What is news? These days since Trump has been elected POTUS, there’s been lots of scrutiny on news. “Alternative facts” is endorsed by the White House. “Fake news” is a growing concern even Facebook and Google are thinking of ways of how to sieve out fake news because of the potential damage it causes in light of the explosion of social media.
Thene there’s nonsense news. Like the above. Which is basically a subtle advert to buy a book.
Trading websites like DailyFX, Bloomberg, are becoming more tabloidish than reliable news. And this is no surprise. Because news is a great business. Great business moguls like Rupert Murdoch make billions on selling sensational news.
Selling news is lucrative. Particularly for trading news. If you read through Bloomberg and DailyFX carefully, each article is skilfully engineered to hang a carrot to encourage speculation, feed greed and fear, and the most important point is thid: news don’t make you money. The market does. A more controversial statement would be that “the market makes the news”. But perhaps we can talk about that over wine for a light hearted debate.
News is important. It gives traders informatiom. But we need to be aware of the many hands news has passed through, editors like Sumiko Tan, who considers it top news that she has a book of her life journey. Add on ingredients to excite and entice, And you’ve got the news you get.
Nobody bothers to read through the boring articles on economic news, or the facts. They want the analysts’ take on it. Shortcuts. They want trade calls, recommendations. But they forget the fine print. And the fact these writers are paid to write articles. And exciting, ambiguous articles attract attention and stir emotions. And then come the subscriptions for “privileged access”.
Your choice. But be aware. The news doesn’t really have your interests at heart. Well? At least not anymore. News have more interest in what’s in your pockets.
Disclaimer. I’m not associated with any news maker or brokerages. I don’t want to be anyway.
I read this book several years ago. It is quite a deep conversation, but also a highly enlightening insight into destructive emotions that cause a cycle of suffering. Seen below
I have a Masters in Guidance and Counselling, and you probably have no idea what does that have to do with trading. I would say, 90%.
Because when trading, with real money, we are so attached to the value of money, it evokes strong, extreme emotions in us. And, sure enough, “over confidence” has been identified as a destructive emotion.
What is the result of destructive emotions? What is the cause? Well, it starts with having irrational beliefs. In the case of trading, most people think trading is all about getting the market right, predicting the right move, and finding the right guru to tell you where the market will go. It is irrational thinking, because the future cannot be known, hence your belief in the Holy Grail will only result in destructive emotions, such as anger, envy, hatred, which will lead to destructive actions and behaviours, such as revenge trading, doubling down too big, moving your stop loss, and changing your mind when you decided to break even, and when when you see profit, and greed takes over, and decide to add to your profit instead, you lose everything, very quickly.
Irrational beliefs, such as thinking trading can grow a $1000 to a $10000 account in one month consistently, gives you over confidence when it happens once, and then to despair when you get your margin call, and you double down to earn it all back, losing even more, and giving up what could potentially, if you had gone through proper coaching and embraced the rational thinking of trading, lose your dreams of being self employed, enjoying great quality of life, being detached from money, and overall attain happiness you never thought possible.
Which comes back again to my take on being a reflective trader. Do you trade with irrational beliefs? Are these beliefs leading to irrational, destructive actions, which feedback to your irrational beliefs, ending up in a never ending cycle of trading suffering?
Something to think about, and definitely not to be scoffed at. Most real traders will agree with me, that they have learnt more from books on trading psychology than from technical trading books. And that has actually sharpened their edge. At least, that has, for me. Perhaps you can try the same. And start, if you haven’t, read about trading psychology more, than about trading strategy.
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.
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?
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.
There is only one side of the market and it is not the bull side or the bear side, but the right side. ~ Jesse Livermore
How we wish we were always on the right side, don’t we. Some may say, be with the smart money, don’t be with the dumb money, but who ever wants to be with dumb money?
I had an interesting conversation today with an old friend. We talked about a varied approach towards trading, and it was quite interesting to try to pin down what exactly was trading, and what defined it. “Calculated risk” may seem to be the best answer, but it is also too general and misleading, especially if your calculations are based on gut feel, and your risk is too high.
I have met with some whose background in investing is basically bets on soccer, using some method of calculating the odds, and using some formula to decide on how to size the bet. It sounded alot like a calculated risk, but no doubt, it was gambling.
Then there’s speculation. It sounds more benign than gambling, but essentially it is still betting on an unknown future, be it in stocks, forex, or the weather.
Now we come to the debate between trading and investing. And it came to my mind because of the conversation I had, because investing seemed like the “zero risk” approach, investing in products sold by the banks, with “full capital guaranteed” clauses, with decent returns of 3-5% a year.
But what the institutions do, are basically speculating and trading in a portfolio of equities, bonds, commodities, forex etc. How is it being sold as “risk free”?
I guess in essence, investing is widely accepted to mean putting capital into a product for capital appreciation, or for some interest return in some form, be it in rental or dividends, even swaps if you invest in forex.
Did I just say “invest in forex”? Some may call me out on saying that. But isn’t that what the institutions are doing, distributing your capital into currencies, and selling you an “investment product”?
What do I do? I trade forex, for a living. What does that mean? I have a set amount of capital, I allocate a percentage of capital into products known as exchange rates based on price movements, and make profits and losses whether I am on the right side, or the on the wrong side. And since I am doing it for a living, it means overall, my profits exceed my losses, and my capital is growing. For now.
I do not know the price of the USD/JPY tomorow, or later at night. But I can make an entry based on price patterns and other information that allow me to make a “calculated risk” on how much to “bet” and where to take profit, or to cut a loss.
Am I gambling?
To me, the line is very clear. And it lies not in definitions or words, or descriptions.
The line is drawn in the Mind.
I am a forex trader, running a business, making calculated risks on future, unknown prices, and allocating small amounts of capital for every position, with the aim, in Mind, to grow and compound the capital over time. I don’t aim to grow 100% in a week, but I do aim to beat the market by a fair margin, over the course of years.
So which category do I fit into?
Previously I blogged about the importance of reflection in trading. And I do that alot. I do it weekly, and monthly, and during drawdowns, perhaps every 3 months, but I try to reflect as much as possible. Simply because it is the best way to learn.
June has been a good month so far. And I’m not just talking about the numbers. I’m talking about the lessons.
As a reflective trader, I’m always looking for ways to improve the process. And to try new things. Because there is no such thing as “the only way to trade”. Why do you think prices move? It’s because people are trading thousands of ways giving them thousands of signals on different timeframes. The only one way to trade, is your way.
So coming back to June. I experimented with several things with my trading. One is adding trailing stops once the move has gone about half in my favour, and another is to place breakeven orders when the price is about halfway towards my target price.
I’ve always been experimenting with these two, and through reflection, and looking back at my records, I don’t see clear advantages, for my strategy.
So I started to highlight when these stops actually “save” me, or make me “lose money”.
The other thing I experimenting with is taking profit early, based on current price action, and oscillators, and day of the week. For example, if it is close to the end of the week and my profit hasn’t been hit, I take profit. Another example, is when the profit amount is very attractive, and I say, “why not, just take lah”, and I close the trade.
The other thing I added to June, late June, is actually increasing my risk, to test and push my stomach for drawdown.
So here are my reflections, and findings, specific for my trading style. Just to share with you the outcome of reflective learning. These are specific to my trading style, so please, don’t take these lessons as yours. I’m just sharing you my own reflections, as examples.
- Break even and trailing stops very seldom “save” me. They make me lose money instead, because of whipsaws hitting those stops, before eventually hitting my target.
- Taking profit, ironically, makes me lose money. As I shared before, it’s important to have a right perspective. And to get the right perspective, you need to reflect, to discover it. While taking profit early puts money in the pocket, I actually lost money because the trade eventually hit my targets. That’s the right perspective to take. I lost money by taking profit. And this is harsh, because I know, losing money slows down the compounding rate, for every week that passes.
- Increasing my positions size from 1% to 2% is starting to eat into me and push me to the edge. So now I know I am still not ready for a 2% position sizing, and perhaps, next month, I will try something like 1.5%, or less. Because I know that to speed up compounding, I also need to try to push up the position sizing, to gain a greater percentage growth per month.
So you see, hopefully, why reflecting, and keeping records, and making it a habit and having the mentality that trading is a job, is very critical to trading successfully. I have met several interested persons in what I do, and I am very happy to hear them tell me “I’ve never thought of trading in this way before.”
Give reflection a try. Keep good records. And reflect on why you took those trades, how they went, and what were some lessons learnt. And keep them. And go back to them once in a while, and reflect if you have made progress. Focus on process more than the results. The results come from process, not the other way round.
Forgive my disappearing face. I realized it was blocking the text do I removed it.
Information credit to daily FX and trading economics.
Disclaimer: This is an opinion piece. And not financial advice. Forex trading carries significant risk (which is maageable). And you know the rest.