Year: 2016

05- Dec2016
Posted By: adminwmk
382 Views

Meditation – The Secret Weapon To Becoming A Better Trader

Do you find yourself repeating the same mistakes in trading over and over again?

Perhaps failing to pull the trigger when you have a perfect setup right in front of you?

Or find yourself afraid to take a new trade for fear of losing?

How about ‘knowing’ what to do, but being unable to do it in real time, yet you can do it perfectly on demo?

The answer to any and all of the challenges above you experience in trading comes down to two things:

1) How Your Brain is Wired
2) Your Mindset

The good thing is you can re-wire your brain for success in trading and life. And luckily you can do this in just a few weeks, for only minutes per day.

In this infographic I explain how top wall street traders meditate to improve performance, how different practices produce different results, and how you can improve your brain for trading and life in just a few weeks.

Comment below with your thoughts on this.

02- Dec2016
Posted By: adminwmk
631 Views

How to spot BIG opportunities – using Elliott wave and RSI

When I am setting up a trade, I always use Elliott wave and RSI as a wave count confirmation tool.

In this post I will show you how the RSI can help you confirm the Elliott wave count, and then indicate possible entry points.

Also, how Elliott wave and RSI, can help you stay in the market and ride a trend move to its completion.

I am going to cover:

  • RSI DEFINITION AND WHAT DOES IT MEAN FOR MY TRADING
  • RSI IN TRENDING MARKETS.
  • RSI SUPPORT AND RESISTANCE ZONES.
  • RSI DIVERGENCE AT TOPS AND BOTTOMS.

 

RSI definition, what does it all mean for my trading?

The RSI indicator Has definitely got one up over its competing oscillator in the fact that it has fixed points extremes at 0 and 100.

Rather than the relative floating extremes of say the Momentum or Rate of change oscillators.

In that sense it does give the trader a base to work from in judging one period of market action to another.

The RSI indicator is also smoother than it’s big brothers, Because it uses the Exponential moving average, it tends to be less jumpy and more consistent.

In general the RSI is interpreted as follows;

If the indicator is below 30, then the price action is considered weak and possibly oversold.

If it is reading above 70, then the asset is after a strong uptrend and could be overbought.

Because the RSI is used as a tool to indicate extremes in price action, then the temptation is to use it to place contrarian trades,

Buying when the indicator crosses 30 to the upside means you are counting on the trend reversing and then profiting from it. The same is true for selling when the RSI crosses down below 70 and using this a sign that the market is reversing from a strong uptrend.

Life is never that simple though, and more often than not, you will find that the risk involved in this type of simplistic approach is ruinous to you account balance.

New traders tend to gravitate to the RSI when attempting to delve into analysis for the first time.

It is easy to approach and easy to understand, it has fixed overbought and oversold levels and it tends to be correct over longer periods,

So;

ELLIOTT WAVE AND RSI IN TRENDING MARKETS:

The starting point for me is always the Elliott wave count. Before even thinking about entering a trend trade, I want to see a completed wave structure on the chart.

When the wave structure is complete which calls for a turn in the market, I then look at the RSI add weight to my wave count.

The RSI is a great tool to show a shift in momentum in a market.

The chart below shows the GOLD price off the lows of late 2015.

This low marked a turning point in the trend, and the decline into the 1045 low completed a wave structure off the all time high.

It was time to start looking for a turning point.

This means;

We  look for an impulsive rally in 5 waves off the low followed by a three wave decline, the confirming price action forms a higher low and an inverse head and shoulders pattern, which sets the market up for a corrective rally.

At this point both Elliott wave and rsi are indicating that a turn is on the cards.

Lets look at the RSI in this time period:

I labelled the first rise off the low as wave ‘1’ in blue. Wave ‘2’ blue formed a higher low.

At this point the RSI had begun to rise in a bullish fashion to indicate the rally was getting underway.

A low risk trade would be to  place a buy order at the wave ‘1’ high,

with the idea in mind that wave ‘3’ was about to start and carry the market to new highs.

By reading the RSI as a trend strength indicator, we could trade the rally all the way  to the top.

In this case the RSI is a great tool to guide your trading stance.

ELLIOTT WAVE AND RSI SUPPORT AND RESISTANCE ZONES:

The short rule of thumb is this: the RSI forms resistance to the price rising between 50 and 60, and the RSI forms support between 40 and 50.

Lets see how that works out in trending markets.

 

RSI indicates  resistance in a downtrend.

During the price decline off the all time high, In the GOLD market,  the RSI never registered higher than 60.

This RSI resistance zone held for 9 months solid,

And the first time the RSI broke the 60 level was an indication that the trend had changed to the upside.

The RSI resistance zone acts as a signal that the trader can use to ride a trend trade to its completion, rather than closing a trade too early.

RSI indicates support in an uptrend.

During a trend rally, the RSI acts as a support zone between 40 and 50.

In Dollar Swiss above the move off the low was supported by the RSI 40 level through the most powerful periods of the price rise.

 

ELLIOTT WAVE AND RSI DIVERGENCE AT TOPS AND BOTTOMS:

Again, back to the gold market.

You can see that the RSI had flat-lined even as the price kept falling into the low , this condition is known as ‘divergence’ and is a signal that the price will turn soon.

The first divergence was followed by the largest rally in the gold price in over 9 months.

As the rally matures the RSI starts to diverge from the price again. The RSI forms a lower high into the high at wave ‘a’ in green.

At this point the RSI is signalling that the rally is about to end and the trader should close out the position.

These RSI characteristics are very useful when used to confirm your wave count, The RSI become your friend when riding a trend move and acts as a warning when the trend matures.

02- Dec2016
Posted By: adminwmk
252 Views

Nonfarm Payrolls Preview: rate hike priced in, NFP needs to surprise big

The last month of the year is finally here, and will kick start with the release of the US Nonfarm Payroll report. The stars of the month however, will be the ECB and the FED, with the first expected to announce an extension in its stimulus program and the second forecasted to raise rates. Indeed, the employment report will be taken as a new hint of whether the FED can act this December, although for the past month, policymakers have been doing their best to limit the impact of a rate hike, anticipating the move.

The US economy is expected to have added 175,000 new jobs in November, slightly above October’s 161K, while the unemployment rate is expected to remain unchanged at 4.9%. Average hourly earnings are expected  to have rose by 0.3% monthly basis, and to remain flat at 2.8% in the year-on-year comparison.

Earlier this week, the ADP survey showed that the private sector added 216,000 new jobs in the same month, well above analysts´ expectations of 165,000, somehow anticipating a solid NFP. Better-than-expected figures will probably support the greenback, but considering that the market has already priced in a rate hike, the movement could be limited, particularly if the figures result in line with market’s expectations. It would take a strong upward surprise, and not only in the headline number, to re-ignite dollar’s rally.

The US Federal Reserve will meet next December 14th, and should be a shocker if traders save their bullets until then.

EUR/USD levels to watch

eurusddaily-636162008483125149

The EUR/USD pair has been stuck around the 1.0600 for most of this week after bottoming at 1.0517, a year low, in the previous one. The bearish momentum seen over the previous weeks has somehow eased, but given that the pair has remained below the 1.0700 level, the 23.6% retracement of the 1.1299/1.0517 decline, an interim bottom is not yet confirmed. In fact, the consolidation stage has helped daily indicators to correct the extreme oversold readings achieved early November, but in the same chart, a sharply bearish 20 DMA has extended its decline down to the 1.0680 region, where the pair topped this week.

If the upcoming employment report comes in line with expectations, the most likely scenario is that the pair will remained contained within the 1.0517/1.0700 range. It would take a very disappointing headline number and a recoil in wages to push the pair beyond the higher end of the range and the mentioned Fibonacci level, with scope then to advance up to 1.0745 first, and towards 1.0790 later.

A shocking upward surprise on the other hand, may take the pair down to 1.0505, December 2015 low, while below this last, the dollar can extend its gains, with the pair then falling down to 1.0460, 2015 yearly low.

30- Nov2016
Posted By: adminwmk
150 Views

8 Trading Tips from Some of the World’s Best Traders

“The way to build long-term returns is through preservation of capital and home runs.
– Stanley Druckenmiller

The first goal of any trader is to trade for another day. You can have the biggest trading account and you can win a bajillion pips on a single trade and they won’t mean a thing if you don’t know how to protect your capital. Aim to maximize your wins and minimize your losses and learn to manage your risk.

“I will keep cutting my position size down as I have losing trades. When I am trading poorly, I keep reducing my position size. That way, I will be trading my smallest position size when my trading is worst.
– Paul Tudor Jones

A trade’s position size is not a one-size-fits-all slipper. A lot of times it considers the trader’s risk tolerance, his/her confidence on the trade idea, the size of the account, and the volatility of the potential trade. Learn to find your balance and make your position sizes work for you, not against you.

“I don’t think you can consistently be a winning trader if you’re banking on being right more than 50 percent of the time. You have to figure out how to make money being right only 20 to 30 percent of the time.
– Bill Lipschutz

You don’t have to be right all the time to be profitable. Trading losses are inevitable, after all. With proper risk management and enough flexibility, you can capitalize on ideas that you WERE right about and find a way to protect your capital until you’re right again.

“Unfortunately, the more complex the system, the greater the room for error.
– George Soros

Sometimes, slapping on a gazillion indicators only brings confusion. As long as you have a good understanding of how the forex market works and you have good trading habits, then you have all the tools you need to become consistently profitable.

“The Heisenberg principle – If something is closely observed, the odds are it is going to be altered in the process. The more a price pattern is observed by speculators the more prone you have false signals; the more the market is a product of non-speculative activity, the greater the significance of technical breakout.
-Bruce Kovner

Be careful of textbook technical setups, as a lot of traders (and banks and brokers) are likely watching them too.

“No trading rules will deliver a profit 100 percent of the time.
-Jesse Livermore

Losses are inevitable for traders. The best you can do is to find a system that is profitable and compatible with your trading personality. Oh, and make sure you stick to it like glue!

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.
-Warren Buffett

Don’t waste all the time you spent analyzing data and manning your charts by getting only a pip or two from your setup. Don’t be afraid to be a little more aggressive on trade ideas that you’re confident about.

“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go. In the end, what matters isn’t crossing the finish line before anybody else but just making sure that you do cross it.
-Benjamin Graham

Comparing your trading progress to other traders’ is not only fruitless, it’s also counterproductive. Set your own trading goals and concentrate your efforts on meeting them. In forex trading, you must run your own race.

Categories:
29- Nov2016
Posted By: adminwmk
156 Views

10 Major Behavioral Traits of Successful Traders

The question I probably get asked more than any other is: What makes a good trader? Answering this in detail is not easy, however in this article I explain what I think are the 10 major behavioral traits of successful traders.

Some Perspective:

All traders start out with the best of intentions, however too often their focus becomes misdirected, with too much attention spent looking at achieving short-term goals or projecting themselves, and not enough focus spent looking at the process and reflecting on that. For the trader who wishes to develop themselves toward adopting the attitude and mindset needed for success in the financial markets, I would suggest ‘aiming’ towards a goal of trying to implement, practice and incorporate the 10 traits within their general approach to their work. There is no hierarchy to the traits, and in many cases, the behaviors and practices associated with one trait, help to re-enforce another: The ultimate goal of all these traits is to help the trader develop their self-efficacy and their belief in their ability to succeed as traders.

Trait 1) Successful Traders Learn from their Mistakes.

Most successful traders have been through a painful learning process, usually many times over. Whilst to a degree all people learn from their mistakes, successful traders seem to learn better than others. Successful traders are the ones prepared to keep learning, and never presume to know it all. In trading; the moment you think you know it all, per-empts the moments when you find out that you don’t. Possibly the most successful hedge fund trader of the past few decades, Ray Dalio, founder of Bridgewater Associates, emphasises this aspect of trading into the way he works, and has embedded it into the culture of the business he founded. Dalio believes that mistakes are the greatest learning tool we have and at Bridgewater it is a key principle that ‘it is acceptable to make a mistake, but never acceptable not to learn why or how you made the mistake’. Helpful behaviors to support development of this trait

  • Keeping records and/or journals of actions, thoughts and feelings.
  • Reviewing and evaluate actions and behaviors.
  • Be willing and open to seeking and receiving feedback.
  • Practice developing clarity of mind and the ability to objectively assess your own behaviors.
  • Develop abilities for objective thinking and reflection.
  • Formulate and monitor a growth and continual development plan.

Trait 2) Love of Trading and a Competitive Will to Win.

The most successful traders love trading. They have developed a real passion for it. There is not much chance of being successful as a trader if you don’t have a strong desire and passion for trading. Don’t get me wrong, most people get into trading for the money, however at some point this transforms into a real interest and a passion. When I ask successful traders what is it that motivates them to continue to be a trader, rarely is it the money that is mentioned; more often it’s a love of the job, and various other aspects that go with that. Helpful behaviors to support development of this trait:

  • Developing one’s self-efficacy.
  • Immersing oneself in learning, training and personal development.
  • Clarity over long-term goals and objectives.
  • Spend time and with other people in the industry who are passionate about trading.

Trait 3) Trading Style Congruent to a Person’s Personality and Character.

The top traders have a style that they have molded around their own particular strengths, and which works to offset weaknesses and flaws they possess. It is unlikely the novice trader is going to start with the same style and approach to trading that they will eventually settle down with. At first they are likely to adopt the style of their teacher, trainer or mentor, however over time they will refine and alter it to fit to their character and personality. To achieve this one must have a high degree of self-awareness, including the ability to achieve honest self-appraisal and reflection. This can take many years, and a requires a high degree of honesty, something not always easy to develop. In my work with traders I have pioneered the use of ‘Risk Profiling’ to help traders better understand their personality traits, and the style and behaviors that their personality is most suited to. One of the biggest problems traders have is when they are using an approach or style not best suited to their personality. I compare it to an athlete who chooses the wrong event for their body type. I find that most successful traders are employing a style/approach that suits their personality and thus gives them a defined edge they can work. The consequence of this is that traders of all types can achieve success, whether they are highly risk-adverse, highly risk-seeking, logical and methodical or intuitive and emotional. Helpful behaviors to support development of this trait:

  • Conscious alignment of approach to suit strengths and allay weaknesses.
  • Develop mindful awareness of one’s self, character and behaviors.
  • Willingness to seek and receive feedback.
  • Appraisals/Personality Tests/Risk Profiles.
  • Set goals to include congruence to strengths and character traits.

Trait 4) Reduction of Anxiety and Stress.

Anxiety and stress are part of the territory in trading, there is no escaping this, the very nature of trading requires one to immerse themselves in uncertainty. Anxiety and stress affect people in different ways and at different times; it has a distorting effect on the way we see and perceive the world and our immediate environment, and alters our ability to make sound judgments, and appropriate decisions. Successful traders will have developed various tactics that enable them to reduce anxiety levels. This will include preparation and planning of trades, reducing the need for ‘seat of the pants’ trading, or if that is their style, ensuring they are appropriately engaged for ‘seat of the pants’ trading. They also manage their personal resources, such as time, physical and mental energy, to help stay on top of the market and reduce the likelihood of ‘rushes of blood’ to the head. However, keep in mind that complete removal of stress and anxiety should not be an aim. Stress serves a purpose; it keeps traders alert to threats, danger and opportunity. It helps one’s creativity to flow. There are times when trading at very low stress levels can be highly unproductive and lead to ‘trading with abandon.’ This sort of behavior can sometimes be seen when a trader has had a good run, and is a major cause of traders giving back profits repeatedly. Some traders will take a break from trading after a good trading run, in order to avoid just this situation. Helpful behaviors to support development of this trait:

  • Ability to be objective about one’s self.
  • Engage in physical and mental activities that clear the mind
  • Keep an inspirational object present to ground you and break negative thought processes.
  • Make time to be away from trading; talk to people, do not lock yourself away.
  • Share your thoughts and feelings with a sympathetic listener.
  • Find ways to suspend self-judgement.
  • Keep a journal and learn to read your own behavior as well as others’.

Trait 5) Humility and Humbleness: Curtailing ‘Ego’ and ‘Pride’

How does one do justice to such a huge topic in just a few short paragraphs? Just about every major story of Financial Market excess and collapse has, closely entwined in its narrative, tales of excessive egotism and hubris. (The collapse of Lehman Brothers, the fall of LTCM, the Enron scandal, the decline of Amaranth Advisors; the largest ever hedge-fund failure.) Whilst these are clearly examples on a much larger scale, the twin dangers of ego and excessive pride affect most traders at some time: I have seen people’s ego and pride get them into some horrendous trading messes, and I myself have not been immune to this happening more times than I perhaps care to admit. The opposite of Egotism and Pride, in this sense, are Humility and Humbleness. These two traits are not ones that the common media depiction of successful traders as ‘Master of the Universe’ would have us recognize. However, these are words that I associate with many of the most successful traders I know. One of the greatest errors many traders commit is to allow their trading and their beliefs or views on the market to become entwined with, and an extension of, their egos. The same can be said with regard to ‘pride’, though closely related to ego, pride is slightly different, and though considered a positive emotion, excessive pride (hubris) can be a major impediment to successful trading. It is vital that a trader can admit they are wrong, capable of being wrong and that they have limitations and flaws. Failure to admit to being wrong, or even being capable of being wrong, can lead to traders somehow trying to exert their will over the market or holding onto positions rather than crystalline a loss. Helpful behaviors to support development of this trait:

  • Set aside being right or wrong, and adopt a process-driven approach to profit.
  • Listen well and be willing to seek open and honest feedback.
  • Ensure you look into and learn from mistakes.
  • Try and be an ‘optimalist’ and not a perfectionist. Admit to flaws and maintain flexibility.
  • Be mindful and conscious of not imposing your ego on people.
  • Avoid boasting and building yourself up to other people.
  • Listen to people, ask questions
  • Avoid criticizing and judging other people.
  • Practice ways to develop objective thinking and reflection.

Trait 6) Planning, Preparation, Patience and Discipline.

It is hard to find a book on trading that does not stress these virtues. Yet actually following through and exercising these virtues within one’s trading is one of the hardest things to achieve on a regular basis. All the hard work and preparation that goes into one’s work can be lost in a few moments of ill-discipline. Successful traders place significant emphasis on these aspects of trading, they think through what they do thoroughly. Their planning and preparation provide a solid foundation that allows them to exercise the necessary patience and discipline; it also helps facilitate a reduction in uncertainty and thus helps reduce anxiety and stress levels. Let us not however imagine that successful traders are anything like perfect in this area, they aren’t, however many of them will display higher propensities to display these skills than the majority of traders. It is nonetheless this propensity to perform these skills and attributes that places a trader in the right position to do well in the long-term. As the great South African golfer Gary Player once famously said, ‘Luck is what happens when preparation meets opportunity’. Helpful behaviors to support development of this trait:

  • Invest time to developing and implementing appropriate behaviors.
  • Review your progress towards achieving your development goals.
  • Develop a structure and strategic perspective around your trading. Then, use the right tactics.

Trait 7) Respect for Risk and Uncertainty.

Successful traders have a huge respect for risk, and an appreciation for the dangers of uncertainty. They also acknowledge and work with the subtle difference between the two. Risk is only a small part of uncertainty: if one of my positions is stopped out, then I lose $x being my ‘risk’. Every time I trade, something is ‘at risk’. As a concept, it’s much more self-evident than ‘uncertainty’. Uncertainty itself is much wider: it is impossible to put a value on exactly how the market will behave tomorrow. Some people try and price uncertainty, which they mistake for risk, however, it is hard to truly put a price on uncertainty. This point is admittedly contentious and some may debate the simplistic definitions, however I do believe that attempts to price uncertainty typically end in disaster. People thought they had valued uncertainty correctly at LTCM, and the lessons of this were quickly forgotten as people also thought they had correctly priced uncertainty ahead of the Global Financial Crisis. Top traders embrace risk, and respect uncertainty. They know crucially that they do not know what comes next, and are at best making educated guesses. Successful traders are not gamblers. The only casino game successful traders usually play is poker, and they usually do not see poker as gambling since they have the ability to shift the odds in their favour. In all other casino games, the odds are too heavily stacked against them. There has to be positive expectation of a favourable outcome, not merely an assessment of market direction. Helpful behaviors to support development of this trait:

  • Develop a rule base for risk, and assessing it vs reward.
  • Plan trades and include risk in trade evaluation.
  • Ensure you are consistent in applying the tactics needed to enforce the strategy.
  • Evaluate and monitor your performance in risk assessment.

Trait 8) Develop effective Risk/Money-Management Practice.

Mastery-of-Trading

Successful traders see their trading as a business, and It would be foolish to go into business overcapitalized and without sufficient liquidity. Many do take the gamble, and some survive, owing their success to good fortune (which can only ever be stretched so far). Running a business requires careful and tight management of costs and expenditure. Prudent business owners do not put all their ‘eggs’ in ‘one basket’. Trading should follow the same principles. Successful traders devote a lot of time to these issues. They know that failure to adhere to basic principles of money management leads to ruin. It is surprising how many traders engage in simple acts like not placing stops, removing stops, or placing too large a trade, which can cause losses to multiply and greatly increase the risk of failure. Taking profits too quickly means they fail to cover the costs of their losses, and many traders focus on how much they believe they can make, neglecting to assess how much they could lose. Some traders run their trading on Martingale principles, something which only has to fail once to lead to wipe-out. One final point: Money-management is the unexciting, somewhat boring aspect of trading, however this is so crucial and important that it should carry equal weight with other key aspects of trading. This is where many of the ‘excitement seekers’ or ‘creative types’ fall foul. Too often people put their energies into assessing market direction, and where to enter and exit the market, they completely ignore or give scant attention to money-management. The “Mastery of Trading” image emphasizes the importance of accounting for ‘Money and Risk Management’ within a trading strategy. Helpful behaviors to support development of this trait:

  • Have a well-developed structured approach to trading.
  • Developing a strategic perspective to your trading.
  • Develop a rule base for risk: include risk in trade evaluation.
  • Develop an approach for assessing risk/reward.
  • Understand the need to size trades according to risk of loss.

Trait 9) Successful Traders focus on making money, not being right.

Successful traders realize that they are not in control of the market (uncertainty). They view the market as a force of nature without an agenda. The only thing they can control is their own actions, activities, behaviors and emotions. The top traders know they are not infallible. All humans have biases and limits to cognitive abilities; anyone is capable of being swayed or easily distracted. Everyone’s personality is different, and brings different influences to bear on their decision-making. Successful traders work around these factors, accepting that losing is part of winning, and they know their job is to make money, not to be right. It is another of the paradoxes of trading: successful traders can lose money, get markets wrong, but still consistently come out on top. Failing traders can have wins, get markets right, and still consistently under perform. Successful traders win the Inner Game, (see figure 1 above). They apply focus and concentration commensurate with what is needed. They will display realism, and not fantasist ideas hoping that markets turn their way, or bemoaning some sort of conspiracy. They will stay in the here and now, not dwelling on past victories or defeats, or celebrating as of yet unearned future victories. Importantly, they develop a strong relationship with losing. Some have even attested to me that they ‘love’ their losses. It makes them easier to accept, particularly if they can contextualize them as just part of the process of winning. Helpful behaviors to support development of this trait:

  • Focus on long-term goals and objectives, and the tools necessary to achieve them.
  • Review and evaluate actions and behaviors used within your activities.
  • Seek and receive feedback.
  • Step back from the fray.
  • Practice ways to clear the mind and develop objective thinking and reflection.

Trait 10) Achieving Balance and Perspective in Life.

Successful traders try to keep their external lives in balance, holistic, and uncomplicated. Trading is a part of their lives, so if the other parts of their lives are out of balance or sync then this will affect their trading. Likewise, when their trading is out of balance, this can have an effect of the other parts of their lives. Many traders will look to remain fit and healthy and avoid doing things to excess. Likewise, they try to keep family matters as uncomplicated as possible. Their own investments tend to be safe and relatively UN-complex. All of this helps ensure a clear and uncluttered mind in order to focus attention and resources on trading. It is easy to forget the human element to trading, as people try to add further to their tools, electronic systems, instruments and technical capabilities. However, it is our human aspects that make us successful. The great British Army Officer Field Marshal Montgomery, who achieved such success in the second world war, once said, ‘Man is still the first weapon of war.’ This is the same in trading: our humanity and our mind’s capabilities, despite limitations and flaws, are significantly more powerful than the most advanced computers. Helpful behaviors to support development of this trait:

  • Step back from the fray. Make time in advance for other interests and responsibilities.
  • Practice ways to clear the mind and develop objective thinking and reflection.
  • Focus on long-term goals and objectives, alongside associated strategies and tactics.
  • Engage in physical and mental activities to clear the mind.
  • Keep an inspirational object present to ground yourself.
  • Talk to people, do not lock yourself away.
  • Share your thoughts and feeling with a sympathetic listener, close friend, spouse or partner
Categories:
08- Nov2016
Posted By: adminwmk
6968 Views

What Does a Trump Win Mean for Financial Markets?

This year, a new answer was born to questions like ‘why is (insert surprising or shocking event) happening’? The answer is simply: ‘because…2016’. Six months ago, most pundits called it a long shot that that Republican candidate Donald Trump might win the US presidential elections. Then again…itis 2016.

A Brexit was also considered to be a long shot, and yet, Britain did indeed end up unexpectedly voting to leave its European Union membership, sparking off waves of price reactions in the markets. The Gold price climbed so fast that investors got dizzy at the new heights. The Sterling and FTSE felloff the edge of the cliff so rapidly that they left queasiness in its wake.

So, what are the upside and downside scenarios for a Trump win? On the downside, it could look like the Brexit, with the S&P 500 taking the role of the FTSE. Investor confidence may fall dramatically in the short term, meaning losses in the S&P 500. The losses could be anywhere between five and 10 percent for the S&P, ending the eight-year bull run. In this context, the VIX could soar, tracking potential volatility that might follow the unexpected result of the election.

The other asset to take a lead role in this potential drama is the Mexican Peso. Ever since Trump made an election promise to builda wall to keep Mexican illegal migrants out of the US, the currency has been the best financial asset proxy to signal a Clinton win and a Trump loss. The Peso’s downward slide in the wake of the revelations over a new FBI probe announced in the last week of October into Hillary Clinton’s email issue is a fair indicator of the trend it might take in the event of a Trump win. The currency’s losses may even reach 15 percent.

It’s debatable whether the USD would take a hit or be a hit, given that the currency is often seen as a safe-haven in times of volatility. On balance, the USD could maintain and even rise against its rivals in the case of a Trump win, especially considering the Federal Reserve’s interventionist policies and caution since 2007. There’s little doubt, however, that another other safe-haven asset – Gold – would be preferred by traders. When the markets lose their risk appetite in the face of a short, sharp shock, they turn to Gold for comfort.

On the upside, an initial sell-off would create opportunities for smart money to dive in and take advantage of the market correction. Something similar was seen in the wake of the Brexit when the FTSE regained ground on bargain buying and central bank easing hopes.

Medium term, there could be additional developments in terms of investor sentiment. Businessman Donald Trump has made much of his economic policies like cutting red tape, which are likely to be popular with US companies. If his presidency becomes a reality, mergers and acquisitions activity could be boosted and flourish because of fewer regulations seen as restrictive or complicated. Business-friendly policies could also contribute to a reinvigorated financial services sector and investor confidence could return in earnest for the first time since the sub-prime crash in 2007. Stocks in the biotech sector – which suffered losses in the wake of Clinton’s criticism of EpiPen’s price hikes – could recover quickly if Trump is victorious.

A win for Hillary Clinton has already been priced in by the markets ahead of the elections, yet as always when it comes to expectations, they can be disappointed. After all, it is…2016.

05- Nov2016
Posted By: adminwmk
330 Views

Dollar Lives or Dies by US Election – 3 Scenarios

Now that the Federal Reserve’s monetary policy meeting and U.S. non-farm payrolls reports are behind us, investors can focus solely on Tuesday’s U.S. Presidential election.  Friday’s U.S. jobs report failed to change the market’s expectations for a rate hike in December.  A total of 161K jobs were created in October but September job growth was revised higher, the unemployment rate dropped back below 4.9% and average hourly earnings rose 0.4%, which was more than expected.  But the only thing that matters next week is who becomes the next President of the United States. Economics and monetary policy will take a back seat to the unfolding political drama especially since there are no major U.S. economic reports on the calendar. Over the past 2 weeks we have gotten a taste of how equities and currencies could trade if Donald Trump becomes President.  On November 1st, when a poll suggested that Trump led Clinton by 1 point, the Dollar index dropped 1%, the Mexican Peso fell 1.75% and the Swiss Franc soared 1.4%. Investors took the U.S. dollar lower against all of the major currencies as the race tightened and the polling gap between Donald Trump and Hillary Clinton closed. As shown in the chart below, USD/JPY has been taking its cue from Real Clear Politics’ 2016 Presidential Poll Average Value for Hillary Clinton (white line) – a similar relationship can be seen with the dollar index.  In the past 3 months when Clinton’s popularity rises the U.S. dollar strengthens and when it falls (like it has been recently), USD/JPY crashes.

U.S. elections don’t normally elicit major market volatility but the problem in 2016 is that for better part of this year, market participants did not consider a Trump victory realistic and now that the election is too close to call they are bailing out of U.S. assets and rushing to protect their portfolios.  Regardless of your political leanings it is hard to ignore the fact that investors fear a Trump Presidency.  His foreign policy, trade ideas and plan to overhaul the Federal Reserve scares domestic and foreign investors alike and the general lack of specificity could mean a long period of uncertainty. Beyond the immediate impact, investors also worry that if markets sell-off and the U.S. economy slows the Fed could forgo a rate hike in December which would exacerbate the slide in the dollar into yearend.

But what if Hillary Clinton makes history by becoming the first female President of the United States?  The market’s reaction depends on the margin of her victory.  So lets consider the 3 potential outcomes of Tuesday’s election:

Scenario #1 -Trump becomes President, Clinton accepts defeat. 

The greatest market impact would be a Trump victory and a willing Clinton defeat.  In this scenario, the U.S. will have a man with untested political skills and unknown policies in office. In this case, the biggest winners will be the euro, Swiss Franc and Japanese Yen and the biggest losers will be the U.S. dollar and Mexican Peso.  The Canadian dollar should also fall but its moves could be tempered by a weakening U.S. dollar.

Scenario #2 -Clinton becomes President, Trump accepts defeat

The greatest relief for foreign investors would be if Clinton becomes President and Trump willingly accepts defeat. She’s not without her own problems (and there are many of them) but the transparency of her policies and the continuity of stability would send the U.S. dollar sharply higher. In this scenario, the dollar and peso would rise against all of the major currencies with the biggest losers being the Japanese Yen, Swiss Franc and to some degree the euro.  However she would need to win by an uncontestably wide margin and Trump would need to accept defeat, which he has suggested that he wouldn’t.

Scenario #3 -Trump/Clinton becomes President by narrow margin.  Loser refuses to accept defeat.

The third scenario is the most likely one.  If Trump or Clinton becomes President by a very narrow margin and the loser refuses to accept defeat, the ongoing uncertainty would be extremely negative for the U.S. dollar, especially in the hours after the election. On a percentage basis, the greatest market volatility in financial assets (currencies, equities and commodities) will be in scenario 1 & 2.

There’s almost no point in discussing the outlook for other major currencies as next week’s price action will be dictated solely by the market’s appetite for U.S. dollars.  However, the Reserve Bank of New Zealand has a monetary policy announcement and a rate cut is expected! There have been as much improvements as deterioration in New Zealand’s economy.  Employment growth was strong, dairy prices increased and business confidence is up but the central bank’s main concerns are inflation and trade – both of which have been falling.  Cooler housing activity could give them the breathing room to cut rates.  The RBNZ rate announcement is after the U.S. election so the market’s reaction could affect their decision. It’s a close call and even if the Reserve Bank keeps policy unchanged, they will repeat that rates are coming down. This stands in sharp contrast to the outlook of the Reserve Bank of Australia who left rates unchanged this past week and issued a statement with a relatively optimistic tone, sending AUD sharply higher. Australian data has also been good with retail sales rising, the trade balance narrowing, service and manufacturing activity accelerating. The only big miss this past week was building approvals.  Chinese PMI reports was also better than expected which helped to boost AUD and NZD. There are no major Australian economic reports scheduled for release in the coming week but traders will be watching the latest trade numbers from China to see if the decline in import and exports eased in the month of October.

The Canadian dollar traded in a very narrow range this past week until Friday when it hit a fresh 7 month high on the back of significantly weaker trade data and mixed employment numbers. Although 43.9k new jobs were created in the month of October, all of the job growth was part time with fulltime jobs falling by -23k. Not only did this erase all of the past month’s gains but it reflects a worrying shift in the labor market with companies hiring only part time workers.  The trade deficit hit a record high as exports fell 1.2%. The weakness of the Canadian dollar is not having any positive impact on trade activity, which reinforces central bank Governor Poloz’s concerns.  Falling oil prices also added to the pain. Earlier this week Poloz said the downside risks seen in September have crystalized and suggested that they can’t understand some of Canada’s export weakness. The currency has fallen over 5% since its peak in June and yet there has not been a meaningful pickup in exports. Poloz will be speaking again in the coming week and we doubt that his outlook has changed.

Sterling extended its gains beyond 1.25 as the momentum from the British High Court’s ruling continued.  Between their decision and Governor Carney’s optimism, we now expect further gains in the currency as traders unwind their short positions. U.K. industrial production and trade balance are scheduled for release next week but these reports will matter little to a market focused on the U.S. election and risk appetite. The same is true for the EUR/USD. Traders sold euros aggressively last month and as the polls began to narrow, they realized they had to de-risk their portfolios and to do so they unwound their EUR/USD short positions, taking the currency pair sharply higher. In the coming week, we have German industrial production and trade numbers scheduled for release and the lower euro should help these reports but nothing matters more to the euro or any of the major currencies than the outcome of the U.S. Presidential Election.

02- Nov2016
Posted By: adminwmk
215 Views

Trading Psychology: What and Where is Yours?

It has been my experience that not everyone appreciates the importance of trading psychology.  Unfortunately, it’s not a very sexy form of information and framework of self-discipline.  This is due to the fear that it generates in so many traders and/or the belief that he or she doesn’t “need” trading psychology.

Actually, I remember when I first was apprised of the crucial nature of using psychology to the trading process. I had just begun to learn how to trade and pooh-poohed learning about self-discipline as a waste of time (of course you get the dripping irony here of a psychologist that didn’t appreciate the necessity of knowing and using tools to support trade execution).  I thought that all I needed was to learn the “right” strategies (the longs & shorts of making a deal work) and then the money would start rolling in.  Needless to say that is not the way it works.

In fact, my experience with blowing up accounts fits quite well with anecdotal and statistical data on newly minted traders across the planet.  Newbie traders fall into a couple of buckets with regard to their early trading.  The first is either they don’t recognize the need to have focus and follow-through strategies to maintain rules and keep commitments; or they know that they need to have strong self-discipline but because they don’t know how to acquire it they continue to flounder and lose money.

But here is the bottom line; it is a requirement to getting consistent successful results that you have a substantive awareness of how you think, a mind-set that appreciates focus, follow-through and keeping commitments, and a set of strategies for changing your internal states from frustration, confusion and fragmentation to being centered grounded and purposeful.   So, whether you think that trading psychology is at the top of the what-matters-most list or not, what is painfully clear is that you’ve got to have mental and emotional tools when you’re trading.  If you don’t, that’s like driving a car without a steering wheel.  You will not only “lose” your way, you will crash and burn without that steering capability brought on by mental and emotional tools.

One of the ways to acquire mental and emotional tools is to become self-aware and in the moment; with an appreciation for that moment being the most important.    That is because each moment stands alone in its connection with the present.  All past moments are history and no matter how much you may desire to return and get another chance to do the right thing, it is gone forever.  All future moments are mysteries and cannot be accessed until they make it to the “Now”.

Also, when you are in the moment you have a much better prospect of being aligned in body, mind and emotions to go in the same direction and for the same goals.  If you are not aligned then you will be highly susceptible to internal conflict…one of the main destroyers of being attuned and on alert to what-matters-most.  Additionally, when you are self-aware it becomes much easier monitor your thoughts and emotions so as to increase your awareness of what is taking place in your mind-set.  You’ll remember that in the above we indicated that one of the most important cogs to becoming a consistently successful trader was fundamental awareness of how you think and how your mind-set is firing.  You can’t change what you can’t face and you can’t face what you don’t know.  Armed with this data on where your issues stem from you have a fighting chance to begin to address and eventually change them.

Psychology is the study of the mind and its functions, especially those affecting behavior in a given context.  How you think determines your emotions and those feelings drive behavior.  In other words, what and how you think controls what you do and what you do directly causes the result.  Trading psychology is all about your mind and how you are managing what goes on in it in relation to trading.  This is what we teach in “Mastering the Mental Game” online and on-location courses.  Ask your Online Trading Academy representative for more information.  Also, get my book From Pain to Profit: Secrets of the Peak Performance Trader.

02- Nov2016
Posted By: adminwmk
131 Views

Why is the dollar struggling?

Analysts at Brown Brothers Harriman explained that they had anticipated the dollar was going to be under pressure in the first part of the week.

Key Quotes:

“Today’s losses are coming despite slightly wider US 2-year premiums”

“Position adjusting seems to be the main factor, but it is not immediately clear if it is ahead of the ADP jobs estimate and FOMC meeting tomorrow or the US election.”

 “Trump’s support had bottomed before the FBI re-opened the investigation into Clinton’s emails, and his support appears to be continuing to edge higher.”

“We noted in our last technical view that the Dollar Index snapped a three-week advance last week.”

“We identified initial support in the 98.00-98.20 area and warned that a break could see 97.60.  Today’s low thus far is 97.74.  The Dollar Index has fallen through the 20-day moving average for the first time in a month.”

“A break of the 97.60 area would suggest a deeper correction is in store that could carry it toward 96.75.”

Categories:
30- Oct2016
Posted By: adminwmk
195 Views

Forex Weekly Outlook Oct 31- Nov 4

The US dollar struggled to maintain its momentum as political issues took over and despite good growth figures. Rate decisions in Australia, Japan, the US and the UK, GDP data from Canada, Employment data from New Zealand Canada and the US Non-Farm Payrolls form a very busy week. These are the major events on our calendar. Join us as we explore the highlights of this week.

U.S. initial growth figures for the third quarter showed the best increase in two years, posting a 2.9% expansion rate. Growth was sluggish in the first half of the year, averaging just above 1%, indicating the US economy is back on track. Solid growth numbers will enable the Federal Reserve to raise interest rates at the end of this year. The dollar could hold on to the gains as a new email scandal embattled Hillary Clinton. Elsewhere, worries of a hard Brexit beat positive growth figures in the UK and the euro managed to recover also thanks to an upbeat German survey. Let’s start,

  1. Australian rate decision: Tuesday, 3:30. The Reserve Bank of Australia kept the official cash rate at 1.5% in its October meeting despite Aussie volatility and sluggish mining transition. The decision to leave the rate unchanged was in line with market forecast. However, analysts expect an additional rate cut this year. Policy officials were more optimistic regarding the prospects of GDP growth expecting a boost in employment during the next 12 months. Recent inflation data has been solid.
  2. Japan rate decision: Tuesday. Japan’s central bank kept maintained rates at its September meeting, but introduced fresh changes to its policy approach, in an attempt to boost prices and boat economic growth. The Bank of Japan said it would focus on yield-curve control and would buy 10-year Japan government bonds so that the yield would hover around zero percent while restraining short-term rates. Furthermore the central Bank also abandoned its monetary base figures saying it will expand the monetary base until the inflation target is met.
  3. Canadian GDP: Tuesday, 12:30. The Canadian economy expanded more than expected in July, growing by 0.5% amid a rebound in oil and gas output. Economists expected a weaker growth rate of 0.3% for the month. Activity in the mining, oil and gas extraction rose 3.9% from June, including a 19% increase in non-conventional oil extraction and the manufacturing sector also gained 0.3%. The overall picture showed a broad-based expansion of economic activity. Economists expect a 0.2% growth in August.
  4. US ISM Manufacturing PMI: Tuesday, 14:00. The US manufacturing sector rebounded in September, crossing the 50 point line to 51.5 from 49.4 in August, indicating expansion. Analysts expected a more modest rise to 50.4. The employment index remained in contraction despite the improvement from August. Meanwhile the new orders and production also gained momentum with their gauges rising above the critical 50 level. Analysts expect the growth trend to continue suggesting that the August drops were likely a blip. Manufacturing activity is expected to reach 51.8.
  5. NZ Employment data: Tuesday, 21:45. New Zealand’s labor market continued to strengthen in the second quarter rising 2.4% to reach 2.5 million people, following a 1.2% rise in the first quarter. The reading reflects a stronger employment market. The labor force continued to increase amid strong immigration, as well as a positive trend in participation by women and older workers. Meanwhile the unemployment rate has declined to 5.1% from a revised 5.2% in the first quarter. Economists expect the unemployment rate to average 5.4% in 2016, which is down 0.2 percentage points from last month’s forecast, while the unemployment rate for 2017 is expected to average 5.3%. NZ is expected to increase its labor force by 0.6% in the second quarter and maintain its unemployment at 5.1%.
  6. US ADP Non-Farm Employment Change: Wednesday, 12:15. U.S. private sector added 154,000 jobs in September, missing estimates for a 166,000 gain. In the prior month the reading was revised down to 175,000 from the 177,000 previously reported. The unemployment rate was expected to remain at 4.9%. Analysts expect ADP report to show a 166,000 jobs gain in October.
  7. US Crude Oil Inventories: Wednesday, 14:30. US Crude stocks declined by 600,000 barrels last week, following a 4.9 million barrel rise in the previous week. Analysts expected a rise of 700,000 for the week. The rise in crude prices following the “agreement” among OPEC members to limit production has ended. Crude prices edged up at $51.60 just over two weeks but sunk again struggled to maintain the $50 a barrel level ever since.
  8. FOMC rate decision: Wednesday, 18:00.  Federal Reserve policymakers kept rates unchanged in September despite expressing confidence in US economic growth. The members lowered their expectations for rate hikes in the coming years but said it is likely to be announced before the end of 2016. The Fed said it awaits further evidence of continued progress toward its objectives. The committee reduced its expectations for economic growth and inflation this year despite the solid state to the labor market. Global developments continued to trouble the Fed members, particularly the Brexit vote and a slowdown in China.
  9. UK Rate decision: Thursday, 12:00. The Bank of England left its interest rate at 0.25% leaving the door open for another cut in the coming months. The central bank cut its rate from 0.5% to 0.25% to ensure the stability of the UK’s banking system in the aftermath of the June Brexit referendum vote. However, policy officials said a further cut is possible in the following months. Economic forecasts in November remained unchanged from August. The Bank noted that many economic indicators have suggested that the UK economy has overcome the post-referendum aftermaths, therefore the Bank is not as worried about the short-term state of the economy.
  10. US Unemployment Claims: Thursday, 12:30. The number of Americans who filed new claims for unemployment aid fell by 3,000 claims to 258,000. Economists expected a reading of 261,000. The four-week moving average was 253,000, up 1,000 from the previous week. Continuing jobless claims fell to 2.039 million from 2.054 million in the preceding week.
  11. US ISM Non-Manufacturing PMI: Thursday, 14:00. Service-sector activity edged up to the highest level in nearly a year in September, rising to 57.1 from 51.4 in August, a sign of steady growth for a major sector of the economy. Economists expected a September reading of 53.1. The better than expected figures may help reduce concerns the economy is slowing from last year’s moderate growth. Service-sector activity is expected to remain in expansion reaching 56.2.
  12. Canadian employment data: Friday, 12:30. The Canadian economy added 67,000 jobs in September exceeding expectations for meager employment growth. However the majority of gains were related to part-time work and self-employment. The unemployment rate remained steady at 7%. This was the biggest employment gain in four years and marked the second consecutive month of robust job creation. Part-time employment increased by 44,000 positions while full-time work rose by 23,000 jobs. Self-employment made up of both part-time and full-time employment – soared by 50,000 new jobs. Economists expect a contraction of 10,000 jobs in October and the unemployment rate at 7%.
  13. US Non-Farm Payrolls: Friday, 12:30. US job creation increased less than expected in September as Non farm payrolls increased 156,000 and the unemployment rate inched up to 5%. Economists expected a 171,000 jobs gain and the jobless rate of 4.9%. However economists say the reading is within the broad range of expectations showing a slow and steady growth. Average hourly wages increased by 6 cents to an annualized rate of 2.6%. The average work week also inched up one-tenth to 34.4 hours. The report comes at a critical time for the Federal Reserve as the central bank is looking more confidently toward an interest-rate increase. US employment market is expected to gain 175,000 and predict the unemployment rate would decline to 4.9%.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

*All times are GMT.