This week has been big for markets, stock indexes broke major support levels, crashed hard then rebounded some. I’m sure many people are panicking having lost a lot of money – and some others have already started profiting from these massive moves – like this trader who made $34 million
He picked the drop, added to his winning position (pyramiding) closed out and took profit at just the right time – then bought the rebound and pyramided back up closing out again at just the right place.
Here is an example of what can be achieved with (in this guy’s case) 10 years experience. This is intuition developed over time combined with a cool head, knowing when to take profit and staying focused after a big win – which enabled him to bank a large profit then catch the reversal and do it all over again.
There is nothing that can replace experience – no system, secret or trick. Getting to that point where you get a feel for what the market is doing and can flawlessly execute a plan whilst not letting your emotions get the better of you – you can trade like this too.
I’m off to get on my trading simulator and rack up some hours – intuition and nerves of steel need to be maintained as well as developed…
Be very careful trying to trade these crazy markets – if in doubt stay out.
At the end of another week of dismal trading conditions it’s clear that we’re in the Summer lull of the year. Even with a Greek default and NFP the market has traded sluggishly after an initial gap down on Sunday just to reverse then do very little.
Those hoping for the big EUR short trade were disappointed and probably stopped out Monday morning.
What’s a trader got to do to catch “a big one”?
Will it come this weekend after the Greek referendum?
The brokers are certainly sending out their notifications of margin requirements…
And it is a potentially earth shaking weekend – but then it could also be another non-event. After years of this Greek thing going on and on and on could it finally come to the messy conclusion everyone has been expecting that the EU seem prepared to go to any measure to prevent?
I’m so glad I don’t trade news and fundamentals, personally I want things to go back to business as usual with nice tradable price action and some decent moves.
So for now I’ll close the charts and go outside – hopefully normality will return to the markets soon but I have a feeling that might not happen for a while…
If you are thinking of trying to trade this Grexit (whether it happens or not) be very careful, have wide stops and lower your risk.
Just think back to a few months ago when the SNB announced they were ending the EUR/CHF peg – a lot of people lost their entire accounts and ended up with negative balances even though they had stops in place…
Could happen this weekend, could be a non-event.
What would be the best long term decision for your trading business around this weekend and the next few weeks (maybe even months)?
Summer can be a horrible time of year to trade. The combination of low liquidity and high volatility can take wrecking ball to your system and account balance if you’re not careful.
Geopolitical instability and economic uncertainty only compound the problem. Never ending EURO dramas and wars (hot and cold) mean there is no shortage of unannounced high impact news events and those stop-tripping rumour tweets…
So what’s a trader to do?
Shut up shop for the summer, go out and enjoy the sunshine? Well yeah if you can afford it…
If not then here are a few ways you can survive the Summer months with your trading account and sanity intact – and even come out with a profit at the end of it…
1. Practice getting even more picky with your setups – slash the amount of trades you take and only go with the ones that give you that instant warm and fuzzy feeling when the setup jumps out at you. You should be doing this anyway – so if you’re not then here’s your chance to work on that.
2. Use the extra flat time to review the year so far, do some back-testing and practising on a demo or a simulator. In a business where you never stop learning some extra time to learn, practice and refine is always very welcome.
3. Stick to higher time frame trades. When there is low liquidity and high volatility the unexpected will happen often and stops will get tripped. You will be much safer just watching the daily (and maybe 4 hour) charts – intraday you are more likely to get chopped to pieces.
4. Use wider volatility based stops. With lower liquidity it becomes easier for institutions to flush out those retail stops that are placed in obvious places. Using a volatility indicator such as ATR (average true range) you can give your stop a bit of a buffer.
5. Trade more liquid and less volatile instruments. During the summer months it can pay to watch some of the more boring instruments. I find stock indexes dull as dish water but they make me money even during low liquidity. Also some of the more obscure FX crosses like AUD/NZD, CHF pairs and others that don’t tend to move that much. These examples may not do this all the time but for me right now they seem more ‘well behaved’…
Trading in the summer can be very frustrating so if you don’t have the option of just taking the summer off then you’ll need to adapt.
If you’ve found this useful don’t forget to like and share!
A massive problem many traders face is clinging to a strong idea of what the market ‘should’ be doing. I’ve done it myself in the past the result has been a very frustrating decimation of my account and the giving back of profits after a healthy trend.
We all know that markets are unpredictable and that anything can happen – so why is adopting this mind set in the heat of the moment so difficult?
A lot of it is the result of putting a lot of work into your analysis and simply not wanting to see what’s in front of you when it pans out differently.
Also if you follow the herd (not recommended) or other people’s biases then that just reinforces it. Especially if you take advice from big name institutions who like to call where the market is going – and are often wrong…
On the flip side some of the best analysis you can see always presents an alternate picture if plan A doesn’t work out. I highly recommend you incorporate this into your analysis as well.
A great example of this is the Elliot Wave principle. Whether you use it or not, find it useful or not or believe it is a valid method or not – is beside the point.
One thing Elliot does teach and develop is mental agility through the alternate scenario. This is a built in “if I’m wrong then plan B will kick in which is…” failsafe. This immediately prevents you from getting married to your trade ideas and also gives you an alternate plan of action if (and often when) the market does the opposite of what you thought it was going to do.
So – how are you going to incorporate this into your trading?
As with everything it takes practice until you do it subconsciously, in the mean time when you analyse a chart or a trade idea add a step in your checklist for an alternate plan B scenario.
You could end up turning your losing trades into winners.
The U.S. economy slowed to a crawl in Q1: GDP (gross domestic product) came in at 0.2%.
When the next full-blown economic downturn arrives, cash will be the ideal refuge.
But savers and consumers face a startling prospect: Some people in high financial positions want to impose a ban on cash.
They advocate negative interest rates as a way to stimulate the economy. But they know this scheme has a problem: Most depositors would in turn use cash to avoid such a charge on their deposits.
A prominent economist has a solution: Simply eliminate cash.
“Cash… gives people an easy and effective way of avoiding negative nominal rates.”
[Citigroup’s chief economist] suggests three ways to address this problem:
Remove the fixed exchange rate between currency and central bank reserves/deposits.
Yes, [the chief economist’s] solution to cash’s ability to allow people to avoid negative deposit rates is to abolish cash altogether.
Bloomberg, April 10
If interest rates fall too far, even wealthy individuals and institutions may turn to cash.
The April Elliott Wave Theorist offers this perspective:
People and institutions holding billions of dollars have been trapped into accepting a negative interest rate — meaning a guaranteed loss on their money — because gathering, storing and employing an equivalent value of cash notes would cost more than the amount lost to negative interest. But there is a limit to this reverse usury. A large enough disparity would make it attractive even for billionaires to store cash instead of lend it. What is that interest-rate limit? Minus 2%? Minus 5%? If the limit is reached, even wealthy entities will opt for cash. That is, if the men with the guns let them do it. …
They want to ensure that you have no possible route of escape.
How will they do it? By outlawing cash.
“The Death of Cash” was the title of an April 23 Bloomberg article:
Beginning on May 1, [JPMorgan Chase] said it will charge certain customers a “balance sheet utilization fee” of 1 percent a year on deposits in excess of the money they need for their operations …
Pause for a second and marvel at how strange this is. Banks have always paid interest to depositors. We’ve entered a new era of surplus in which banks — some, anyway — are deigning to accept money only if customers are willing to pay for the privilege.
Further, for the first time in history, four central banks — the ECB, the Swiss National Bank, the Swedish Riksbank, and the Danish Nationalbank — all currently have negative policy rates.
Yet the war on cash has only started. Now is the time to learn how to win.
This article was syndicated by Elliott Wave International and was originally published under the headline (Video) Do They Really Want to Outlaw Cash?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
One of the toughest lessons a trader has to learn is to trade what you see and not what you think should happen – or for that matter what other people say will happen.
Having a strong bias guide your decisions is a sure fire way to not just consistent losses but very frustrating ones at that.
Listening to other people’s predictions puts you in a much worst position – even when they are big market players who are supposed to be really good at this stuff (with access to information we retailers don’t have).
I don’t know what kind of timeframes you trade on or how wide your stops are but selling at ‘current levels’ on Mon 27th would have put you underwater by a good 370 pips a few days later and on the wrong side of some fairly bullish action that isn’t looking to be over from my view of the EUR/USD chart. If this breaks to the upside I hope no one following Barclay’s call decides to hang in there….
Now I’m by no means making any kind of call – this thing could do anything but short term those green candles tell a different story along with higher lows and price trading above some of the moving averages I watch (20,50,100 EMA) for the first time in a while.
Might just be a correction to the higher degree trend, could be the start of a sideways range – who knows. I’ll trade what I see.
I don’t have an issue with banks making calls, but telling us to sell ‘at current levels’ is quite specific.
I’m going to tell you about a simple check you can do for every trade to help avoid one of the worst mistakes losing traders make and make the best out of trades that don’t work out.
One of the biggest challenges many traders face is how to handle being wrong. The combination of your analysis being wrong and losing money can cause account destroying behaviour patterns such as moving a stop loss to give it room to turn around and re-entering failed trades over and over.
Left unchecked these habits can let 1 simple trade become a major disaster leading to a desperate “got to make it back ASAP” spree that inevitably ends in tears.A strong need to be right (ego) is a massive cause of failure for retail traders. You can see it all over the place on Internet forums and social media.
People who argue with each other - especially the ones who will argue "to the death" that their view of the world is “right” and anyone who disagrees with them is “wrong” – are rarely successful at this business.
On the flip side the best traders respect other’s methods and understand that people are different and so is what works for them. They also understand that anything can and does happen in the markets and manage their risk and edge to win long term. They also understand that any form of drama has absolutely no place in a situation where one needs to be in a good, calm and objective state to make sound decisions.
Add this step to every trade you take
If you want to systematically eradicate any unwanted tendency to need to be right from your trading do this:
As part of your trade checklist, add a step called “if I’m wrong” or “alternate scenario”.
In the Elliot Wave principle there is an analysis step called the ‘point of ruin’ where your wave count is invalidated if price moves to a certain level. Many analysts also map out alternate counts beforehand so they can quickly switch sides.
The alternate scenario step prepares you mentally and emotionally for the event of ‘being wrong’ and opens your mind up to the possibilities and opportunities if that is the case.
So just add 3 words “If I’m wrong” and analyse the alternate scenario before you put on the trade. Do this for every trade and you’ll work that need to be right out of your system.
I’ll leave you with my favourite quote from Paul Tudor Jones:
“Don’t be a hero, don’t have an ego. Always question yourself and your ability. Don’t ever think you are very good at this – the second you do – you are dead…”
Like many other technical traders I feel that news events have little impact on price movements if any. Even big releases like the NFP or FOMC announcements don’t appear to have any lasting effect regardless of how much a number may be more or less than the market expected.
But so many people hang on these announcements like they are valid trading signals. Blindly trading news events is about as close to gambling as it gets. I personally see the monthly NFP report as a gambling opportunity more than anything else.
For me having an awareness of high impact news releases is only necessary to see if there could be any short term volatility that could risk a technical trade I idea I’m sizing up. Sometimes I’ll even time an entry or exit based on where the market might get pushed to after an announcement. That’s as close to trading the news as I get
News is Reactive – Something Else Drives the Market
The more I learn about Socionomics, Elliot Waves, Fractals and Fibonacci numbers in nature the clearer it becomes (to me) that however sophisticated the human race is we are still animals and we still move in herds. These cycles of boom, bust are just a natural process playing out…
…and the news announcements and fundamentals react to try and maintain balance and control.
What Does This Mean for You?
So as a trader looking to make it into the coveted top 5% who actually make it – what does this mean for you?
Are you having problems which could be due to a method that relies on news announcements?
Do your trades get stopped out because of high impact reports that cause temporary volatility?
Do you often find yourself on the wrong side of the market even though the direction doesn’t make sense and it should be going the other way?
Get With the Trend
Many of the most successful traders have learnt to identify and trade with the trend. Can you do this?
Here’s a weekly chart of the US Dollar Index. The wedge formation starts prior to the 2008 financial meltdown. Does that chart pattern look like a financial meltdown to you? (click image for full size)
The preceding big down move definitely looks like a bubble…
So what’s next for USD and other markets?
I’ll be watching my charts and not the news (unless it poses a threat to any of my open positions)…
I’m not a fan of trading robots, or Holy Grail systems or ‘secret’ backdoor loopholes. Anyone with an ounce of common sense knows that you can’t just spend $99 and then get rich doing nothing with no experience or skill or work.
So why is this stuff so popular and why do people keep buying it?
Because it’s marketed so effectively and the people peddling this stuff really really know what they’re doing when it comes to pushing emotional and psychological buttons that get people to ‘take action’.
And this marketing is everywhere. Even if you know better it could still be chipping away at you in a ‘brand awareness’ way planting and nurturing the myth that making money from trading is quick and easy.
How to Tell if You’re Being Affected by Bad Products and Marketing
In my practice of mindfulness and self-awareness I’ve noticed a thought and feeling pattern that gets triggered sometimes when I see an offer that has pushed my psychological and emotional buttons.
I feel a sense of urgency like I’m being left behind and leaving money on the table. Even when my sense of reason kicks in and overrides any subliminal advertising messages I still feel like I’d better hurry up and get back to my charts and make sure I’m not missing any important opportunities.
This is causes pressing (trying to force the market to make you money) and over trading which we all know never ends well.
What To Do When You Recognise This Pattern
As with any undesirable thought and behaviour pattern, the key to overcoming it is awareness and observation. When you observe a thought pattern and take a pause you interrupt it. Observing it from a 3rd party viewpoint will often dissolve the feeling and prevent any automatic behaviours from playing out.
You can do this with taking 1 single conscious breath. Here’s Eckhart Tolle describing the process:
You can do this any time you become aware of a feeling or thought pattern that often results in a bad outcome. Take revenge trading after getting stopped out as an example.
Incorporate this practice into your trading and let me know what it does for your results.
Editor’s note: You’ll find a text version of this article below the video.
Two economic reports hit the newswires Thursday morning (March 6). Both were important, yet each one had the opposite implication for the trend.
The market chose one report over the other, and the question is, why — and what can we learn from that?
Both reports came out at the same time, 8:30 Eastern on Thursday morning. One was from Europe, where the European Central Bank said that they, “…decided to keep the key ECB interest rates unchanged.” That suggested that the European economy was getting stronger.
The second report was from the United States, where “…the weekly applications for jobless benefits fell to a three month low.” That also was a sign of economic improvement.
Immediately after, the euro jumped to a new high for the year against the U.S. dollar. But why did the euro gain, and not the dollar? After all, the news from the US was also positive?
The answer comes down to understanding market psychology. All things being equal, it’s the bias of the traders that determines the market’s fate. The question is, how do you know what traders are thinking?
That’s where Elliott wave analysis comes in. Wave patterns in price charts reflect the struggle between the bulls and the bears. So by tracking wave patterns, you can anticipate which side will ultimately win.
Let’s take a look at what the waves were saying before the surge in the euro on Thursday. The day before, our Currency Pro Service told subscribers that the euro was forming a wave pattern called a triangle.
A triangle is pattern that moves against the primary trend, so when it ends, the old trend resumes — in this case, up. On Wednesday, that allowed us to make a very clear forecast for the euro-dollar:
EURUSD [Posted On:] March 05, 2014 03:27 PM
From nearby levels further consolidation through waves D and E [of the unfolding triangle] should set the stage for a thrust above 1.3824.
On Thursday morning, not only did the euro hit its Elliott wave target, it actually went as high as 50 points above it.
The lesson here is obvious. In the world of finance, where every day you have multiple news reports competing for your attention, focusing on market psychology goes a long way.
Free 14-page eBook Trading Forex: How the Elliott Wave Principle Can Boost Your Forex Success
Learn how to apply Elliott wave analysis to your markets. Elliott Wave International’s Senior Currency Strategist Jim Martens pulls from 25+ years of experience using Elliott wave analysis to show how you can put the power of the Wave Principle to work in your forex trading.
article was syndicated by Elliott Wave International and
was originally published under the headline How Watching Market Psychology Can Help You Time the Market.
EWI is the world’s largest market forecasting firm. Its staff
of full-time analysts led by Chartered Market Technician
Robert Prechter provides 24-hour-a-day market analysis to
institutional and private investors around the world.