Technical Analysis vs News Trading – The Gloves Come Off

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)

dxysbweekly

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)…

Is Get Rich Quick Ruining Your Mind-set, Expectations and Trading Profits?

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.

How Watching Market Psychology Can Help You Time the Market

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.

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This
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.

3 Ways to Stop Anger and Frustration From Derailing Your Trading Dreams

Acting in anger and making bad trading decisions that result in losses is something that a lot of people do on autopilot. By the time they realise what’s happened it’s too late and they find themselves “in the market wishing they were out”. If this common problem effects you then the following steps will help you eradicate it from your trading.

As traders we encounter anger inducing situations a lot – almost daily. It’s a regular part of trading life and without a strategy to deal with it you can find yourself angry a lot of the time and suffering losses as a result.

When things don’t go your way you’re hit with a double whammy of:

1. Being wrong
2. Losing money

This is a horrible combination and for most traders what happens next is a knee-jerk reaction that rarely ends well. It’s all very well knowing that revenge trading and trading in a bad state of mind is wrong and you shouldn’t do it. But in the heat of the moment the compulsion often outweighs this wisdom and the unconditioned trader either does it without realising or *consciously decides* to do it in a “I know I shouldn’t do this but I’m so mad I’m gonna do it anyway!” kind of way,

So how do you reprogramme yourself to stop doing this and develop the emotional strength to power through these challenging situations?

1. Expect these situations to happen – when you understand and accept that the market is going to kick you around it’s a lot easier to deal with it when it happens. However “wrong” or frustrating the event is just know that your systems will deliver losing trades, whipsaws will happen, stop loss hunts will happen, “unconfirmed Twitter rumour” news spikes will happen, central bank intervention will happen. Assuming you have a positive system to follow with rules and you exercise proper money management none of these types of events should ever be a big deal.

2. Prepare yourself for when they do happen. When you know and expect bumps in the road it makes sense to be prepared. In this case you should expect that when these events occur you are going to feel a certain way. Know that you will feel an urge to scream, throw something out the window and make rash trading decisions you will later regret. So have a defined course of action lined up. It could be – step away from the computer, count to 20, go outside, walk/run around the block, hit a punchbag – anything to interrupt the automatic action/reaction pattern and open up a space to make a sound and rational decision

3. Develop an indifference to individual trades. This can be hard at first but with continued practice gets easier. Make it one of your trading goals to view wins and losses the same way you view credits and deposits in your bank account. Do you beat yourself up for being wrong when you see a mortgage payment on your statement? Of course not. Can you view trading losses – and wins the same way? That’s your challenge – your goal – think you can do it?

If yes then go and do it! developing the self mastery required to trade successfully is all about doing, not just knowing. Practice these points and you’ll end up doing it naturally.

3 Ways to Predict Stop Loss Hunting and Profit From Institutional Greed

We all know that big money likes to push the market around and flush out stop losses. It’s no secret and it’s something we must accept as traders.

angry_compressedThey know where the stops are, they have the means to move the market through certain levels and they will not pass up any opportunity to shake the tree until every apple has fallen.

So as a participant in this shark infested territory you can either be a victim or a beneficiary. Many choose the victim route, but a few smart traders have worked out how to make this inescapable fact of life work for them –and here’s how…

1. Know where the obvious stops are.

If you have a good idea where a large amount of stops and entry orders are then you can pretty much view them as a red rag to a bull (or bear!). The most obvious places to look are:

  • Longer term (higher timeframe – daily/weekly) support and resistance levels
  • Key Fibonacci levels – 61.8, 31.2, and 50% retracements of large swings (daily charts are best)
  • Obvious looking trendlines
  • Pivot point levels
  • Psychological round numbers
  • Combinations of these levels – A.K.A – confluence

Brokers and institutions have the advantage of knowing exactly where stops are, we have to figure it out and when you know how to read a chart properly it isn’t that hard

2. Time it so you know when they are most likely to go for it

Stop hunting is more likely to occur when price is near a key level that many traders are ‘hiding’ behind. If stops are there and price is near it is extremely probable that they will push price through it if only to test if a level holds and grab as many stops as they can. Can you use this to your advantage?

However there are times when liquidity and volatility allows them to do this more easily and catch unsuspecting traders unaware. They are mostly:

  • High impact news releases
  • Market open and closes

If price is near a key level with stops behind it then these are the times to watch and execute any strategy that exploits predictable institutional greed.

3. Use volatility in your strategy and expect whipsaws

So you have an idea of where the stops are and an idea of when they might push for them… So what do you do next? How far will they push it? Will they create a false breakout to catch out the angry stopped out traders revenge trading the other way?

It doesn’t end at the stop hunt, when price gets to a key level they will play more games with false breakouts and whipsaws.

Ever seen those big moves after news releases that make no sense at all and reverse a few times before taking off in a given direction?

Getting filled and closing out at a good price is a lot easier when you factor in volatility with an indicator like ATR (average true range). Any decent trading platform will include this and it will make your life a lot easier if you plan to trade around stop hunting, false breakouts and general institutional fun & games.

Next Steps

We’ve just covered 3 basic ways you can make predictable big money behaviour work for you. There is nothing you or I can do to stop them doing it so the best course of action is to learn how to ride their coat tails when they do it.

This post has just scratched the surface but should have opened you up to many of the possibilities. If you want to learn more about discretionary trading and reading market sentiment from raw price action have a look at the MTI ebook that’s included in the TT kick start bundle here

Really Simple Trading – Sticking to the Plan

As a continuation of last week’s post on a trend trading method with an example on AUD/USD this is a follow up as I’m now in this one having been watching it since last week.

Based on the current trend structure I was looking for a pullback at the 0.9500 level which lines up with a 38.2 % Fib retracement of the recent downmove (daily chart) and also lines up with one of the EMA’s I use (150). It’ all there, the round number, the Fib retracement, the EMA and the previous resistance level which I now anticipate will act as support (click for full size image):

audusdsbdaily-fibs

 

audusdsbdaily-triggered-291013

 

 

Looks pretty tasty – and now it’s triggered and about 12 or so pips in my favour (stop is 50 and I’m targeting at least 200). So why am I telling you all of this?

This morning when I saw it heading toward my desired entry point I had some trouble putting on the order. I found myself second guessing the analysis and almost passed it up because I was worried the bearish price action looked too strong. If I had allowed this fear and second guessing to prevent me putting on this trade I would  have derailed myself quite badly overall in the following ways:

1. I’d weaken my confidence in my edge and analysis

2. I’d introduce an element of shooting from the hip

3 . I may well end up watching a trade I intentionally missed out go where I thought it might. This could lead to frustration and possible further mistakes.

So faced with this dilemma I gave myself a slap round the face and told the scared part of me to just grow a pair and trust my plan and edge.

If it doesn’t work out it would still be a good loss because I followed my plan and rules. It may still not work out and that will be fine.

Either way at least I’m not on the sidelines when I should be in the game. It could have easily turned out differently had I allowed the fear and uncertainty to call the shots.

Do you trust your plan and edge and ability to execute it whatever happens next?

Refining Price Action Trend Trading – Example – AUD/USD

Today will be the last day of my US government shutdown trading holiday even though it’s back open now with the belated Non Farm Payrolls today I’m staying flat until tomorrow.

This has reinforced some key psychological aspects such as patience, indifference and not needing to be in the action (instead very much enjoying being out of the action). Also this time away from the markets has given me a chance to refine and test some longer term “big picture” viewpoints which I now see as key to achieving the absolute best performance I can.

As well as wanting a low stress, low maintenance method I still want to achieve massive returns with as little time and effort as possible.

Don’t we all?

So how do we do this without getting cut to shreds trying to day trade and scalp short term?

For me it’s catching trends and pyramiding. That is watching for bigger longer term moves, trailing stops and adding new positions as it moves. It’s not new, it’s not revolutionary and in today’s environment with HFT, stop hunting, Twitter rumors and turbulent political/economic uncertainty it’s prone to all kinds of whipsaws.

But the trends are still there, always have been and always will, and as long as they are there will always be ways to trade them and get the best ROI you can by riding and adding to your winners. The question is can you develop a method that works for you? Here’s mine…

Price action

First and foremost I’m a price action trader. Until recently I believed that indicators were useless and that all I needed was in front of me on pure price. That turned out to be an un-useful belief that got ingrained by other people, so I ditched it. I now use some moving averages to highlight important areas and levels to trade off. Also to give an indication of overall trend direction.

I combine this with pure price action which is still the cornerstone of my technical analysis so in this example I’m going to look  at the daily AUD/USD chart. From what I see right now this could be an up-trend. I don’t care about what ‘should’ or anyone else’s opinion. Only what is happening right now, and right now I see this (click image for full size):

audusdsbh-s

 

So adding my new trend indicator which draws a shadow between the 50 and 20 EMA’s on the daily chart I see this:

audusdsb-trend

 

So now I just look for nice price action signals at good levels based around some MA’s I use to trade off. I’m only looking for longs and looking to set stops based on volatility (ATR) so I can stay in for as long as possible. I’ll watch for pullbacks to add new positions and trail the stop. I’ll be looking for entries on the 4H charts based around the 50 EMA:

audusdsbh4-50ema

Too simple?

Maybe…

Still work in progress so I’ll look forward to some more downtime to refine it further. Beats overtrading hands down…

Government Shutdown and US Default – A Lesson in Staying Flat

Like most people I’ve completely had enough of this US Government shutdown and talk of a default. We all know and have done all along that there is no way they will allow that to happen. If they went to the lengths they did to prevent Greece from doing it do you really think they’ll allow the resulting financial chaos that will ensue if the US defaults?

You know it , I know it, the market knows it. The only people who appear to not know it are the journalists who actually do know it but are pretending they don’t so they can come out with sensational headlines to grab attention. Oh – and the “unconfirmed rumor” Twitter accounts who have been having their usual fun…

So what does this mean for you and I as retail traders trying to get on with carving out some profits in an already tempestuous environment?

For me all this means  - holiday!

Seriously, until the US government reopens and they’ve at least kicked the can a few months down the road I’m keeping my powder dry and enjoying the down time.

This has got me thinking about how nice it actually is being out of the market. It’s been a great opportunity to remind myself that being flat is not a bad thing at all. Don’t get me wrong – I’ve felt compelled to get into some trades just for the sake of being in them, I’ve felt frustrated and like I’m missing out on the sidelines….

…And I’ve noted the feelings, acknowledged them as unhelpful and most of all unprofitable.

Trading for the sake of trading and being active during slow, uneasy and highly unpredictable markets is a very effective way to lose money, get stressed out and frustrated and probably do something regrettable as a result.

Telling myself this when I felt the compulsion to get into the markets was a good override that’s enabled me to enjoy a nice holiday instead.

Now I’m more aware of a compulsion to trade I can spot it and choose downtime instead. After all – aren’t we in this so we can enjoy more downtime anyway?

Long Term Trading Success – You Already Have it Inside You

This past weekend has been quite a journey. Having a break from live trading has given me a chance to really go back over my plan and dig deep into the underlying psychology that influences our decision making. Because trading excellence comes from making good decisions and avoiding bad ones.

As you probably already know having solid discipline and being able to automatically make only good trading decisions is so much easier said than done. So the question I’ve asked myself many times is – “How do people get to the point where discipline and good decision making is easy, effortless and automatic?”

Because we aint geared that way naturally that’s for sure. 

So how do you do it if you haven’t already?

Like anything worth achieving there is some work involved. In this case it involves practicing (demo trading), self monitoring (journalling – not just keeping a trade log but actually your reasoning and emotional state at the time of taking trades) and following a plan.

After doing this long enough you’ll see patterns in your trading behaviour and be able to identify not only when you made poor decisions but why you made them. Armed with this knowledge you can dig deeper and make the necessary adjustments to the underlying motivations, beliefs and values that influence your natural decisions and inclinations.

The above also assumes you have a profitable system and a plan. Without either of those you’re gambling.

Does this sound like too much hard work or is it “not what you signed up for” when you decided to become a trader?

Personally I love doing this stuff and learning about myself. I see it as an added bonus to achieving trading mastery.

How about you? Leave a comment and tell me what motivates you to trade and what you think influences your decision making.

 

AUDUSD Watching and Waiting – Practicing Patience

I’ve had a few problems with over trading lately. This happens from time to time so when it does my trading plan tells me to stop all live trading for a month and just watch from the sidelines. If I see an absolute no brainer setup I’ll take it on a demo account and see if it works out.

This usually ends up with me only taking very few trades (on demo) with the desired results of good return, low risk, low stress and less time “working” – exactly what I want out of trading. Does anyone actually want to quit their 9-5 just to replace it with a 6-12 with more stress? Not me!

So here’s a price action setup on AUD/USD I would have jumped on a couple of years ago that might work out but I’m not even taking on a demo, just going to watch:

The daily chart is currently forming a pin bar/hammer at a very good location – support/resistance flip (long horizontal blue shaded area) which is also a 50% retracement of the most recent swing high and low. The 200 EMA is also in the mix. Notice that the support/resistance flip here happened before (around Xmas 2012) the swing high/low that the fibs are drawn from (click image for full size):

audusdsbdaily

The blue shaded boxes show the ‘zones’ of shorter term support/resistance. In the price action community I have learnt my method from (James16 on forex factory) we call these boxed areas.

The 61.8 clearly shows the box it’s heading into which makes the first trouble area (FTA) not that far away. This is where I would look to either take full profit here or get my stop to breakeven. In this case I would close for full profit for 3 reasons.

  1. Trading into the upper box above the 61.8 is not worth it in my view. Once price gets into an area of consolidation like that it can stay there for a while. Not for me – just my choice.
  2. It’s heading into the 1.0400 round number. This and its proximity to the 61.8 Fib retracement make confluence against a long trade. Another reason for me not to expect any more than a move to the box flip/61.8 /1.0400 area
  3. The upper timeframe  – in this case weekly chart tells a different story. A long trade here would be counter to what looks like some bearish PA in the longer term. If I was trend trading (which I’m working on as part of my plan) I’d be watching this daily set up as an opportunity to find a good short entry… (click image for full size)

audusdsbweekly

audusdsbweeklyzoomout

Other obvious reasons to pass on this one are that the pin bar/hammer hasen’t actually closed yet (it’s got a full day to play out and close as whatever it will close as) and the risk/reward ratio makes it a no-go.

Either way, for now I’m doing nothing at all unless I see an A+ set up which I’ll take on demo.

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