Weekly Trading Update: 24th-28th July

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PS: Apologies for the screaming toddler in the background in the middle of the video. But he’s fine now. 🙂

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Smart Casual Trading™ approach to Technical Analysis (TA): Divergence

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Image credit: Babypips.com

There are probably as many strategies to trade forex as there are the stars you can count in the sky. Simply because there is none that works, alone, without having the right perspectives, expectations, and risk, emotional, money management finesse, which can only come from practice, failures, and self reflection. To find out more about my thoughts about Indicators and Trading Strategies, check out my Udemy course, and use this coupon to get a great discount as a celebration of the first Udemy course I’ve launched to help aspiring traders learnt the Smart Casual Trading Method™.

In this brief post, I want to share my favourite “strategy”. It isn’t exactly an indicator. There are many divergence indicators, the most popular being the MACD. Rather, “divergence” is an occurrence when price action is divergent, as the name implies, from an oscillator. And yes, there are many oscillators around as well. But the MACD is probaby the “de facto” indicator that aims to identify divergence specifically.

The picture above shows a great illustration of a divergence signal. When prices are appearing to be in a downtrend, for example, lower prices between two candles, but when compared with an oscillator showing an opposite picture coinciding with the two candles: higher highs instead of being in line with the trend. That’s divergence between price action and an oscillator.

I like to use divergence because in my opinion, and preference, it is a clear signal. That does not mean the price WILL reverse or retrace, but it is a CLEAR signal. One that you can recognize at a simple glance. And the degree of divergence is also very clear, and it makes decision making rather easy.

The oscillator illustrated above is the Stochastics. And honestly, I don’t even know how it is calculated. I don’t know what is the best setting. And I don’t search for the perfect settings. But I use MACD and Stochastics with my own personal settings that I am comfortable with, but always bearing in mind, that indicators don’t predict anything, simply because indicators are based on past prices, and at most, at present price action, but never indicate future prices, because in order to calculate the indicator, you need a price. And the future price is not known. That’s the reality and the fact that many traders don’t quite seem to understand. And hence, they keep searching for the poorly named “indicator”, which indicates nothing except what has happened in the past.

But there are problems with using divergences, as with any strategy. Very simple questions need to be asked:

  1. When do I place an entry?
  2. When do I exit a trade?
  3. Where do I place a stop loss?
  4. Is the divergence a strong one?
  5. Is the trend a strong trend?

Yes, there are many questions to be asked, but with the Smart Casual Trading Method™, the focus is to simply trading as much as possible.

To learn more, check out the link about what I describe to be Smart casual trading, and feel free to contact me.

Happy trading!

How to beat the NFP: My thoughts

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Ok. Let’s kind of sumnarize the major USD events so far. FOMC minutes did not reveal anything spectacular. There are plans for 3 more hikes over the rest of the year, so thats one hike in 2 months. Let’s look at some key factors that the FOMC take into consideration.

inflation

Are we seeing a start of a down trend away from the desired 2%?

nfp

Rather mixed, but the NFP has always been the centre of speculative trading

unemployment

Unemployment is clearly going down. And that is quite a good indicator of an improving economy

The next forecast for the NFP, depending on which news source you use, is projected to be above 170.

Usually, at the moment of NFP release, both the numbers and the unemployment numbers are taken in context. And it is usually within those few minutes of frantic speculation that the price of the US will go crazy, or not. (Who knows what the market does?)

So it looks pretty good for tomorrows NFP. And currently the USD seems to be moving upwards in anticipation. So, anyone want to put a buy order on the USD today?

Remember last week’s NFP for the EUR?

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looks like a middle finger doesn’t it..dont know at who tho. Retails? Institutions? Everyone?

To sort of illustrate my point, go through the past daily charts of the main USD pairs. And without looking at the dates. See if you how many you can identify as those are the NFP dates. Some are obvious. But most of the time, I find that I cant. In other words, over the long term, this single event may have little impact on the overal market, but compiled NFP numbers, and further affirmation by the Fed, may be the true market movers.

To me, the NFP release is a very bad time to place your bets. The spreads go wild, your stops get wiped out, your emotions are hanging by the thread as you try to double your account in 5 mins, looking at the min charts.

What is your edge against the pros who are all well prepared for the NFP, who may even have pre-access to the numbers? (Watch Trading Places) How about the hackers who have already hacked into the NFP numbers and sold them to financial institutions?

Then there is you. Trying to make a quick bet in a crazy, deadly environment that will make you make huge mistakes.

Now, there are ways to trade the NFP. I know that. There are ways to trade through the EIC. There are ways to trade through the elections. Through interest rate announcements. Through media conferences.

To me, these are not sound trading strategies. They tend to build up alot of anticipation, greed, and fear, and you have to bet really big to profit well from the sudden movements: which can also move against you very quickly.

I don’t trade through the NFP, but I do take note of it. I see if there is anticipatory action prior to the NFP, and I like to see divergence before I enter a small position to fade the crowd, without a stop loss. And I my timeframe can go from 1 hour to 4 hours, and may hold the position until the next week.

I don’t aim to double my money in 2 minutes. That’s gambling. And my job is certainly not gambling.

I’m trading smart, trading casual.

Be careful of the wolves out there. Watch your back, and always, seek your edge against the market, even if it means going for supper instead of looking at a boring screen of numbers.

Teaser: Udemy Forex 101 for the Smart Casual Trader Beginner Course outline!

Hi everyone!

The very first lecture to the Forex 101 for the Absolute Beginner has been uploaded! You may not be able to see the course online yet as I have to complete the rest of the lectures and I need to customize it a bit here and there some more (actually maybe you can. Go to www.udemy.com and create an account as a student and search for my course titled: “Forex 101 for the Smart Casual Trading Method”.  You may find it there! And don’t worry about the cost  (I put it as $50 just for testing but if you want to pay $50 first please go ahead! hahaha)

There will be more to come over the next week, if I have the time to do them. Which isn’t very difficult actually..since it’s really the basics and each video is designed to be very short and sweet.

So there you have it! A teaser for what’s to come! And as always, if you still want to engage my tuition services if the videos are insufficient for you, you know where to find me 🙂

Happy trading!