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Today’s blog post is in response to a client’s question: “How can I find the best instrument to trade each day?”. To confront this question appropriately, we need to distinguish between trade idea generation (what to trade and why), and setups (how to enter). Unfortunately most traders mix or confuse these two terms, and basically scroll through chart after chart “looking for setups”.

Fortunately there is a better way which is both more efficient and effective at selecting high-quality opportunities. Most professional traders use a very similar routine when preparing their day, so let’s explore how to generate high probability trade ideas.

Where is the Focal Point?

The first thing to do is think of creating a routine that allows you to scan for high-probability trade ideas. The first part of this routine consists in keeping up to date with market sentiment. Here are the key questions to ask:

What is the key theme for the week? This will direct trader’s attention. Recently the market has been concerned about President Trump’s Tariff War against China. Then there is the global economic slowdown which has been in the news for the past few weeks. How do you know what the themes are?

We wrote a detailed explanation of how to do this here.

Then, once you have the main picture created on a Saturday or Sunday, just update the picture each morning by reading through the overnight developments. A simple way to do this is to read our Morning Report in the Dealing Room.

Intermarket Capital Flows

Once you have the main themes and drivers in mind, the next step is to see how the market is reacting to those themes. We live in a global economy and as such, we cannot consider one market in isolation. To master the markets we must learn to view all markets together: this is the basis for intermarket analysis.

There are two key starting points for understanding Intermarket Analysis: the role of the US Dollar and the role of Commodity Prices (the CRB Index).

Bond and stock prices are both influenced by the dollar: usually bond yields (not prices) rise when the US Dollar is in demand. And when the US Dollar is in demand, stock prices usually drop (partially because they are priced in USD, so they become cheaper, relatively speaking).

However, the USD impacts bonds and stocks more profoundly through the commodity sector. Movements in the dollar influence commodity prices, because they are priced and traded in USD. Commodity prices influence bonds, which then influence stocks. To understand why this is the case brings us to the critical question of inflation.

The bottom line is that rising commodity prices are inflationary, while falling commodity prices are non-inflationary.

Here is the economic reasoning: during a period of economic expansion, demand for raw materials (Copper, Iron, Steel, Crude Oil, etc) increases along with the demand for money to fuel the economic expansion. Basically, commodity prices tend to rise alongisde interest rates. At a certain point, the rise in interest rates blocks further lending, and the subsequent economic slowdown follows, with lower demand for commodities and lower demand for capital. We went more in-depth on that here.

It thus follows that: rising commodities will make market participants discount future inflation and bond prices should rise. Stocks might follow with a lag, because usually bond markets anticipate stocks.

And then we have the more common and well-known correlations:

  • Gold UP = USD Down, AUD UP, CAD UP;
  • Crude Oil UP = USD Down, CAD UP;
  • Dow UP + Bond Prices Down = JPY Down (AudJpy Up, NzdJpy Up) = Risk-On
  • Dow Down + Bond Prices Up = JPY UP (AudJpy Down, NzdJpy Down) = Risk-Off

We wrote about some other correlations here. For a more in-depth read, I would suggest John Murphy’s book on Intermarket Analysis. You can setup a quick screen for intermarket analysis on TradingView.

Finding Common Themes

Once we know whether there is any particular theme playing out across the global markets, we can then focus on FX. Sometimes there is nothing really going on, and everything looks disorganized. Sometimes there is a clear risk-on or risk-off agenda. Other times the USD will be on a tear and put pressure on commodities and emerging markets.

This background information can help you understand where the higher odds plays may be, on any given day, within the FX universe and all you need is a simple heatmap (like our Market Type Heatmap) to verify that those themes are playing out in FX as intended.

For example, at the time of this screenshot, the Kiwi was having a good run. But before taking a position, I want continued confirmation that Kiwi is the flavor of the week or if something else is stealing the spotlight of late. So here are questions to work your way around the Heatmap:

  • What is the USD doing? Being the world’s reserve currency, it is often the main focus in FX..but not always.
  • Run the ruler across Gbp, Euro, Yen, Usd against their main trading partners. Is any of them dominant or passive across the board?

What we’re trying to do is make sure that the strength of NZD is not an exception limited to NZDUSD. Before buying the NZD, I’d prefer to see it strong across the board. It’s then a case of matching the strongest vs. weakest,  to see if an opportunity exists.

Obviously if the sentiment work in step 1 highlighted a certain theme on New Zealand, it gives you extra confidence. If you also see rising Gold prices or if there were a risk-on agenada playing out, things would look even better.

Over to You

Creating good habits is what this is all about. In order to find quality each day, you can simply create your own version of the 3-step process described above:

  • Identify Key Themes and Current Sentiment
  • Scan the Intermarket to view how these themes are being digested
  • Finally, zoom into FX and with the help of a heatmap identify common themes playing out.

Then, selecting the best setups to express the idea should be a piece of cake.

About the Author

Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals and Education from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

The post How to Find High Probability Trades appeared first on FX Renew.

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A few hours after the markets closed on Friday,  US and Mexico agreed to call off the planned tariffs and avert a trade war. The market was already in a buoyant mood due to hopes the US Fed will commence with an easing cycle, so the US/MXN news will likely spur more positive sentiment, and fuel expectations of some kind of de-escalation of the US/China trade war.  This may also take some of the momentum out of the USD downtrend.

Also remember that there is a Bank Holiday in EU on Monday.

Themes for the Week:

  • The US-China trade war will remain in focus after US Treasury Secretary Mnuchin told reporters that US President Trump and China’s President Xi will meet at the G20 Leaders Summit June 28-29.
  • FED in focus: market expectations of multiple Fed rate cuts dominate the current landscape. After misses in NFP and ISM, the remaining data points before the June 19 FOMC meeting should be watched closely.
  • China data should also warrant focus in the following days as the markets will be watching for signs of recovery or further slowdown.
  • UK political noise will also reappear as the Conservative Party leadership race gets underway. Candidates need the support of at least eight MPs so the current line up is Boris Johnson, Michael Gove, Jeremy Hunt, Dominic Raab, Sajid Javid and Matt Hancock. First round of voting begins June 13
  • Italy headline risk continues. The European Commission recommendation to start the Excessive Deficit Procedure has to be ratified by the junior finance ministers committee (EFC), possibly this week. The EC then has to specify the parameters of the EDP – policy recommendations, fiscal targets, deadlines. The formal decision has to be formally approved by the Eurogroup, possibly at the July 9 meeting.

Data in the Week ahead:

  • UK GDP m/m
  • UK Employment Change
  • US CPI (influential in the current dovish environment) and Retail Sales
  • AU Employment Change (influential after the latest RBA minutes)
  • China Trade Balance, CPI, Industrial Production

On the Radar:

With the recovery in risk appetite, I like Dow and SP500 longs. Alongside that, I like pairing up Cad strength vs. Jpy weakness and perhaps USD weakness (if it continues despite the news). NZD also remains strong and I’d pair it up vs. Jpy and USD as well.  GBP is in need of a breakout, which may happen this week after very sluggish action last week.

About the Author

Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals and Education from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

The post Weekly Game Plan 10 Jun 19 appeared first on FX Renew.

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Here is the video version of our Forex trading opportunities for the week ahead.

Forex Trading Opportunities for the Week Ahead 10 June 19 - YouTube

Please go here for the written summary: Forex Trading Opportunities for the week ahead

About the Author

Sam Eder is a currency trader and author of The Consistent Trader and the Advanced Forex Course for Smart Traders (get free access). He is the owner of  www.fxrenew.com a provider of Forex signals from ex-industry traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.

The post Video: Forex Trading Opportunities for the Week Ahead 10 June 19 appeared first on FX Renew.

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Note that this is my current view, but if market conditions change my view can change too. Generally I will trade in alignment with what I have noted here, though I will wait for a set-up before I enter. I base my view on technical and fundamental information. This is my beliefs and you are welcome to have opposite ones. Having a plan is more important than the actual direction for me. 

  • Sell DXY.  – MT is bear normal. A minor double top and rejection of key resistance around the .98 figure has seen DXY shift into a bear MT. There should be more downside to come. If you recall, the main driver of the uptrend in USD was divergent monetary policy and economic performance. While the fat lady has not sung yet, this divergence is not as pronounced as it was. A simple glance at the bond market will tell you this. US yields have been plummeting and the market is pricing in three rate cuts this year. The caveat has been that the Federal Reserve has been stressing patience and there is a chance they don’t come to the party. Recent negative developments in international trade tensions and weaker US data have seen the Fed begin to murmur that perhaps there will be a cut – and soon. My thought is that the market is possibly over-shooting what the Fed will do, and that while we will have a cut or two, we perhaps won’t get a third. On the flip side of the coin, the counterparts are not performing that great either. So while we do have less divergence than before, it is likely US yields will remain appealing and economic performance will remain relatively strong.  In the meantime, sentiment is clearly bearish USD, and positioning has been overbrought. This is suggestive of further USD selling in the week ahead, but we may well see buyers return around 0.96 or 0.95. I will be waiting until then to get long USD. If these levels get broken I will re-assess. Watch for inflation data this week and then the FOMC meeting on the 18/19 June.
  • Wait GBP/USD. – MT is sideways normal. The temporary upside outlined in last weeks report has persisted and we are now in a sideways MT. Compared to other major pairs, the recovery has not been strong – but it has been enough to form a bullish engulfing weekly candle. Economic performance has been good and the BOE is one of the more hawkish central banks out there. Brexit concerns continue to hold the pair back with elections being held for May’s replacement. I would love to buy around 1.25 or 1.24 so will wait to see if those levels get taken out. Watch out for GDP data to be weaker and later in the week for Job numbers.
  • Sell USD/JPY. – MT is bear normal. Despite a recovery in stocks, the pair is sitting at recent lows. Firstly, this does beg the question of why stocks are recovering given the trade tensions and if the hints of further easing by the Fed going to be enough to break though the triple top that is forming. Secondly, JPY strength is a reflection of the bond market and the fact that convergence probably benefits the negative rate currencies more than the others (given they have little room left to ease). For now, there is nothing to knock us out of the short call so keep selling.
  • Sell AUD/USD. –  MT is sideways normal. In a classic expression of buy the rumor and sell the fact, the pair rose after the RBA cut rates. Of course, USD weakness was a driver here. AUDUSD could be one of the better plays for USD bulls. Data has been poor and AUD is traditionally exposed to a weaker China. The topping on the cake is that the RBA has room to cut rates further. The consensus is that rates will be cut once more this year, but there is scope for another cut on top of that. So if the Fed cuts rates twice rather than three times and the RBA cuts rates three times rather than twice, we have a mis-pricing which could see the AUD drift lower. So this bounce to the key .70 figure looks like a selling opportunity to me.
  • Buy EUR/USD. –  MT is bull normal. The pair has formed a bottoming pattern and broken out into a bull MT. The ECB, while dovish, was not as dovish as expected by market participants. This combined with the perception that the Fed will cut rates has lead to a recovery in the pair. A long-term change in trend is not a done deal. As well as the reasons outlined above for DXY, economic performance in the EUR region is tepid and the area is exposed to political risk with Brexit and conflict with Italy over it’s budget deficit. My belief is that there will be a temporary rise in the the week ahead, but after that the pair will top out around 1.15 which will provide a selling opportunity.
  • Buy NZD/USD. –  MT is bull normal. The Kiwi was one of the strongest currency pairs in the past week. This was despite a further fall in milk prices. Better than expected trade data, no further rate cuts and a robust NZ stock market perhaps make the currency one of the more appealing options from these levels. There is no bottoming pattern in place on the charts so I am a bit undecided where the currency is going to head longer-term. I do think it is a buy this week though.
  • Sell USD/CHF.  – MT bear normal. The bear MT continues. A bit of caution needs to be had until the pair cleanly breaks support. Given all the risk-off concerns, selling CHF remains an appealing option.
  • Sell USD/CAD. – MT is bear normal. As befitting such divergent fundamentals, USDCAD sold off aggressively to close the week. Poor employment data out of the US has contrasted with two months of very good numbers out of Canada. Yields spreads are well in favor of the CAD and do suggest the pair should be lower. Oil is struggling but some hope may be found, with OPEC holding course with their production cuts. I favor selling USDCAD in the week ahead. selling AUDCAD is also a good option.
  • Buy EUR/GBP.  – MT is bull normal. The trend is very strong in EURGBP. Sometimes on the crosses you can get these extended move. The first part of the move was on the back of GBP weakness. This next leg up will be on the back of EUR strength. There is not much resistance in the way. If we do get back to 0.91 I will be looking to short the pair.
Crosses
  • Sell EUR/CHF. – MT is bear normal. Watch for a bounce.
  • Wait AUD/JPY.  – MT is sideways quiet
  • Wait NZD/JPY. – MT is sideways normal.
  • Sell GBP/JPY. – MT is bear normal.
  • Wait EUR/JPY. – MT is sideways normal.
  • Sell CAD/JPY. – MT is sideways normal.
  • Buy CHF/JPY.  – MT is bull normal.
  • Sell GBP/NZD. – MT is bear normal.
  • Sell EUR/NZD. – MT is bear normal.
  • Sell AUD/NZD. – MT is bear normal.
  • Wait EUR/AUD.  – MT is sideways quiet.
  • Sell GBP/AUD. – MT is bear normal.
  • Wait AUD/CAD. – MT is sideways normal.
  • Sell GBP/CAD. –  MT is bear normal.
  • Wait EUR/CAD. – MT is sideways quiet.
  • Wait NZD/CAD. – MT is sideways normal.
  • Sell GBP/CHF. – MT is bear normal.
  • Sell CAD/CHF.  – MT is bear normal.
  • Wait NZD/CHF.  – MT is sideways quiet.
  • Sell AUD/CHF. – MT is bear normal.
Other Markets
  • Buy Gold. – MT is bull normal.
  • Sell Oil. – MT is bear normal.
  • Wait S&P 500.  – MT is bear volatile.
  • Wait DAX. – MT is sideways normal.
  • Wait Nikkei. – MT is sideways normal.
  • Buy T-Notes. – MT is bull normal.
View bank reports and fundamental analysis in the chatroom (members only)

View the chatroom 

Economic calendar for the week ahead:

View economic calendar

(MT = Market Type: Click for more information on market types.)

About the Author

Sam Eder is a currency trader and author of The Consistent Trader and the Advanced Forex Course for Smart Traders (get free access). He is the owner of  www.fxrenew.com a provider of Forex signals from ex-industry traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.

The post Forex Trading Opportunities for the Week Ahead 10 June 19 appeared first on FX Renew.

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 My greatest discovery was that a man must study underlying conditions, to size them so as to be able to anticipate probabilities. – Jesse Livermore

In this recurring monthly analysis, we will look at three global risk factors in order to assess the current market state and attempt to foresee risks on the horizon.  The factors that we will be using, in order of weight, are:

  • Global Monetary Policy
  • Global Volatility
  • Global PMI readings

Together, they can assist us in shaping up underlying macro conditions, so we don’t get caught off guard by some change in market dynamics that was foreseeable.

Global Monetary Policy Stance

Source: cfr.org

We use Global Monetary Policy to evaluate inflation risks, deflation risks, and interest rate risk.

Monetary policy is ineffective at this point in time. Central banks are easing but have no impact on the slowing global economy. The focus is on data (which is sour, like the PMIs) and market-based measured. Recently Ray Dalio and other gurus have been discussing the inevitable end of central bank efficacy. When rates have been lowered to 0% and QE (purchasing of financial assets) no longer works, what next?

Global Volatility Meter

Source: TradingView & NYU Stern V-Lab

We use the Global Volatility Monitor to capture economic growth risks and liquidity risks.Since we are tracking the implied volatility on the S&P 500, the Eurostoxx and Crude Oil, we can see the composite indicator as “the cost of hedging a price decline” in each market.

Volatility conditions are back in the “red zone” and this is mirrored by the breakout into a bear market by the Equity/Bond spread. Risk aversion is hitting the market although in it’s early stages.

We have introduced the FX Volaility measure also, as a tool for traders. Currently we are still in a downtrend in Vol, which means conditions in FX will be rather dull with intraday directional trading and more conservative targets the better option. We need volatility to break above the May highs in order to see some acceleration and “trendiness” in FX.

Global PMI Monitor

Source: IHS Markit

We use the Markit/JPM Global PMI analysis as a gauge for economic growth risks, inflation risks and deflation risks. PMIs are known to be a leading indicator for GDP growth rates.

Global PMI surveys signalled that manufacturing downshifted into contraction during May. Business conditions deteriorated
to the greatest extent in over six-and-a-half years, as production volumes stagnated and new orders declined at the fastest pace since October 2012.

To Sum Up

Our Macro Risk Monitor (MRM) is currently showing heightened degree of instability in the markets. There is more than a bit of risk-aversion here. The world is facing a global slowdown and policymakers do not have the tools to assist the recovery. Defensive assets would seem like the proper place to turn at the moment, but not wholeheartedly. We are not yet in a real bear market. It would take a break of December 2018 lows in the Dow to do so.

Right now we’re just seeing increased volatility – which has failed to materialize in FX. So better trading conditions are to be found in stocks and indices for the time being.

About The Macro Risk Monitor

What we are doing is neither new nor original. Anyone with a basic comprehension of macroeconomic theory, and a bit of real world experience, can do the same thing. We’re just doing it for you.  What follows is a brief explanation of why we are monitoring precisely Monetary Policy, Volatility and Purchasing Managers’ Index.

  • During periods of real (non-inflationary) growth, the main cyclical classes (Developed and Emerging Market Equities, Real Estate, High Yield Bonds) tend to have low volatility.
  • Vice versa, during periods of economic uncertainty or outright contraction, cyclical assets have high volatility.
  • However, we can also have inflationary growth, which is the best environment for Commodities (Energy, Industrial Metals).

When volatility is high, or global growth expectations (measured via the PMI) are low and monetary policy is tight/tightening, there is a collision of risk factors that produces a high uncertainty/high risk environment that is usually only favourable to fixed income and counter-cyclical assets.

When volatility is low, or global growth expecatations (measured via the PMI) are high and monetary policy is loose/loosening, there is a combination of easing factors that produces a low uncertainty/low risk environment that is favourable to cyclical asset classes.

By using just these three measures, we can create discrete market environments that can assist in selecting the right asset class to target given the current situation.

If any of this is a bit foreign or complex, our Forex Fundamentals Mastery course can bring you up to speed.

About the Author

Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

The post Monthly Macro Risk Monitor – 5 Jun 19 appeared first on FX Renew.

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President Trump seems to act like a normal retail trader – emotionally, not logically. On Friday, Trump planned to place a 5% tariff on Mexican imports effective June 10 had this had a huge impact on markets. Comments made by Mexico’s President Obrador on Saturday might help to calm markets as he will take extra steps to curb migration. With bond markets pricing in a global slowdown and central bank easing, there will be keen focus on central banks in the week ahead. The RBA and ECB meet this week, while the Fed will be in focus with a speech by Fed Chair Powell

Themes for the Week:

  • Obviously the tit-for-tat  trade jitters will be top of mind. Markets were expecting Trump to come to an agreement sooner or later, but instead the trade debate just seems to be getting worse. Next week there will be a G20 finance ministers’ conference but who knows what will go down…
  • Dovish RBA: the RBA is widely expected to cut rates by 0.25%. So that’s priced in, and what will be more influential is the RBA’s statement.
  • Dovish ECB: the ECB will describe the details for another set of TLTRO lending operations at its meeting this week. The ECB will also release their economic forecasts which should help shape ECB expectations over the next few months. With worse data, and issues in Italy, the markets are pricing in dovishness all around. Watch out for surprizes.
  • Italy vs. Brussels: Italy’s Salvini is threatening to tear up EU fiscal rules. He argues the result gives his party a mandate to push through tax cuts and fight EU budget rules. The Rome-Brussels standoff will escalate after June 5 if the Commission decides to start disciplinary steps against Italy for failing to rein in debt.

Data in the Week Ahead:

  • AU Retail Sales
  • RBA Decision
  • AU GDP
  • US ISMs
  • ECB Rates Decision
  • CAD Employment
  • US NFP

On the Radar:

So long as the markets remain risk-off, JPY and CHF will be in demand vs. GBP, Cad and USD. Also, equities should also remain under pressure with strong negative action across the board. Expect AU and EUR to remain rangebound until after the respective central bank meetings.

About the Author

Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals and Education from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

The post Weekly Game Plan 3 Jun 19 appeared first on FX Renew.

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Here is the video version of our Forex trading opportunities for the week ahead.

Forex Trading Opportunities for the Week Ahead 3 June 19 - YouTube

Please go here for the written summary: Forex Trading Opportunities for the week ahead

About the Author

Sam Eder is a currency trader and author of The Consistent Trader and the Advanced Forex Course for Smart Traders (get free access). He is the owner of  www.fxrenew.com a provider of Forex signals from ex-industry traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.

The post Video: Forex Trading Opportunities for the Week Ahead 3 June 19 appeared first on FX Renew.

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Note that this is my current view, but if market conditions change my view can change too. Generally I will trade in alignment with what I have noted here, though I will wait for a set-up before I enter. I base my view on technical and fundamental information. This is my beliefs and you are welcome to have opposite ones. Having a plan is more important than the actual direction for me. 

  • Wait DXY.  – MT is sideways normal. The dollar made gains last week until Friday when the currency sold off after President Trump tweeted that the US will be implementing a series of Tariffs on Mexico unless they stop the flow of illegal immigrants into the US. The bearish price action may also be in response to month end flows and it is certainly due to risk aversion with USDJPY leading the pack lower. The index remains right around the the key 97.70 level and is just off the recent highs. USD bears should not get too excited yet. A clean break of .97 would move the index into a daily bear MT, but we need to remember that USD has been in buy dips mode for a long time and unless the Fed becomes a lot more dovish I suspect it will remain in that mode. The market is pricing in a high chance of a rate cut later this year. This is in contrast to the Fed’s stated stance. The June FOMC meeting will give us some tips as to if the trade concerns are enough to change the Fed’s mind. If they do start to hint at a rate cut, this erodes one of the USD’s main advantages over it’s counterparts – the positive carry you get for holding USD. If they reiterate their current stance, then this may force the rate cut crowd to reevaluate their position, leading to USD buying. This type of divergence in views is often an opportunity.  Another important driver is safe haven flows. There is a triple top forming on major stock markets and we are seeing investors rotate out of stocks into bonds. Buying US bonds requires buying USD. This is of course positive for the dollar. On the flip side it is driving yields lower. Still, unless the Fed cuts, US bond yields remain an attractive proposition. Risk aversion is also good for the dollar due to it’s liquidity. The dichotomy is that if the trade disputes are seen to be worse for the US than it’s counterparts (which they are not as yet), then the USD becomes less appealing. As you can see there is a variety of conflicting forces at work. In these situations I prefer to trust the trend.
  • Sell GBP/USD. – MT is bear normal. The pair remains in a clear bear MT. The bullish engulfing candle on Friday is not strong, but may lead to the temporary upside. Given the turmoil is UK politics and the uncertainty about Brexit, 1.23 remains the longer-term target.
  • Sell USD/JPY. – MT is bear normal. JPY remains the currency of choice in this risk adverse environment. Stocks are volatile and vulnerable. Technically, the picture is not pretty for stocks and market participants view the escalating trade war as negative. Sliding US bond yields add to the bearish picture for USDJPY.  107.50 would be the next obvious target but 105.00 is not out of the question.
  • Sell AUD/USD. –  MT is bear normal. Price action is suggestive of a temporary bounce. The bearish picture for the Aussie is well known to the market. Trade wars are not good. The RBA may cut rates up to three times this year and data has not been great. Risk off in stocks is not generally good for the Aussie, although this is less so now interest rates are much lower than in the hey days of the carry trade. Despite these factors, the pair rose slightly in the last week. Perhaps this is a sign that the negativity is priced in. Or perhaps it is in anticipation of this coming weeks RBA announcement. I suspect traders will struggle to see any long-term upside is AUD just yet and that selling rallies will remain the most productive strategy. Ideally a move to .70 would act as a selling opportunity.
  • Wait EUR/USD. –  MT is sideways quiet. There was an attempted breakout of the sideways quiet MT on EURUSD, but a morning star candlestick patterns suggests we will stay range bound for now. The pair is still holding below the key 1.12 figure. European data has been poor and the Italian budget deficit conflict with the EU has reared it’s ugly head again. These factors combined with the positive carry you get for being short the pair should keep the EUR as a sell on rallies proposition. Note, the ECB meets this week and this event could prove to be a catalyst for a break of the range one way or the other depending on how dovish they are.
  • Sell NZD/USD. –  MT is bear normal. The pair remains a sell for now, but price action is suggestive of a period of consolidation. The NZ budget was released last week, but did little to move the market. Eyes will remain firmly on trade concerns and risk-off flows. There is a dairy auction on Tuesday. The last auction saw a small slide in prices.
  • Sell USD/CHF.  – MT bear normal. Risk off flows have been benefiting CHF. The pair remains a sell.
  • Wait USD/CAD. – MT is bull normal. A bearish hammer off the breakout level puts the recent bull MT at risk. The BOC outlined a number of concerns at it’s meeting last week. Oil has been getting a bit smashed which is not helping CAD. Probably the favorable (for CAD) yield differential is what is holding the pair back from a further rise.
  • Buy EUR/GBP.  – MT is bull normal. There is some sign that bull MT may top out here. The pair rejected the recent high and the formation of a bearish hammer candlestick pattern is suggestive of at least some temporary downside. Continue to buy, but be cautious here.
Crosses
  • Sell EUR/CHF. – MT is bear normal.
  • Sell AUD/JPY.  – MT is bear normal.
  • Sell NZD/JPY. – MT is bear normal.
  • Sell GBP/JPY. – MT is bear normal.
  • Sell EUR/JPY. – MT is bear normal.
  • Sell CAD/JPY. – MT is bear normal.
  • Wait CHF/JPY.  – MT is sideways normal.
  • Wait GBP/NZD. – MT is sideways normal.
  • Buy EUR/NZD. – MT is bull normal.
  • Wait AUD/NZD. – MT is sideways quiet.
  • Wait EUR/AUD.  – MT is sideways normal.
  • Sell GBP/AUD. – MT is bear normal.
  • Wait AUD/CAD. – MT is sideways normal.
  • Sell GBP/CAD. –  MT is bear normal.
  • Wait EUR/CAD. – MT is sideways quiet.
  • Wait NZD/CAD. – MT is sideways normal.
  • Sell GBP/CHF. – MT is bear normal.
  • Sell CAD/CHF.  – MT is bear normal.
  • Sell NZD/CHF.  – MT is bear normal.
  • Sell AUD/CHF. – MT is bear normal.
Other Markets
  • Buy Gold. – MT is bull normal.
  • Sell Oil. – MT is bear normal.
  • Sell S&P 500.  – MT is bear normal.
  • Sell DAX. – MT is bear normal.
  • Sell Nikkei. – MT is bear normal.
  • Buy T-Notes. – MT is bull normal.
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Economic calendar for the week ahead:

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(MT = Market Type: Click for more information on market types.)

About the Author

Sam Eder is a currency trader and author of The Consistent Trader and the Advanced Forex Course for Smart Traders (get free access). He is the owner of  www.fxrenew.com a provider of Forex signals from ex-industry traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.

The post Forex Trading Opportunities for the Week Ahead 3 June 19 appeared first on FX Renew.

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Last week we held an inflential webinar with industry trader Kevan Conlon, which has been inserted into our System Development Workshop video collection. In the webinar, Kevan maintained a high-level conversation on what his 30 years of experience in the FX market have taught him about success in trading, and what separates the best traders from the rest.

In this blog post I am going to take some key lessons from the webinar and break them down into layman terms with practical examples.

How are YOU Going to Beat the Market?

“If you’re going to make it, then you have to start today to do those things that are compatible with what someone who is performing at that level is doing.” – Ari Kiev

The first thing any aspiring trader needs to clarify is how HE is going to beat the market. While it is fair to say that there are multiple ways to trade the markets profitably, and there are multiple niches to be exploited, my experience with retail traders has taught me that most (if not all) not only fail to find their niche but they never actually find any consistency at all.

Here are two of the main reasons:

  • Most retail traders like to pick tops and bottoms. In other words, they do not trade with the prevailing trend. Over the years I have encountered this tendency over and over when helping struggling traders, but there is much more objective evidence of this dynamic. Observe the chart below: in aggregate, retail participants attempt to buy the Dax as it falls, and then they flip to a short stance when it rises. Why do most aspiring traders operate this way? I believe the issue is EGO. When a trader brings his ego to the market, he will want to be “right”. Attempting to call turning points and outsmart the market is simply the visible demonstration of the trader’s lack of maturity.

  • Most aspiring traders do not commit an adequate amount of time researching, studying and testing (on demo) the system. This trait can be summed up best by a phrase that a struggling trader told me years ago:   “I’ve never really backtested anything…I just thought I could take what you tell me and apply it from here on in”.  What this trader failed to understand was that trading is a performance discipline and nobody can expect to make any headway in the markets without putting in the same amount of work that a professional athlete utilizes to prepare himself for a competition.

To find out how to properly build a trading system, read this blog post on the subject.

Just remember that the best systems are robust: they have very few moving parts and are quite simple in essence.

Know Your System

It’s all about preparation and risk control – Kevan Conlon

Let’s take for granted you have structured a system that you believe in, and are satisfied with. You have progressed through 3 months of demo trading. What are the important metrics that will tell you your system is stable enough to trade?

  • Know what market types best suit your strategy. This goes beyond viewing a bit of a trend. For example, in early 2019 trading conditions were absolutely horrible, and many market participants were comparing it to the first part of 2014. Why? Ranges were narrow and volatility was at record lows.  A simple ATR overlay can show you when ranges are tight and when instead they are acceptable/expanding. This makes all the difference because most systems do need volatility in order to succeed.

  • Your System Quality Number. Amongst the trading systems that make money, the best one is the trading system that generates the highest overall profit, right? That’s how most retail traders think, and it lures them into traps.
    Unfortunately this is how most retail traders rank trading systems. All they look at is the end profit or the profit factor. This is like saying that the best car to drive is the fastest, period. It doesn’t matter what your needs are (if you have a family, if you have one or more children, or if it’s just you). You get from A to B before everyone else, but how comfortable was the ride? The industry standard for ranking trading systems takes into account “how bumpy the ride was”. Van Tharp’s System Quality Number is one way of calculating the risk-adjusted performance of a trading system and is just as adequate as the Sharpe Ratio. You can find out how to calculate the SQN here.

For example, Our London Open Signals have a Sharpe Ratio of 1.53 since inception.

  • Your MAR Ratio.  The Managed Accounts Reports ratio is preferred for evaluating CTA performance, Hedge Funds and trading systems in general. It is straightforward:MAR = CAGR/MaxDD = Geometric Return/MaxDDThis measure can be used over any sensible timespan (1Month, 1 Quarter, 1 Year, Since Inception) and is actually interesting even for projecting worst case scenarios. The worst drawdown traders face, within the systematic community, is around 2-2.5 times the average return. So the MAR ratio allows to estimate the worst case risk-adjusted return.

    Our London Open Signals have a MAR (since inception) of 1.19 with a CAGR of 17.5% (risking 2% per trade).

  • Your Recovery Time. How long do you stay in a drawdown? Do you stay underwater for only days? For weeks? For months? Our guest Kevan noted that the maximum tolerable recovery time for a short-term system is about a month. Obviously longer-term systems will have longer recovery times also.

Only by knowing what kind of results your system generates, over significant periods of time, can you have an idea of how risky the system is, and what to expect. For example:

  • you hit a string of 7 consecutive losses. Is this within normal parameters, given the current market environment?
  • you hit a drawdown of 5% over the past 2 weeks. Is this within normal parameters, given the current market environment?
  • you have had infrequent signals over the past month. Is this to be expectes, given the current market environment?

Every system will have periods of overperformance and underperformance. But knowing how the system performs in each period, and knowing what kind of market conditions aid the system are key to generating confidence.

Capital Preservation is Paramount

Get Rich Slowly– Kevan Conlon

  • Most traders focus on the money they can potentially make…
  • Most traders’ motto is “a profit is a profit”…
  • Most traders focus on getting good entries…

and most traders lose money or blow their accounts.

  • The best traders focus on capital preservation and how much they are risking (which is the only thing they can control)…
  • The best traders’ motto is “run your profits, cut your losses”…
  • The best traders focus on trade management.

The first thing we need to do as traders is establish our risk profile. Here is our step-by-step guide on how to do so.

As traders we need to have clear rules that help us bypass our natural tendencies, and hold onto winning trades while cutting losses and preserving capital. One of the biggest issues most traders face is that of cutting losses short, and either not trailing stops quick enough or leaving them too far behind.

Once again there isn’t a “best fit” scenario because the trade management vehicle must work in tandem with the strategy. We did a series on trade management that may help you understand this topic better. Here are the various installments:

Over to You

What separates the best from the rest? Nothing extraordinary. The best in the business cover all the bases:

  • they find an edge and build a system around it;
  • they stress-test the system and understand the in’s and out’s;
  • they measure everything;
  • they ensure the profitability hinges on capital preservation and not on the win rate.

The real challenge, if there is one, is sticking to the plan and actually doing thorough testing! Being a coach I see this all the time: people generally know what they have to do…but they don’t follow-up and progress is impeded.

Dare to be different – because discipline and consistency are what separate the best from the rest.

Cheers,

Justin

About the Author

Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals and Education from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

The post What Separates the Best Traders from the Rest appeared first on FX Renew.

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Firstly, remember that the UK and the US are on holiday tomorrow (Monday) so all trading commences on Tuesday. Also, there will be a European bank holiday on May  30th. Politics will dominate again this week as the markets digest the outcome of the EU Elections and the EU will be holding an emergency meeting to discuss the implications, and what to do with the UK after May’s departure. US/China trade debate will be the other main focal point with the upcoming G20 summit in focus.

Themes for the Week:

  • Market participants are expecting more pain for the Pound as Boris Johnson is the main candidate to take May’s place. He would support Brexit. But there is also a risk of general elections and a Corbyn-led government cannot be totally ruled out. Both situations would likely see the Pound lower. It is also unclear what the EU will do.
  • The US/China trade debate is now turning into a technology debate as well. So tensions are increasing although Trump continues to say “a deal is in the cards, will happen soon”. This will keep equity markets unstable.
  • EU Election fall-out: anti-establishment/anti-immigration parties are forecast to do quite well at these EU elections. The implications will be digested by the markets after the results are known.
  • FedSpeak:  the market is pricing in a more dovish scenario than the Fed is currently proposing. The Fed is “on hold” but the markets are pricing in ever lower inflation going forward, which means potential rate cuts. Fedspeak in the coming week will help ascertain whether there is any further preoccupation in their ranks.

Data in the Week ahead:

  • RBNZ Financial Stability Report + Governor Orr Speech
  • Fedspeak
  • Bank of Canada Rates Decision
  • US GDP Q/Q
  • CNY Manuf. PMI
  • CAD GDP

On the Radar:

Into last week’s close, Jpy & Chf were leading whereas the USD was weakening alongside the Euro and the Pound. In equities, risk-off remained the predominant tone with Nasdaq lagging. Things may change based on the EU elections and other developments, but EurJpy & GbpJpy shorts could quickly become top picks if risk off and EU chaos ensues.

About the Author

Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals and Education from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

The post Weekly Game Plan 27 May 19 appeared first on FX Renew.

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