The Making of a Trader

Hi Traders, Welcome to The Making of a Trader

Before I begin, I wish to let all readers that the purpose of this threads existence is of positive intentions. So please respect the fact that I'm here because I'm willing to contribute.

I will show you how I make money trading the markets.
If you follow what I teach , you will make money consistently with this methods.
I am not going to reveal some holy grail...

There are no sure things in trading. They don't exist and as soon as you realize this the better. We can't know what is going to happen in future, so what we do we control everything we can till we enter the trade.

First I will explain Fundamentals.

Forex fundamentals revolve on Central Banks and markets expectation what that bank will do next.
The bank uses economic indicators to keep everything stable.

Fundamentals are the big picture- driving the price for weeks and months.
Sentiment are short term things that drive price over an hour or couple of days.
Sentiment drives the price against the trend, but trends resume and sentiment fades.


This training will give you confidence.

We will now look at Intermarket analysis.
We will look more deeply in markets in other markets being traded, how we can use this information to profit from it and most importantly how they are relevant to us FX traders.

Main assets that that are important are:

1. Bonds
2. Commodities
3. Equities

Bonds.
A bond is a form of loan, large entities raise money by splitting loan between thousands of investors in the open market.

Anyone offering bond to investors is called issuer, in exchange the government will pay the money back at certain date wich and they pay to investors interest.
Bonds are fixed income securities because money we invest and receive at the end is known and guaranteed.

The chances government not paying are very low so bonds are low-risk investment.
For example: if you buy a bond for a thousand dollars and have fixed rate of 10% you will receive 100 dollars each year not matter what happens.
The price of bonds with higher coupon prices are more stable.

An issuer with multiple A rating is the highest quality to deal with while triple B or single A rating are still strong.
Anything that has triple B rating or below is considered speculative and much higher risk.

Bonds are in relationship with interest rates.
Interest rates are important to the bond market as they are important to fx markets.
When interest rates rise the price of bonds in the market fall, so they raise the yield of the older bonds to bring them in line with news bonds that are being issued with lower coupons.
That's why bonds are so effective by rate adjustments and speculation surrounding them.

Commodities

The relationship between commodities and currencies is based on how prices of commodities will impact the overall performance of the economy of nation wich is producing it or importing it.

Canada is major producer of Oil and if prices fall significantly in small period of time it will start to reduce amount of money Canada makes from oil and it will start to effect on GDP and growth of the country.

So if you are trading CAD dollar it is important to look what is happening to Oil market.
The Canadian dollar is highly correlated with the Oil because crude is one the countrys main exports. Movements in WTI are watched closely for effects on the Canadian economy, a fall in WTI will reduce Canada GDP, it can provide an indication whether the market is bullish or bearish on the CAD.

New Zealand is most correlated with dairy prices, so we need to keep an eye on Global Dairy Trade price index and which affects the New Zealand Dollar.

Australia have close trading links with China,
Australias largest export is iron ore, which is used to make steel.
The Australian dollar has strong correlation with minerals and metals and should be closely monitored before and during trades on the AUD.

Equities

For the currencies EUR, JPY and CHF equity index should be used before trading it.
If equity indexes are down its Risk off sentiment and the JPY will go up.
If equity indexes are up its Risk on sentiment and JPY will weaken.

When market goes to safe currencies during risk off times it is known as safe haven flow.

Good post this- look forward to more postings

Central Banks.

The primary objective of any Central bank is to provide country's currency and price stability.
Federal Reserve (FED) is the most important bank in the world, 70% of FX transactions.

Within the FED there is group of people called Federal Open Market Committee or FOMC.
The FED mandated is to achieve long-term price stability and sustainable growth and they meet to discuss and change their monetary policy 8 times per year.

European Central Bank (ECB).
The ECB likes to provide the market clues and hints about policy they are going to make.
The ECB mandate is also price stability and growth but they also want to make CPI growth just below 2%.

Bank of England (BOE).
The structure is Monetary Policy Committee or MPC.
The BOE monetary policy mandate is to keep price stable and to make confidence in currency.
It has inflation target of 2%.

Bank of Japan (BOJ).
The central bank is known to weaken its currency by selling against US Dollars and Euros,
Its mandate is to maintain price stability and ensure price stability of financial system wich makes inflation cental bank top focus.

Swiss National Bank (SNB)
Main thing about Swiss is investors see its currency as solid stable thing to invest in wich causes currency to strengthen.
Their mandate is to ensure price stability.

Bank of Canada (BOC).
The mandate is maintaining the value of the currency. The central bank has inflation target between 1-3%.

Reserve Bank of Australia (RBA)
Its mandate is to ensure the stability of the currency, maintain full employment and economy stability.
It have inflation target between 2-3%.

Reserve Bank of New Zealand (RBNZ)
Its mandate is to maintain price stability and to instability in interest rates and exchange rates.
It have Inflation goal between 1-3% and focuses hard on its target.

So we look comments from hawks and dovs that are different from their traditional bias.
You will see this comments across the news feeds and this can be opportunity.

Mmmmmm !!

I,m liking this please continue....
Regards

I second that.

Thank you for your interest so far. Now we will look at economic indicators.

Economic Indicators.

Economic Indicators are trading analysis for central banks and traders.
Once you get a feel for each bank and how important are they focusing on each indicator, you can position yourself ahead of certain releases and central bank events because you will know what they steps will be based on what they mentioned in recent past and how their indicators are forming in line with that.

There are 15 indicators important indicators, but most important thing is that we only care about is what central bank cares about.
So if they are focused on inflation, then we watch inflation if they switch their focus on wage growth then we become watch wage growth indicators.

You will see the indicator announcement released by the news feed by audio squawk first and then followed by text headline with some extra analysis details.
Most important factors for any economic indicator is consensus for the actual figures, and all this means is what analysts and economists think the figure will show.
For example: if the figure comes better than the previous month or worse, and if so how much better or worse.
Traders can then use this number to base their expectations on.

GDP.
GDP is growth indicator, this represents the big picture of economic health and is important to all major central banks.
GDP represents the total production for a country.
Real GDP is simply inflation adjusted to take into account change in value of the currency.
We get accurate picture of whether the economy is growing more based on historical trends or simply making more in cash terms but producing less that it was in the past.

NFP.
Total number of paid U.S. workers of any business.
This monthly report also includes estimates on the average work week and the average weekly earnings of all non-farm employees.
It can be the biggest market mover if the central bank is focusing on it.
It is very important figure that of overal economy, it measures the rate of employment in US.

Industrial Production.
This indicator measures the monthly volume of goods produces by industrial firm such as factories, mines...
Industrial production can reflect the tone of overall economic activity and positive reading is positive for the local currency, while negative is bad.

Trade Balance.
It measures the imported and exported goods, when imports and spending exceed exports and earning country has a trade deficit, wich is negative thing, because money is flowing out of country.
When exports and earnings exceed imports and spending country has Trade surplus wich is a good thing for country and currency.

Durable Goods Orders.
An economic indicator released monthly by the Bureau of Census that reflects new orders placed with domestic manufacturers for delivery of factory hard goods (durable goods) in the near term or future.
It can move prices in short term as they are released.

Consumer Price Index, also known as CPI.
CPI is inflation.
Most developed nations try to keep the CPI reading between 2-3% over the long run.
If CPI reaches the upper band of this range the central bank will increase interest rates to balance growth and to try and slow inflation down.
If it comes in lower bound of the range they will try to cut interest rates to try to spur growth and CPI.

Producer Price Index, also known as PPI.
This figure measures changes in prices of goods offered by farmers and manufacturers.
If PPI increases expectation by market is interest rates will also increase wich leads to higher currency.

ISM Manufacturing Index.
The ISM Manufacturing index is an index based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries.
The reason traders watch this indicator closely is because FED watches it very closely.

Unemployment Rate.
This is used by central bank while they are monitoring monetary policy.
The steady rise in unemployment is never good and can indicate deterioration, wich leads to weakness in currency.

IFO Business Sentiment.
This gives a good reading of overall economic health.
Growing IFO reading signals optimism wich leads to the strengthening of the euro.

Home Sales.
It measures the amount of homes sold and available for sale. High reading indicates economic boom and low reading indicates deflation and even recession.
Related to this is Housing Start and Building Permits.
It is also watched carefully by FX Traders.

Current Account.
This measures all of the money coming into country and all of the money coming out of country.
The positive reading can strengthen the currency.

Consumer Confidence Report.
The U.S. consumer confidence index (CCI) is an indicator designed to measure consumer confidence.
It is important because it has effect to overall GDP reading, if it's positive it can indicate growth to follow.

Central Bank Tools.

Understanding this will help you interpret news reports and research articles each day and become tuned into markets and actions that bank takes in such a way to be able to take advantage.

Reserve Requirements.
The central bank is in charge of controlling all the commercial banks.
One of the ways it exercises this control is to require this banks to hold a certain amount of assets as liquid cash so it can be used anytime.
By doing this the bank control how much money is available for loans and financial system as a whole.
Therefore if the bank is trying to get the money into the system this is one simple way to achieve that.

Language.
This is when the central bank tries to signal markets what they will be doing over coming months in terms of monetary policy.
The reason the bank tries to do this is to get desired impact immediately to without a lot of action.

Unconventional monetary policy.
This is tools used when interest rates are already at 0 but it's not having a desired effect.
Bank may implement Quantitative Easing wich is basically printing the money to inject into the system via government bonds.
The impact to this is to devalue the currency encourage growth and to stimulate inflation.

Interest Rates.
FX revolves around interest rates.
Interest rates are used as a tool when the central bank wants long term effect on inflation rate or money supply.

Our job is to identify what central bank indicators are they concerned with and what tools they will use.

Central bank wants to reduce the amount of surprises the market experience.
An unknown something is the more reaction will get.
Central Banks release statements and forecast regularly by their websites , traders focus on certain words within the central bank release because words and phrases are the things changed and placed when a policy is about to change.

The first step to understanding the central bank is to look at what they themselves say in their speeches and press conferences.
All of this information is freely available on the central bank websites and they are easy to find online.
Next step is to get a good understanding of how the market is interpreting this as a whole.
The way to do this is by following Real-time News feeds.

Our job is to identify what the central bank is focused on and what actions they are likely to take next, we do this by monitoring the same indicators, absorbing the research made by analysts.

By staying tuned into big picture you will know wich way each currency should be trending long term wich in turn will help you a lot.

Market Sentiment.
Sentiment is the mood of the market.
It can change quickly for many reasons.

If you are short term trader then the sentiment is going to be your primary concern when trying to analyse the market and identify trading opportunity.
It can last an hour, day or even several months depending on what it is causing it and how relevant market sees that cause.
It's important for day traders and scalpers, no matter what you are trading the first goal should be identifying the sentiment in the market you are active in.
We will spend most times on looking what types of moods market experiences and common reasons why prices are driven in one way or another during a trading session.

The market is made of 2 distinct moves- Risk On and Risk Off.
We already learned that before.

There are also Algos.
Example: when there is the massive unexpected move in price for no clear reason.
This happens and is called fat finger wich means that some trader in a bank or large fund pressed the wrong button and enter the market with incorrect trade size wich moves the price heavily.
When fat finger enters the market algos are ready and they will trade it back to where it was for a nice profit.
The sentiment is driven by news and events that are driven through the session.
When there is nothing on the calendar then range trading happens, professional traders stay out of the market or adjust their trading to range price action.

Next short term sentiment is Central Bank Policy Divergence.
This means that traders look at currency pair and if there has been pullback from trend then the market will simply start trading the pair in line with central banks.
This traders bet on pair with clear divergence.

Option Expires
Every day we have option expires on currencies.
Option expire levels, are reported in news feeds, they act like a magnet to a price, if there is large option like 700 mil this will get market attention.

Buy the Rumor and Sell the Fact.
Buy the rumor, sell the fact occurs when the market is expecting certain outcome and trade with expectation in mind into the event, then as the event is released and occurred, the market abandons the trade and reverses the price action.
This happens often when Central banks want to raise the rates.
Traders know rate hike will happen so they start position themselves ahead of the event, and when the time came they are in good profit so they close positions and the price falls.

Next sentiment we have is Stop Hunting and Squeezing
This is when we are hunted and played by other market participants.
For example: imagine you entered short position because you have a very good reason, now as you enter a trade you place a stop at ressistance because if you are right about the trade market should push price lower.
Then price starts toto go up against your position breaks the highs, stop you out then the price starts to fall and goes your way.
This is called stop hunt or squeeze and it's not anything personal against you,
Think twice where you place your stops, and start to think like a big player when you are entering the market.

Identify the sentiment.

All professional traders use real-time news feed and research analyst reports to give them an edge when it comes to deciding where the market should go next.
The news feed is there for you to feed you information about what the market is doing, what they are thinking and how they are trading in given time.
Within seconds, you will know reasons behind moves and where the market will be trading in the upcoming session.
This is the first thing you should do at the start of each trading day when constructing your daily trade plan.
All the professional before looking at market study the previous session and research the current market sentiment and this preparation will be part of your trading routine also.

Your trading day begins, half an hour before the market kicks in so you are fully prepared.

Now start you day with this questions

1. What happened overnight to drive the sentiment?
2. What is the market doing at the open?
3. What are key data points done in relation to expectations, did they come better or worse?
4. How does this fit in overal fundamental big picture?
5. Why would you enter a trade right now?
6. What is going to move this pair if I enter the trade right now?

How to use Dollar index for FX

USDX will give you an idea of the relative strength of the US dollar around the world. In fact, when the market outlook for the U.S. dollar is unclear, more often times than not, the USDX provides a better picture.
Forex traders use the USDX as a key indicator for the direction of the USD.

Good luck with trying to educate them, Psycho! You most certainly have your work cut out for you.

Trading Psychology
Trading Psychology is the most important element in trading, and most retail traders ignore it and that why they lose money.
So we will take you through psychological concepts that will be key to your trading success.
Getting in the zone is the key to trading successfully.
You will have same training that banks use.

So lets start..

You need to follow me and get as much as you can from this, don't skip this because its most important part, join in the activities and exercises I do and implement it in your trading.
The mission is to become best trading self
Think about what is best trading self, take a moment and imagine yourself in the future where you are trading at your best.
What would that be like?
Where would you be trading?
How would you be trading?
What would you be trading?
What are your motivations?
What do you notice about your behaviours and habits?
Imagine a Trader that you need to become to achieve what you want to achieve, who will that person be?

We will try to understand trading behaviour, understanding trading performance, start to think a little bit about how we make decisions.
I will give you few practical strategies that you can start implement today to reduce the amount of energy you make in your decision making.

When we look at trading performance and what makes you as a performer, we got that combination of your skills and knowledge, your strategy is really important, the situation can be in terms of your environment whether you are trading in a bank, in a fund or at home, and then state of psychology.
In military you can have great skill or great strategy but to get access to that we have to implement those skill to think strategically in combat situations is very much dependent on a person's physical, emotional state.
We see same thing in sport, penalties are classic examples where a player with good skill and good strategy often don't perform well and its not lack of skill or strategy its their state, anxiety, stress, fear.

Trading really comes down to you, having an effective trading strategy is one thing but you also need then psychology to maximize the returns on that strategy.
And I'm sure many of you are here because you recognize in yourself that you got fundamentally an effective strategy, the challenge of yourself is getting the most out of that and that is what trading psychology makes important.

There was a survey of 250 traders on what they think is the main factor that was stoping them for maximizing their returns in the market.
76% say psychology is biggest factor.

So let's start to have a look at what is a good trading decision before we start to think about discipline and all these factors.
Its really important to think about what is a good trading decision.

So we got the 50-year-old man and he has hearth condition and has to stop working due to that chest pain.
But he enjoyed his work and didn't want to stop and that pain also affected his life in general.
Now there is a type of bypass operation that will relieve his pain and increase his life expectancy from 65-70.
However, there is a risk 8% of people who have operation die.
His doctor decides to go ahead with the operation.
The operation is successful.
So just keep that information in mind.

Evaluate doctors decision on the following scale:
3- Clearly correct, and the opposite decision would be inexcusable
2- Correct , all thing considered
1- Correct, but the opposite would be reasonable too
0- The decision and its opposite are equally good
-1- Incorrect, but not unreasonable
-2- Incorrect, all things considered
-3- Incorrect and excusable

Interestingly there was bias toward 1s and 2s
Now imagine the task except that the operation was unsuccessful and the patient died.
Would that change our answers?
When we look at decision what are we basing our decision on?
Are we basing on the process or we are basing on the outcome?
This is interesting when it comes to trading, what is a good decision, and how do we evaluate what good decision is?

--------------------------win -------- lose
Good process ----------1------------- 2
Poor process -----------3 ------------ 4

We got 4 possible outcomes, we ignore trades that could be flat scratches, but let's look at trades that could be winners or losers and quite simply would define them in terms of two brackets good process wich would be really good discipline or if you had a plan or strategy you followed trought whole process will clasify that really is maybe knowingly breaking your rules so you are doing things really that were outside of your premises without good reason, to try to keep it relativly black and white.
So we can have a good process trade like wins likewise losses or we can have the poor process of wins and losses.
It gives us 4 possible outcomes.
Wich of those trades do you think is the best outcome, you can only choose one.
92% said 1, 4% said 2, 4% said 3, so most of you gone with good process and a win and I would agree.
But a far more interesting question is wich is the second best outcome?
89% go with 2 and 11% go with 3

-----------------------------------------win--------------------------------- lose
Good process -----------Deserved success -------------------bad break
Poor process ----------------dumb luck ------------------------poetic justice

My suggestion is to people is if you want to keep trading in the top row between deserved success and bad break, sticking to good process, good process evolves over time, good process won't be fixed.
Your process will need to evolve over time, it evolves as you evolve.
Sticking at the top is key.
Staying away from poor process trades is important.
A lot of traders trade out of boredom, trade without a reason, that's what makes losses.
Start to monitor your trades in term of the outcome, in terms of 4 quadrants, and each trade outcome.
It's good exercise to do yourself, because it will improve your results.