Monthly ArchiveOctober 2018

Major Economic Events Can Affect Your Trading Account

Forex marketEconomic indicators are closely watched in the investment world, their release can have an immediate and volatile effect on the forex market. There are three main types of indicators; leading, coincident, and lagging. Leading indicators are believed to change in advance of changes in the economy, which can give you some idea of what might happen before it actually occurs. Coincident indicators reflect changes in the economy at about the same time they actually occur. Lagging indicators change after the overall economy changes and are of little use for prediction. Interest rates are a major driver of forex markets and each economic indicator is watched closely by the Fed as they decide on their monetary policy. For this reason many of these indicators can have substantial effects on the .In Major Economic Events Can Affect Your Trading Account we will tell you the most important events.

Gross Domestic Product (GDP)

The GDP report is the most important of all economic indicators. It is the biggest measure of the overall state of the economy. The GDP number is released at 8:30 am EST on the last day of each quarter and it reflects the previous quarter’s activity. The GDP is the aggregate (total) monetary value of all the goods and services produced by the entire economy during the quarter being measured; this does not include international activity however. The growth rate of GDP is the important number to look for.

Consumer Price Index (CPI)

The CPI report is the most widely used measure of inflation. This report is released at 8:30 am EST around the 15th of each month and it reflects the previous month’s data. CPI measures the change in the cost of a bundle of consumer goods and services from month to month.

The Producer Price Index (PPI)

Along with the CPI, the PPI is one of the two most important measures of inflation. This report is released at 8:30 am EST during the second full week of each month and it reflects the previous month’s data. The producer price index measures the price of goods at the wholesale level. So to contrast with CPI, the PPI measures how much producers are receiving for the goods while CPI measures the cost paid by consumers for goods.

Retail Sales Index

The Retail Sales Index measures goods sold within the retail industry, from large chains to smaller local stores, it takes a sampling of a set of retail stores across the country. The Retail Sales Index is released at 8:30 am EST around the 12th of the month; it reflects data from the previous month. This report is often revised fairly significantly after the final numbers come out.

Employment Indicators

The most important employment announcement occurs on the first Friday of every month at 8:30 am EST. This announcement includes the unemployment rate; which is the percentage of the work force that is unemployed, the number of new jobs created, the average hours worked per week, and average hourly earnings. This report often results in significant market movement.

NAPM

This report is called the National Association of Purchasing Management index and it measures conditions in the manufacturing sector. The NAPM index is released on the first business day of the month at 10 am EST and it reflects the previous month’s data.

Consumer Confidence Index

The consumer confidence index is released on the last Tuesday of the month at 10 am EST, the report measures how confident consumers feel about the state of the economy as well as their spending power. Consumer confidence is considered a crucial part of the economic picture, the more confident people feel about the stability of their income the more likely they are to make purchases.

Durable Goods Orders

The durable goods orders report gives a measurement of how much people are spending on longer-term purchases, these are defined as products that are expected to last more than there years. The report is released at 8:30 am EST around the 26th of each month and is believed to provide some insight into the future of the manufacturing industry.

Beige Book

The Beige Book report is part of the FOMC’s preparations for its meetings and is published 8 times per year. The report is released two Wednesdays before each Federal Open Market Committee meeting at 2:15 pm EST. The Beige Book report summarizes economic conditions in each of the Fed’s regions. This report is seen as an indicator of how the Fed might act at its upcoming meeting.

Interest Rates

Interest rates are the main driver in Forex markets; all of the above mentioned economic indicators are closely watched by the Federal Open Market Committee in order to gauge the overall health of the economy. The Fed can use the tools at its disposable to lower, raise, or leave interest rates unchanged, depending on the evidence it has gathered on the health of the economy. So while interest rates are the main driver of Forex price action, all of the above economic indicators are also very important.

Here are some more articles you might enjoy:

How To Trade Forex Price Action

So you’ve decided you want to learn to trade Forex and have come across a trading strategy called “price action“, yet you have no idea where to start or how to begin trading with this method.In this post we will guide you the way by which you will get success in the forex trading.We will discuss the steps in details and we will provide you some basic understanding of how market works.

Step 1: Learn the basics of Forex trading

The first thing that you need to do in order to get started trading with Forex price action is to build a solid foundation on the core principals of Forex. If you don’t know exactly what the Forex market is, why it exists, or how it’s traded, you should first take my free beginners forex trading course. This will get you up to speed on the basic building blocks of Forex trading and it will allow you to make a seamless transition into learning how to trade with price action strategies.

Step 2: Take the ‘junk’ off of your charts

That’s right, the next thing you must do right now before you commence any trading is to strip off all your indicators; make your trading charts naked!

Indicators on forex charts are a complete waste of time, you are using second hand information, not first hand price action from the actual market itself. Its time that you completely rid yourself of complex and complicated trading methods. When you create a simple and logical forex trading plan and around the ‘core’ price action of the market, it will make your trading relatively stress free and this will work to influence positive trading habits.

Step 3: Learn simple price action trading strategies

When you trade Forex with price action, it means you are trading off the raw price movement of the market; no fancy systems or strategies, just plain vanilla price action on a clear and uncluttered price chart.

Of all the methods a trader could use to make money on foreign exchange market fluctuations, the most profitable are often the simplest and are usually widely overlooked or dismissed by the masses. Price action trading is one of those undiscovered gems.

Once you strip off all the confusing indicators and other ‘magic’ trading methods from your charts and  learn a few price action trading strategies, the simple visual price patterns and signals will start to ‘jump’ out at you with extreme clarity, so go ahead and clean up your charts now!

In the chart below, we can see a good clean example of trading one of my favorite price action setups, the pin bar trading strategy…

 

Don’t take my word for it, start to learn to trade forex today by downloading a forex charting platform, set up daily candlestick charts and keep it as simple as possible by learning to read the plain vanilla price that you see on the charts, and don’t cloud up the chart with complex methods and indicators; keep it basic and clean.

How To Trading Price Action Using Your Intuition

Successful traders are not sitting at their computer desk waiting for a robotic trading system to give them a buy or sell signal. Nor are they rigidly waiting for 10 different indicators to line up on their charts providing them with an entry or exit signal. Successful traders have long since realized that these types of rigid and mechanical Forex trading systems simply do not work over the long-run. They don’t work because the market is a constantly changing entity; it ebbs and flows and virtually anything can happen on any given day.In this post we will discuss How To Trading Price Action Using Your Intuition.

Given these circumstances, it seems almost comical that so many people try to fully-automate or mechanize the process of Forex trading. The best traders and investors in the world like Warren Buffet, George Soros, and others, are not using mechanical trading systems that are called “Turbo Pip-Blaster 5,000” or something equally as silly. Instead, they use their brain, they use their ‘gut’, and they use their discretionary trading instinct or intuition to help them analyze and trade the markets.

What is trading intuition?

With all trading methods, no matter what the educators or sellers of the system say, there is always a degree of intuition and awareness that is taking place in our trading, and its time to learn to harness it correctly.

There are 2 main things to be aware of here:

1. The Forex trading strategy that you use – Clearly, you need an effective trading strategy like price action. But it’s not ONLY the strategy that decides whether or not you trade successfully, it’s HOW you trade it, which brings me to my next point:

2. Using discretion or intuition to trade your strategy – Part of trading is the psychological element, and the ability to read the market with “gut intuition and feel”. This aspect of trading is not easily taught, and it’s really something you need to develop through study and screen time and by getting ‘in-tune’ with how a particular market moves.

There is no mechanical approach that I am aware of that makes money long-term, all methods I trade and that others trade that I know of, use a basic set of guide-lines, and basic “trading plan conditions” that they use to find a high-probability entry into the market.

For example, a simple Forex trading plan may look like the following…

One might have 3 preconditions:

1. The chart shows a clear up trend over the last two or three weeks

2. The market has pulled back to a support point within the uptrend

3. The market then forms a “price action signal” after the retrace lower into support to confirm a reversal back in the direction of the overall uptrend, which may become the entry point.

These may be the general criteria in a trading plan, but how do we truly filter this and say, “OK I will trade this setup, but I won’t trade this one, because of X,Y or Z.” ?

As I say to all my students, the greatest traders are in fact people that can have a trading plan conditional element, but then use what I call the “gut feel element” and the “internal emotional filter”, or put simply; they use market experience and screen time to help make quick on-the-spot trigger decisions.

How to develop your price action trading intuition

As a price action Forex trader, I can only offer my personal trading insights and the things I have picked up over the years that have helped me with trading strategies and my general approach to reading charts…

I can not give you all of the “gut feel” qualities that are a larger part of the ingredient to long-term success, this market intuition and emotional element will only come with learning and trading experience. Nobody will want to tell you this though.

I am here to tell you that no matter what trading strategy you learn, it will require screen time, patience and absolute discipline to trade it successfully.

You will find that once you begin to follow your favorite markets and demo-trade price action strategies, you will start to get ‘intimate’ with the market, meaning you’ll get closer to it and understand how it moves better. Every market has its own dynamics, volatility, and different factors that influence it, thus every market moves a little differently than another. I suggest, you pick several of the major forex pairs and really get familiar with their price action and their dynamics; really focus intensely on just 3 or 5 markets at first, and become a ‘master’ of them. You will begin to see that you get ‘in-tune’ with the market, and you will develop a natural feel for reading its price movement, in other words, you’ll develop your price action trading intuition for the market, I also sometimes call this a “discretionary trading sense”.

Of course, the first step to developing your price action trading intuition is to get an education on price action trading strategies. Once you understand the theory of the strategies and how to trade them, you can begin to apply them in the markets, via a demo account at first and then later on a live account after you feel comfortable in your abilities. There is no exact amount of time that it will take any one trader to fully develop their trading intuition, as every trader is different and brings different mental variables to the table. However, it’s safe to say if you really commit yourself and you’re really passionate about becoming a successful price action trader, you can make it happen if you trade in a disciplined manner and put in the necessary screen time to develop your price action trading intuition.

Why Profitable Trader Thinks Forex Trading Is as a Business

One of the biggest mistakes that many Forex traders make is that they don’t treat their Forex trading like it’s a business. Instead, they treat it like a trip to the casino, and many of them end up behaving like drunk gambling addicts instead of calm and calculating traders. If you want to succeed as a Forex trader, you have to think like Profitable Trader who Thinks Forex Trading Is as a Business, because it is.

There are costs to being a Forex trader, just like any other business. Your goal as a trader is to try and bring in more money through revenue (winning trades) than you have going out through your costs. If you can do this, you will make a profit. However, if you let your costs (mainly losing trades) get out of control, you will lose money and your Forex business will go under (you’ll blow out your trading account)

The cost of doing business in the Forex market

Just as you have costs in any other business, you have costs as a Forex trader. Your costs as a trader are the losing trades you have, the commissions and spreads you pay, computer and other office equipment, etc. No matter how hard you try to avoid losing trades, you are always going to have them, and they are the biggest cost that you have as a Forex trader. Sadly, many traders don’t think about trading like this, instead they think of trading either is a trip to the casino or they view it as something they can become “perfect” at and never have any losing trades.

The reality of being a trader is that you will always have losing trades, no matter how hard you try to avoid them, you will have them. So, that’s your number 1 cost of doing business in the Forex market. What you’ve got to do is what every other business does; make sure that your revenue offsets your costs enough for you to make a profit.

So, to clarify this situation, let’s list some of the main costs of having a Forex trading business:

* Losing trades
* Broker spreads or commissions
* Computer (hardware)
* Software
* Other office equipment

These are going to be the primary costs of running your Forex trading business, now there might be others, but these are the biggest ones for most traders. Your goal is to make sure that you make enough money from your winning trades (revenue) to cover all your costs and then some, so that you make a profit.

How to make your Forex trading business profitable

Now, there is quite a bit that goes into become a consistently profitable Forex trader. So, we aren’t going to go into ALL of the details in this short lesson. But, I am going to give you a general outline of what I feel is the most important piece of the puzzle of making your Forex trading business profitable.

As I mentioned above, you’ll have to make sure your winning trades are more than offsetting all your trading costs if you want to be a profitable trader. So, there are basically two ways to accomplish this:

1) Have a very high percentage of winning trades compared to losing trades

or

2) Aim to have winning trades that are significantly larger than your losing trades.

Most traders with a little live account trading experience would agree that it’s a lot easier to use option number 2. What we are essentially talking about here is risk reward. If we aim for a risk reward ratio of 1:2 on every trade we take, we only need to be right about 35 to 40% of the time to make a decent profit. Most professional traders are not winning a high percentage of their trades like 70 or 80%, instead they typically win somewhere around 40 to 60% of their trades. But, they understand that by making sure their winners outpace their losers by a substantial margin, they can reduce the burden of having to win a high percentage of the time.

One thing that’s especially important to remember is that you don’t have to be right to make money trading. What that means is that you can be wrong more than you are right and still make money in the markets. Given that it’s difficult to win a high percentage of the time in the markets, it’s far better to just use the power of risk reward and make sure your winning trades far out-pace your losing trades.

How trading differs from other businesses

In other businesses you find a market, you learn a skill or develop a product, and then develop that skill or product until it is better than other people in the same business or niche. Trading is the same – it is a business – and if you want to be one of the financially secure you will have to work at it, in the exact same manner as an astute business person. In conventional business you have to be patient, focused, disciplined, very committed, hard working, forceful, and in complete control of yourself and in control of your plans.

To be successful in your forex trading business you can’t be forceful or control the market, all you can do is identify what is happening and determine if your trading edge is present or not. That’s not to say that you can’t be confident with your trading, but you need to realize early in your career that you are not bigger than the market, and although you run a trading business within this large market, you are never truly in control of whats happening in the day to day forex market movements and events.

You can never be reliant on tips or one lucky trade to secure your future, nor can you build a trading business using a mechanical autopilot kind of system. You have to continuously work at it until you have developed a trading strategy, and even when you have developed that strategy, it will require ongoing effort and monitoring.

How to build your Forex trading business

Successful Forex traders know the main part of their trading business is the development of their trading skills, not continually looking for the ‘Holy Grail’. When you have a set of trading rules that suit you and you are happy with what you have, you need only improve your skills to implement them, this will take much of the stress and anxiety out of trading and it will become enjoyable. That’s right, trading can become enjoyable once you have faith in your rules and your method.

Once you have a forex strategy that works for you don’t keep messing around with it, try to remain very consistent and subject yourself to the trading opportunities it identifies. I have read in so many articles out there on the web that you should keep searching for a different method or system to improve your trading, and I respond to that by saying, ‘ this is complete rubbish’ … rather, I strongly suggest trying to stick with what you have and see it through, you need to give things a chance to work and prove themselves.

When you begin to remain consistent and disciplined with your thinking, and of course your trading plan/rules, then you can create a dynamic Forex trading business that will help secure your financial future or simply make your trading much more enjoyable and relaxing. If you want to learn more about an effective trading strategy that you can build a trading plan around for your Forex trading business, checkout my price action Forex trading course.