Trading Forex is Hard

Hi, that is cTrader platform.
The only indicator i use is the one that draws those dot lines at round numbers.
whats it called on ctrader .

thanks

It's called "Custom R Numbers"

Thanks for the indicator, which brokers would you recommend for scalping the markets. I'm with IC markets which are ok - there spreads do vary a little bit.

I'm using IC markets as well and so far so good.
Before the european law of forcing the max leverage to 1:30 for non-professionals i was using Lmax

leg reversal back into the broken range, paying close attention to nearby obstacles and following momentum.

These are the trades I love !

Hi venividivici,
very impressive charts, i need one bit of clarification, do you draw lines on the higher time frames and then trade the one minute using momentum etc or do you make
the one minute chart really small to see what price has done in the last week/months. thank you for your time.
chris

I asked a similar question at #post364. You can read the answers there mate.

Hey, very epic thread Veni!

So... I had a couple questions and Jens agreed to answer them here because he thought it was of public interest. So I am reposting a question I previously sent him (wall of text ahead) :

As I understand it, tail risk is closely associated with lack of liquidity in the market (from big players / market makers removing their limits?). I'm not 100% sure, but it seems micro-levels and follow through are a bit more erratic when those "big guys" aren't there or perhaps I'm making stuff up with the big guys, perhaps it's just the "natural" outcome of everybody anticipating the same stuff...

Anyway... I have read a couple posts from you where you talked about economic calendar and its use - i.e. in order to know when not to trade or take a day off. I'm guessing it is up to every trader to gauge their "risk profile" and to come up with a couple rules regarding when to trade and not to trade. I figured I would ask you what is your approach with this, as I'm trying to learn how to scalp currencies (following advices I'm reading in your older posts and in Veni's thread). With this I mean, how much time prior to an event you stop trading, how much time after the event; Do you pay attention to every events, like low anticipated impact? Also, there are a couple calendars out there with different anticipated impacts for certain events and/or more detailed calendars, I'm trying to follow a couple to be sure I don't miss anything. Is it too much?

I would bet that ideally it is best to have a decent period of time during a regular trading session (Tokyo, London, NY, although NY seems a bit crappy for currencies), where there are not much economic events to mess with the liquidity, (and hopefully no crazy news as the current market levels will likely collapse). Ideally just low anticipated impact stuff.

Like this week, there are many high anticipated impacts, with a typical big economic event (FOMC tomorrow). Is it just crazy to trade tomorrow? What about this morning with the U.S. PPI?

So, if I'm not completely off-tracks with all of this, should I check the calendar and decide in advance which day / period of the day I will trade based on how market reacted to those in the past?

Ah, another tail risk related quesiton I would have is concerning the stop. As I understand it, I "should" exit manually based on price behavior around levels, not have a precise stop at the extreme? Or am I mistaken?

I'm kind of in a phase where everything seems a bit blurry, I know it is possible to "make it" so to speak, but it's a question of fine tuning I think and whether or not I'm able to "fine tune" the right details ( be it psychological, money management, trading the right opportunity windows, and of course the approach...)

Thanks a lot.

I use an emergency stop of 10 pips which automatically comes on everytime a trade is opened, mainly for sudden swings, or unexpected sudden news nothing else, I keep an eye for red news and dont trade slightly before and slightly after, that simple..thats about it...I don't care about fundamentals in general only price.

quick question - US dollar index - I think it was mentioned earlier - do you look at that.

No, check out post #342 by Jens.

Where do you place your stop levels?

literally 3 posts above. please read before asking

I wanted to reiterate the important message by Jens on post #342 again, about the advantages and importance of watching the charts together, Although the chart windows are quite small for this explanation, I took a live example on how analysing and watching the charts together will get you further ahead in the game and give you better results than just looking at one chart.

So basically, not trade against opposing pairs (e.g.: usdcad sets up a short looking chart at the same time as audusd = suspicious ), and trade the ones that offer best outlook / "runnable" distance (amongst same sided pairs)?

When I speak of tail risk, I am referring in general to the risk of uncontrolled losses from individual trades. Unfortunately, the consequences of this are often underestimated. To reiterate the often said, should-be-obvious but often neglected: Keep always in mind that success in trading follows mathematics. I am only successful if, over the sum of all trades, I make more money than I lose. With high win rates you can boast or lead pointless threads here in the forum about the reliability of trading strategies (like someone recently did), but you won't reach your goal if you ignore the risk/reward ratio.

If I have a win rate of 50%, I logically have to win more than two dollars for every dollar I risk. If I lose significantly more than that in a single trade, i.e. more than I can easily recover with my longer-term performance, I have a problem.

Once you have internalised this, it is clear that individual losses that are significantly larger than the stop loss, which of course must reflect this healthy relationship to the profit, become a danger. We, therefore, want to protect ourselves from such liquidity bottlenecks in which we cannot expect the stop loss to be executed with the usual precision. So, yes, at the bottom line it is a liquidity squeeze we want to avoid.

For me, talk about the big guys is always a bit too unspecific and nebulous. Market liquidity is primarily created by market makers/LPs, i.e. those market participants who trade in both directions in order to profit from the spread. If they sell a million to X, then the profit arises from the purchase of a million from Y without the price going up or down. The difference between the bid and ask is their profit. Their risk is holding these securities, in our case currencies, through price fluctuations. Normal daily fluctuations are not really a problem. The price will come back.
When it comes to fundamental repricing, on the other hand, some people are scared shitless. When the Swiss central bank unpegged the franc from the euro in January 2015, known here in the forum as the Alpari bankruptcy and the rescue of another broker by an investment bank, at least one major LP virtually pulled the plug. I was having a few beers with the sysadmin of this bank in London on the evening of the same day.

Anyway, in terms of liquidity, these micro-levels are nothing other than support and resistance areas, i.e. narrow price corridors where many market participants have placed their orders. Because of the sudden demand on one side of the currency pair, the price then suddenly moves faster once these are triggered. The fewer market participants are actively trading, the fewer orders will logically be placed in the market and liquidity dries up because of the LP's risk of holding through price fluctuations for the lack of buyers or sellers increases.

Yes, of course. There can't be universal rules because every strategy has a different Achilles' heel. Short-term trading with the aim of profiting from small everyday market movements is a bit of a double-edged sword. On the one hand, short market exposure reduces the risk of getting hit the hardest. We have no weekend exposure, for example, and even a pandemic tends to offer us more opportunities than risk.
On the other hand, however, even small surprises are enough to cause substantial damage. Suddenly having to close a trade with 5 times your average winning trade leaves a crater in the account and this becomes much more likely if your average profit is relatively small. Someone's opportunity can be another one's risk, that all depends on the strategy, associated holding time and stuff.

Large news releases should usually be avoided, such as NFP, central bank decisions and things like that, but in the end, this is only a small part. Much more problematic are political tensions, such as elections, where there can be sudden forecast reports, preliminary counts, etc. Speeches can also cause very nasty market reactions because a sentence can mean something entirely different when it ended than when it started. However, the topic is somewhat diffuse and I find it difficult to derive clear rules that I can share in a forum post. So perhaps I should explain my basic thinking with an example (or 2 or 3):

 

1. In 2014, the market largely ignored the Scottish independence referendum. This neglect creates a risk, and I don't mean the final result, but also in advance, for example through surprising preliminary polls.
2. During the Brexit referendum, volatility was high, but liquidity proved to be absolutely sufficient. Nevertheless, it was wise to wait for exactly that clarity and to approach this market slowly. The period afterwards was riskier for people who held their positions through the late evening and night. In general, it was observed that the pound was set in motion very quickly and hard by political news. This obviously did not require any advance notice and an entry in a calendar, the news and rumours just came in. In the night hours (from a European perspective) there were indeed one or two flash-crash-like events. Now one can say that it is the fault of those who trade at night, but in my opinion, that is too short-sighted, because it was clear that there was massive uncertainty beyond the usual bounds in all directions.
3. Let's take up the mother of shit-fit-the-fan-situations: The decision of the Swiss central bank in January 2015. True, you could neither know what was coming nor when it would come. This however ignores the fact, that it was well known that the central bank was unhappy with the attacks on their exchange rate defence line and that the SNB's bloated balance sheet was increasingly becoming a hot political issue, which was only exacerbated by the expectation that the ECB would announce to introduce QE soon.

For longer-term oriented traders, all these events also offered opportunities. This is logical: if the market ignores something that could happen, the risk/reward ratio widens very much. It's like an opening pair of scissors. For shorter-term traders, but especially for traders who ignore the risk and take the other side, it becomes dangerous.

Does this mean that one has to keep all fundamental events in mind and puzzle them together? No. But you should consider whether there is a sword of Damocles hanging over the currency pair you are currently trading. At the latest when the bets on a falling Franc took on epidemic proportions when the threshold was exceeded, common sense would have helped: There is no such thing as free money and central banks managing the exchange rate tends to end in tears.

Why all these explanations now? Do I like to write too much? Perhaps. The jury is still out on that. Be that as it may, my main point is that tail risk cannot be neatly separated from opportunity and, most importantly, is much more complex than news on a calendar.

If you want to derive simple rules, I would say the following:

 

1. Don't trade, say from 30 minutes until the occurrence of an important news event like the NFP, CPI, interest rate decisions and things like that. Currency pairs that are relatively liquid while the two players are still asleep are of course quite interesting. Also: CPI and stuff becomes much more important and thus potentially damaging once there is rumour or demand of a rate hike or tapering.
2. Stick to the big currency pairs, they are not only more liquid because they are more actively traded, the structures in the countries are also more established, which makes very big surprises or radical changes a bit less likely. Even Trump has been more reliable than Erdogan.
3. Keep an eye out for surprise risks stemming from the political climate of the country. If in doubt, stay out, stick to pairs you understand and/or trade smaller positions.

The final protection for highly leveraged short-term traders is, of course, to keep the account with the broker relatively small, i.e. to have profits paid out often.

In most cases, I move my stop loss, which is initially set at -10 pip, into the profitable range. When and where has a lot to do with screentime, i.e. experience, but the microlevels often mentioned here also play a role. The decision for -10 as a starting level has two reasons: It is still a loss that can be compensated for quite quickly, but at the same time it is unlikely to be triggered by accident. My stop loss is set automatically, an adjustment to tighter, volatility-adjusted prices often takes place manually immediately afterwards, so it is not the case that I make a bet on -10 or +x up to a certain profit, but that the automatically set -10 should rather be understood as a precautionary measure.

Well, I hope that helps and like I said, the problem always feels a bit diffuse to me and is one of the harder ones to explain.

Regarding screens/charts:

Veni's way of archiving that market overview is interesting. Personally, I prefer windows stacked from top to bottom so I have all current action on the same vertical axis. Well, whatever you prefer, let's look at the main benefit of being able to watch it all together instead of zapping charts like the impertinence they call free-tv ;-)

I see mainly two reasons:

 

1. We're trading short-term with fast decision making but usually by taking the bigger picture into account. Switching charts is logically counterproductive in such a situation as it becomes hard to keep the focus of the bigger picture AND the current price action. I can concentrate on multiple charts simultaneously only if I can watch them at the same time, furthermore, and that's my next point
2. I can draw clues from the common behaviour of currency pairs, especially since one side is almost always the ubiquitous USD. You only have to look at the charts: When the EUR rises against the USD, the other major currencies like the pound, the Canadian dollar, the Australian dollar or the yen almost always do the same. If you look a little further, however, you will see that they do not always do it exactly in sync. Especially in critical reversal situations, i.e. those where the probability is not necessarily on our side, such as against a trend or channel, you can often observe that in one of the pairs the previous direction (the main direction) regains the upper hand earlier than in the others. Sometimes these few seconds are enough to decide against the bet or to remove the placed stop-entry order before it has been triggered. In other cases, you at least get out before the damage has become greater. Now, if you have just made a bet, which pair are you most likely to look at? The other ones or the one you're currently exposed to? Yeah, I thought so.

On another matter, I am increasingly receiving questions by private message. I am happy to answer questions, but please ask them here in the thread. By the way, Veni and I trade largely according to the same formula, so questions about whether I use higher timeframes to get an overview are unnecessary - they have already been answered here. All I need to know is, almost always, available within the last 1 to 2 hours and I can easily fit more than 4 hours on an ordinary screen. For people hunting some, let's say precise 10-20 pip bets, there's nothing of interest in the last couple of days simply because charts have no forecasting powers.