending Trades in both the Japanese Yen and the European Euro the last three years. Why not be involved in a market where the power brokers who run the market tell you ahead of time which direction they are going to move the market in the future? Imagine if Casinos told you in advance what the next card from the deck in a game of Blackjack was going to be? This is essentially what has transpired over the last three years in the currency markets.

 

Forex Markets Support Many Different Trading Strategies

 

Besides the trending plays, the currency markets offer many support and resistance opportunities, scalping setups, and technical breakout – (buy and sell stop) entry setups. The currency markets like many markets these days are dominated by technical price action trading mainly because of the preciseness of the algo`s and their programmed responses to price and key technical levels.

 

Protective Stops

 

With this in mind it only reinforces the use and benefit of utilizing stops to protect investment and trading capital, and to maximize your trading edge from an efficiency standpoint. Don`t try to average into or scale into a position. If the market breaks a level where your stop is placed, it is going to go lower or higher from there, you are better off just cutting the loss right there, and reevaluating the merit of the original trading idea. Stops are especially important in the Forex market given the fact that many traders take full advantage of the leverage opportunities offered through various types of trading platforms. A run away trade can liquidate many a trading account, and you have to have capital to stay in the game. It is one of the few things traders can control in markets, their defined risk profile.

 

Poker Analogy

 

The stop forces you as the trader to complete the trade, now move onto the next play like a hand in poker. This is one of the great things about a game like poker it forces the players to end the hand rather quickly with finality. It should be no surprise that a game like poker has so much similarities to decisions that come into play for financial markets, because after all financial markets are one giant strategic game. Just instead of poker chips, financial markets utilize digital currency in the form of numbers and P/L scorecards. Stops are essential for currency markets!

 

Master these 2 Forex Crosses: EUR/USD and USD/JPY

 

Master two currency crosses like the EUR/USD and USD/JPY and see how geo-political events, risk on versus risk off, economic data and reports, Central Banks Meetings and Statements, Bond Market Relationships to these currency crosses, commodity moves relationships to bonds and the crosses, and how this all revolves around the funding mechanism of carry trades. If you are new to trading currencies just put these two currency cross charts on your trading screen and watch them every day for three months in relation to the economic news and market behavior and you will start to understand the patterns of the crosses.

 

Risk-Off Relationships

 

After a while you will be able to understand and act real quickly that in a risk off day you buy the yen against the US Dollar as some carry is unwound. It doesn`t even matter if any carry is being taken off, the algos are programmed to automatically move this currency relationship on a risk off market day. If crude oil is spiking or has a bid, then buy the Euro against the US Dollar. These are types of relationships that you will learn to recognize in the Forex arena and they will eventually become reflexive trading opportunities with relatively manageable risk reward setups.

 

Bond Yields

 

If US Bond yields are spiking, then buy the US Dollar against the Euro. However, here is the tricky part, if bond yields are orderly rising, and money is flowing out of US Bonds into US Equities, then you can also buy the US Dollar against the Japanese Yen. The Japanese Yen is often a funding currency from a carry trade standpoint for US Equities. Conversely, if US Bond yields are spiking and this is viewed as a Risk Off event, and US Equities are selling off, then you short the US Dollar against the Japanese Yen as carry trades are being unwound, and capital is going to cash or money market funds. This may seem confusing at first but stick with the vanilla relationships and as you progress in an understanding of the currency markets in relation to the financial markets, geo-political events and Central Bank policies even the most complex relationships become relatively easy to predict and take advantage of with enough screen watching experience.

 

Malcolm Gladwell`s 10,000 Hours for Master Level Knowledge

 

Just keep in mind that you will have to pay your dues, think in terms of the book Outliers, where author Malcolm Gladwell says that it takes roughly ten thousand hours of practice to achieve mastery in a field. Yes one has to have some aptitude for pattern recognition, and be capably smart, but trading and investing is not exactly rocket science. However, the psychological aspects of discipline, avoiding going on tilt, and sticking to one`s edge are often severe obstacles for many an aspiring trader. Keep in mind that the markets are an uphill climb for retail traders and investors.

 

Information Disadvantage

 

You are at an information disadvantage on a daily basis. Goldman Sacks for example can just look at the order flow from their clients and know at 2:00 am in the morning the day is going to be a major risk off day, and the same for J.P. Morgan. These investment banks really have to be leaning the wrong way to lose money in any market. It doesn`t take any skill at all to know ahead of time a risk off day, and to front run client and clearing trades from the details of order flow in the system which they are privy too unlike retail traders. The statistics bear out the fact that retail trading is a specialized talent and skillset with over 95% of all retail traders consistently losing money.

 

Myriad of Reasons Most Traders Fail

 

This is due to many factors from being poorly capitalized to not having a trading mentor to stay in the game long enough to master the skills necessary for being profitable to having the mental makeup necessary for avoiding going on tilt. But the currency markets are easier to trade from a predictability standpoint compared to many other markets once one learns the relationships. The currency markets are highly liquid instruments, especially the main crosses I have recommended for traders getting their feet wet trading. Can you imagine all the shorts who got their heads torn off trying to short that GoPro stock based upon a fundamental valuation standpoint, lots of funny business in IPOs with small trading floats! Moreover, after they have finally had their short positions margined off and their trading accounts vaporized, then the GoPro stock drops like $70 dollars.

 

In Conclusion

 

To sum up, learn the major crosses and give the currency markets a try, just always utilize stops to protect your capital, and study some good technical analysis trading books until you master 4 or 5 nice vanilla price action trading setups. Maybe you have the right stuff to be part of the 5% of the retail crowd who can be profitable traders in the financial markets. But don`t be afraid of the Forex markets in and of themselves. They are probably much easier to trade once you master the fundamental relationships of these funding markets that buttress all financial assets then trying to predict whether Twitter will ever learn how to monetize its platform.

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Felix da Kat's picture

"It's only gambling if you don't know what you're doing"  W. Buffet

Fudomyo's picture

Whoever wrote this article doesn't know what they're talking about.

 

"If crude oil is spiking or has a bid, then buy the Euro against the US Dollar."


Piss poor analysis.

Euro dropped like a stone today on the spike in crude. Shorting EURCAD is the easier trade anyway because it's directly linked to price of oil. Dropped 200 pips.

 

. . . _ _ _ . . .'s picture

"Imagine if the casino told you what the next card in a game of blackjack was going to be?"

The question is, would you believe what the casino told you?

Schroedingers Cat's picture

It does read like an infomercial.

HopefulCynic's picture

My only problem so far with Forex is my own lack of balls. So far I have not lost money I have made money and lost many trading opportunities because i sometimes can't seem to commit, mostly when I have a loss, it takes me a while to get back in the game. Most of the losses I've had, I can attribute them to pulling out before and closing the trade early, again it is the lack of commitment. But in all of my time of trading, even with the losses I have made more money and pulled out that money (cashed out). I have found out that it requires a lot of patience, I hope in the future that I can work on my procrastination and commitment issues, because once that happens, I know I can make much more money than I already have. 

ShamusHusky's picture

Reads like an infomercial. Take a look at the 2015 performance of the macro and HF's that play in the currency market.  The intraday FX market moves on supply/demand inbalances. (Most key levels are breached ... stops done, market drifts back the other way.)  Also, as we found out in EUR/CHF and most recently in EUR, when "Do whatever it takes" Mario Draghi didn't deliver, the smartest guys in the room turned out to be not nearly as smart as those contrarian Japanese housewives.  Do what this atricle suggests and you will surely lose your money.

carneades_jazz_hands's picture

I much prefer the heavy Blackjack shoe, to the Poker anaolgy when trading, though agree it's always better to have the odds on your side.

That being said, (and no, I'm not that I'm here to just toot my own horn), if you're an active trader, or looking to be one, and looking for a casino type edge, message me. 

I was a Floor Trader in Chicago, who also provided my work to others.  And even though we've all migrated from the exchanges, we're all still actively trading; Fixed Income, Equity Indicies, Foreign Exchange, Energies, Grains and some metals.

Message me if you're interested...

Tall Tom's picture

Yes...I enjoy +15 counts. (I am in the money.)

tarabel's picture

 

 

Imagine if the casino told you what the next card in a game of blackjack was going to be?

Why, that would make you an accomplice to the theft of honest people's hard-earned money, wouldn't it?

Tall Tom's picture

NO IT WILL NOT MAKE YOU COMPLICIT IN ANY THEFT.

 

Counting cards is not theft.

 

It is not criminal. Neither is gambling.

 

(Casinos may invite you to leave for counting cards. Trips to the back room still happen. I know that from experience.)

 

You are the one who makes the wager without having an understanding of the game. You gave away your money. Nobody put a gun to your head and forced you to play. The Casino stole nothing from you. You chose to take a risk and gamble your hard earned cash. It is YOUR FOOLISHNESS.

 

THE RULES FOR GAMBLING IN ANY CASINO.

 

EDUCATE YOURSELF...BEFORE PLAYING ANY GAME.

 

Other than that...DO NOT GAMBLE IN THE CASINO.

 

For 98% of the people who frequent a casino it will be a LOSING EXPERIENCE. Casinos are not built upon the fortunes of winners but they are built upon the misfortune of LOSERS. That is because the LOSERS are INNUMERATE.

 

Claiming that the casino is stealing somebody else's "hard earned money" is ABSOLUTE BULLSHIT. The casino does not place a gun to your head and force you to play. There is NO EXTORTION. There is NO THREAT MADE. the LOSER willingly parts with their hard earned cash. (THIS NEEDS REPEATING SO IT SINKS INTO YOUR SKULL.)

 

Your FAILURE TO TAKE PERSONAL RESPONSIBILITY FOR YOUR OWN FINANCIAL MISFORTUNES IS RIDICULOUS. YOU MADE THE DECISION. YOU MADE THE CHOICE.

 

Anyway I do understand the game and when an advantage presents itself then you can wager that I will take the advantage, happily, without any guilt.

 

Few things please me more than removing wealth from a casino. I enjoy being in that 2%...the NUMERATE.

 

When counting cards I may not be able to tell you the exact card that will turn up. But I will have a very high degree of confidence...have an heavy edge...and wager accordingly.

 

Of course there are those tail risks. Fortunately they happen infrequently.

 

I avoid playing any Casino Game when I do not have the advantage.  Why play to lose?

 

Well some casinos have caught on and they do not like my style of play...WINNING. So, yes, I have been invited to leave from a dozen of them. I have been to the back room. Lucky me, eh? (No luck involved. I am a skill player.)

 

Blackjack is one of a select few "Advantage Games". Believe it when I tell you that there are sme slot machines, where, when they are in a particular condition, will pay you large amounts of cash. These machines will actually "show that card" and give you that information right on the video screen.

 

******************LIKEWISE*************************

 

Wall Street is ALSO a casino....with a whole lot of losing games. The brokerages are THE HOUSE. They have no care about any outcome.

 

If you are going to play in the Wall Street Casino then the same rules apply when visiting any casino.

 

THE RULES FOR "INVESTING" ON WALL STREET

 

EDUCATE YOURSELF...BEFORE PLAYING ANY GAME...er..MAKING ANY "INVESTMNT"

 

Other than that...DO NOT GAMBLE...er...MAKE AN INVESTMENT ON WALL STREET.

 

For 98% of the people who frequent a Wall Street Broker it will be a LOSING EXPERIENCE. Corporations and Oligarchical Wealth is not built upon the fortunes of winners but it is built upon the misfortune of LOSERS. That is because the LOSERS are INNUMERATE.

 

Claiming that Wall Street is stealing somebody else's "hard earned money" is ABSOLUTE BULLSHIT. The brokers on Wall Street do not place a gun to anybody's head and force them to play. There is NO EXTORTION. There is NO THREAT MADE. the LOSER willingly parts with their hard earned cash.

 

Likewise your FAILURE TO TAKE PERSONAL RESPONSIBILITY FOR YOUR OWN FINANCIAL MISFORTUNES IS RIDICULOUS. YOU MADE THE DECISION. YOU MADE THE CHOICE.

 

Only play games where YOU HAVE THE ADVANTAGE. Only make investments when there is an obvious advantage.

 

And when you win too much...You can expect that trip to the back room.

 

But instead of the Nevada State Gaming Cmmission taking an interest in you it will be the US Securities and Exchange Commission, looking and investigating if you had insider information. And the IRS may also get involved. And they will be happy to boot you out, invite you to leave, or cage you if they can.

 

All casinos are poor losers...all of them.

 

Other than that...DO NOT INVEST ON WALL STREET..

JamaicaJim's picture

Not in this case.

Trading FX - like stocks, is not taking "people's hard earned money" - it's taking the other side of the trade's - or traders - money.

Stop making that assumption Tara.

Dolar in a vortex's picture

Craig Harris claims to be a master trader/instructor at Forex. Not an endorsemnet, just a comment.

http://www.forexpeacearmy.com/public/review/craigharrisforex.com

Lets Buy The Dip's picture

well, i doubt that its more like 98% of retail traders lose money. But you can see my point. 

The PMO chart here => http://www.bit.ly/1fMcakI suggest this rally is not done yet, and santa [or what is termed by the professional traders on WALL ST each year] is still coming!!!

Dragon HAwk's picture

over 95% of all retail traders consistently losing money. ( do you feel lucky Punk ) ?