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Financial Freedom is “a term generally used to describe the state of having sufficient personal wealth to live indefinitely without having to work actively for basic necessities” – Wikipedia

Our recent feedback from the Content Questionnaire (which is a permanent feedback page you can find here), has already highlighted a key topic that needs further investigation: Financial Freedom and Trading.

Here are the facts:

  • there is too much hype around “trading as a means to reach financial freedom”. We will discuss what reality is.
  • there is too little focus on actual number crunching and what your “critical mass” needs to be, in order to be financially free.
  • there is no focus on the correct process to reach financial freedom.

This blog post will illustrate some points that you will not likely want to hear, but that you need to know.

Step 1: How to Build Wealth

This is the reality that most people do not want to hear. It takes discipline and sacrifice to reach financial freedom. There are no shortcuts. The process goes as follows:

  • Cut Spending
  • Owe Nothing
  • Save!
  • Invest

Cut Spending: we need to take a hard look at our day to day expenses if we want to get on the road to financial freedom. We can be as philosophical as you want but the fact is that you must keep track of your spending. How are you spending your money? Where is it going? Detach your ego from your money. It’s not about keeping up with the Jones. Furthermore, it is scientifically proven that the relationship between income and happiness is weak. So spending more does not make you happier.

Owe Nothing:  as you cut your spending, you will free up capital that can help repay your debt. All credit cards, car finance, student loans, etc. needs to be eliminated.  Debt is compound interest working against you. You need to turn this around and have compound interest work FOR you.

Save!: once you are debt-free and you are living in a rather frugal manner, you should be able to save a fair share of your income. Back in the day, I was told to live on 30% of my income and save 70%. That seems to be challenging nowadays so start wherever you can but try to aim for 50% of your income. Of course a higher paying job allows you to save more. Those with lower wages may be able to save less. If you cannot save at all, do whatever is necessary to make extra income (and I would not suggest trading as a way to produce a side income at all – instead, work to your strengths and use talents and abilities you already possess).

Invest: If debt is compound interest working against you, investing is compound interest wokring FOR you. Just think that at 12% per year, your money doubles every 6 years. This may not seem much if you are turning $5000 into $10000 but just let that math work for you for  few more years and things start to look interesting. Investing in a smart way (for example in a long-term diversified portfolio of Value Stocks or by using Ray Dalio’s All-Weather approach) can help you achieve consistent growth of your savings portfolio with limited risk. The key here is to be diversified because diversification is what helps to protect your savings. If you have even more capital at your disposal, consider diversifying into business ventures, property or other fruitful ventures. The wealthy remain wealthy because they are well diversified in the financial and real economy.

Notice that trading has not yet been mentioned. Trading has it’s place, but not at this stage in the journey.

Step 2: Calculating Your Critical Mass

Personal finance gurus, as well as motivational speakers like Tony Robbins, speak about a “critical mass” that your investments need to reach, in order for you to be financially free. But in numbers, what does that mean?

I have come to appreciate the Trinity Study. Essentially researchers sought to understand what kind of Safe Withdrawal Rate was possible, given a certain return on investment, so you would never run out of capital. The Safe Withdrawal Rate logic goes as follows: you want to be financially independent and not work anymore. In academic vernacular, that’s called “retirement”. I disagree with the fact that we should aim at “retiring” because humans tend to face depression and other mental issues when they are not engaged in meaningful work.

In any case, when you are retired, you need to live off your savings. Hence, you will be withdrawing a certain amount each month. The Trinity Study attempts to answer the question: how much can you withdraw each year, in order to remain above your critical mass and continue to grow your investments?

Recently, one of the leading retirement researchers, Wade Pfau, updated the numbers and modeled the Safe Withdrawal Rate for a conservative 50% stock – 50% bond portfolio for a retirement starting in each year going all the way back to 1926 (through 2010). You can see that the maximum SWR to avoid failure did not go below 4% over any 30-year time period.

Source: https://retirementresearcher.com/

There are all sorts of caveats, but the reasoning is sound: if you stick to 4% of your savings, then your investments should be able to compensate more than adequately. This means that your critical mass is about 25x your current annual expenses. This spreadsheet will help put things into perspective:

Souce: Author’s Calculations

So based on these calculations, with an average real ROI of 5% (a conservative estimate), a 35 year-old with this situation could reach financial independence by the age of 60. Obviously, the sooner you start saving and investing, the faster this growth can happen.

Evidently:

  • higher savings rates will shorten the time to independence (so if you get promoted, or you get extra income streams, be sure to tuck that extra away and not enhance your spending alongside your salary!);
  • higher investment returns will shorten the time to independence;
  • lower expenses (living frugal) will shorten the time to independence;

but also

if you continue to work after you reach the critical mass, you can afford to have higher spending rates and/or lower ROI.

Step 3: Bring Your Trading to the Table

Now we can bring Trading back into the picture. Tradingis an attempt at enhancing your compound interest by achieving superior ROI. You are essentially trying to compress time. However, too many people have not yet appreciated the truth about trading:

Most likely, trading will not make you rich. Actually, you may end out worse off if you are not careful.

The belief that trading is the way to financial freedom is false – period.  Let me dismantle this lie piece by piece.

Firstly, trading is an entrepreneurial job like many others. A fair amount of traders that have come to me for help over the years bought into the idea that trading was some kind of part-time endeavour to be done by the pool or possibly from Hawaii, 30 minutes a day. These people take up trading thinking that it will be an easy way to make money without having a boss, without having certain time constraints, and without having the stress that a 9 to 5 job brings with it.

Now hear this: the very people that bring these beliefs to the table usually lack the entrepreneurial mindset that trading requires. As an employee, you can have bad days that may go unnoticed. As a trader, a bad day can potentially mean losing your prior month’s gains in a heartbeat. As an employee, not being focused or concentrated at times may go unnoticed. As a trader, a lack of focus means facing incremental losses. As an employee, you know that at the end of the month you will receive a paycheck anyhow, unless you do something dire. As a trader, there is no guarantee you will ever get paid.

It takes a fierce commitment, total accountability and sheer grit to get profitable in the markets. It is very similar to creating a start-up and reaching the breakeven point. Not many people are cut out to face this kind of challenge.

Secondly, you need money in order to risk money. Trading is about taking risks with your hard earned money. If you do not have any money to risk, you cannot trade – end of story. If you need money or have any kind of financial constraint, you cannot trade – end of story. This is why trading and investing are usually pursued by High Net Worth Individuals (HNWI) or at least wealthy people that are already business owners or have had a decent career elsewhere. They already have a large chunk of savings behind them and can afford to risk money in the markets without worrying about paying the bills. Furthermore, the fact that they have reached such a lifestyle already says something about their mindset: they are usually hard-working individuals that are accustomed to rolling up their sleeves in order to obtain something or reach a goal.

Not so with most retail traders and aspiring traders I have met. They are not used to working hard. They are not used to taking responsibility for their results. They are not willing to play the long game. They are looking for short-cuts. To make matters worse, they usually don’t have any risk capital at all. Typical retail trader accounts go anywhere from $500 to $2000.

Now hear this: to make a living from trading in a sustainable fashion, you will need a mid 6-figure amount of risk capital. The math is simple:

Let’s imagine for a moment that you need $40.000 to live the lifestyle you want. That $40.000 should be a return of anywhere from 15 to 20% (per year) of your risk capital. Traders that know what they are doing can get 20% consistently with acceptable volatility. If your return is $40.000 and that is 20% of your risk capital, then you should have at least $200.000 to risk in the markets.  I have only met a handful of aspiring traders that actually met that criteria.

Your risk capital should be between 5% and 10% of your total net worth. Any more and a depletion of your trading account for whatever reason, could put a big dent in your lifestyle. Using the numbers above, that means your total portfolio should be worth at least $2.000.000.  Notice that this is much higher than the critical mass required to sustain the same living costs.

This brings us to the third consideration: most professional traders do not trade their own capital. It just doesn’t make sense. They usually find ways to leverage their talent and solicit investor capital. They trade other people’s money for a fee. Not all professional traders decide to setup funds. Some do in fact trade their own capital but they remain well diversified: they might have a stake in another business or have their own business in another sector; they might have a portfolio of investments that include real estate and other income-bearing assets. The bottom line is that amongst professionals, hardly anyone goes off to trade their own capital.

Now hear this: if the professionals in this field believe it is better to not risk all their savings in the markets, but that it is better to work with other people’s money instead, why should retail traders do the opposite? Perhaps because aspiring traders have not yet experienced the inconsistent returns that trading can (and does) bring with it. It is extremely difficult to rake in consistent profits month after month.

The math goes as follows:  the first year you make 20% or $40.000. To some, that may sound like a great accomplishment. But if you’re living in a G10 economy, it’s probably not going to buy you that great lifestyle you want. Let’s say you conservatively withdraw $30.000 for living expenses. Your trading account is at $210.000. Now what if the second year you don’t make 20%. What if you make 10%? Can you break even with your living expenses if you make $21.000? I don’t know many people (in G10 economies) that can. If you need to withdraw $30.000 again, you’re eating up all your remaining profits from year 1 and year 2 and you’re left with less than your initial $200.000 balance. Now what if the third year actually produces a loss? What then?

You can immediately see that if you mix your risk capital with your critical mass, it becomes a very risky proposition because a bad year in the markets can seriously derail your whole process of living frugal, saving up, investing and being patient. 

Trading As a Satellite Activity

Just like investment professionals have a “core” and “satellite” portfolio, I suggest you use Step 1 and 2 described above as your “core” activity, and trading as a “satellite” activity. I do not advocate trading your own capital, unless of course you are already in a very good financial position. I also suggest seeking help from professionals or former traders, in order to shorten your learning curve and avoid unnecessary stress.

By all means pursue your dream of trading for a living, but do so wisely: learn how to trade on a demo account. Then, with a solid method in hand, deploy a small amount of your risk capital and grow it slowly but steadily.

Then, seek investors. There will always be an opportunity waiting, for those who know how to trade. That is the pathway I suggest you pursue.

  • Give yourself time to learn on a demo.
  • Once consistent, trade on a small live account.
  • Grow your account steadily over time.
  • Increase your resourcefulness during this time.
  • Come back to FXRenew with your track record and allow us to take you to bigger & better things.

With this pathway, you can develop your trading into a fruitful business and actually reduce the amount of years it will take to reach your critical mass, and allow you to live a more relaxed life in any case. 

Over to You

Financial freedom is all about discipline and humility. It’s about tracking your expenses and keeping them under control; it’s about saving as much as possible; it’s about investing in a simple yet smart way; it’s about starting early (or if you still haven’t, start NOW) and using the power of compounding to assist you.

Trading can have it’s place as a satellite activity alongside the core principles of financial freedom. Trading can allow for 20+% returns per year and if you are trading a sizeable amount, it will not take long to reach your critical mass, and get to a bigger & better place.  Here’s an example with some reasonably conservative numbers:

  • you commit to learning a disciplined rule-based trading model and give yourself 1 year to fully understand and demo trade it until you reach consistency.
  • you then trade a small account (5-10K) of your own capital maintaining a very good control of risk limits. If you can make 3% per month without risking more than 3% it is excellent.
  • in year 3, you bring your account statement to FXRenew for evaluation.
  • At the beginning of year 4, you start working on investor capital. Let’s conservatively say $100.000. You end year 4 with 20% and receive an even larger allocation for year 5. You made 20K on the account and conservatively keep $5000.
  • In year 5 you make 20% on 300.000. That is 60K of which you conservatively keep $15.000.
  • In year 7 you make it to 1Mln Assets Under Management. You make 15%. That is 150K of which you conservatively keep $40.000.

All the while you have maintained your other investments and perhaps even your previous employment and are now in a position to consider substituting your employment with your trading income.

Hopefully, armed with reality, you will now be in a better place to take responsibility for your financial destiny.

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 The Reality about Financial Freedom and Trading appeared first on FX Renew.

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A few develpoments to keep in mind from the weekend: Austria’s 17 month old government collapsed yesterday after Chancellor Kurz quite and called snap election after a video showing Heinz-Christian Strache (the leader of his junior coalition partner) negotiating with the niece of a Russian oligarch for a public contract in exchange for party donations. Elsewhere, with the AU elections out of the way, and especially with a confirmation of the previous government, the RBA will feel free to make policy adjustments now.

Reminder: Canada is away tomorrow (Monday) and there will be an early close to US trading on Friday ahead of Memorial Weekend.

Themes for the Week:

  • China/US trade debate. This has been the main theme over the past couple of weeks and it will continue to influence markets. Trade talks turned sour last week, and the Yuan has weakened tremendously. A break of the 7.00 level would likely generate another round of risk-aversion.
  • NAFTA 2.0: there were some positive developments regarding the US/Canada/Mexican trade agreements into the end of last week. So markets will be looking out for any further news on this theme.
  • FOMC: will Chair Powell sounds as positive as he did during his press conference back on May 1st? Will the trade war or global growth issues appear? The minutes of the April 30-May 1 meeting, due on Wednesday, could show if the escalating noise figured in the Fed’s discussions.
  • RBA: potentially key RBA guidance kicks in after the election. It has always been thought that the RBA has been waiting until at least after the election before firming up guidance or policy action. Minutes to the May 7th RBA meeting will be released on Monday and Governor Lowe will deliver a potentially key speech on the outlook and monetary policy on Monday night eastern time.
  • European Elections (May 23-26):  this was the event that UK politicians wanted to avoid, yet failure to reach a Brexit deal necessitated participation. Full results will likely not be available until Monday May 27th. However the results for the UK will likely be available late on Sunday May 26th and Nigel Farage’s Brexit Party is forecast to win the majority of UK seats. The key here is where other EU anti-establishment parties will gain enough space to create havoc in the EU Parliament.

Data in the Week Ahead:

  • RBA Minutes
  • UK inflation hearings
  • NZD Retail Sales
  • UK CPI
  • Cad Retail Sales
  • FOMC Minutes
  • Eurozone PMIs
  • EU Elections
  • UK retail sales

On the Radar:

I continue to like GBP and AUD shorts against CHF, USD and CAD. I also like Silver shorts going into the week. The Euro might take a hit later in the week on PMIs, but don’t expect too much movement until after the EU elections.

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 Justin’s Weekly Game Plan 20 May 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. 

Today’s report is abbreviated as I’m on holiday. Additionally, there will be no video this week. Normal service will resume next week. 

  • Wait DXY.  – MT is sideways normal. Importantly, we are back above the key 97.70 level.
  • Sell GBP/USD. – MT is bear normal. The downtrend is strong, there may be a little resistance at 1.27.
  • Wait USD/JPY. – MT is bear normal. While we remain in the bear MT, there is a bullish reversal off support at 109.60.
  • Sell AUD/USD. –  MT is bear normal. Not much resistance until 0.68. Rate cut highly likely next month.
  • Sell EUR/USD. –  MT is bear normal. The bear MT is intact and the currency is trading below the key 1.12 figure.
  • Sell NZD/USD. –  MT is bear normal. There is not much in the way of support until 0.6450.
  • Wait USD/CHF.  – MT bear normal. Price action is mixed. Best to wait.
  • Wait USD/CAD. – MT is sideways quiet. CAD is out-performing along with USD.
  • Buy EUR/GBP.  – MT is bull normal. I prefer to sell EURUSD instead.
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.
  • Sell CHF/JPY.  – MT is bear normal.
  • Wait GBP/NZD. – MT is sideways normal.
  • Buy EUR/NZD. – MT is bull normal.
  • Wait AUD/NZD. – MT is sideways normal.
  • Buy EUR/AUD.  – MT is bull normal.
  • Buy GBP/AUD. – MT is bull normal.
  • Sell AUD/CAD. – MT is bear normal.
  • Sell GBP/CAD. –  MT is bear normal.
  • Wait EUR/CAD. – MT is sideways quiet.
  • Sell NZD/CAD. – MT is bear 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
  • Wait Gold. – MT is sideways quiet.
  • Wait Oil. – MT is sideways normal.
  • Wait S&P 500.  – MT is sideways quiet.
  • Wait DAX. – MT is sideways normal.
  • Sell Nikkei. – MT is bear normal.
  • Wait 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 Definitive Guide to Developing a Winning Forex Trading System 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-bank and hedge fund 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 20 May 18 appeared first on FX Renew.

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Recently we have had some requests for help come through our Contact Us section. We have also had some truthful realizations from a couple of our own members. This recent trend in requests for help is exactly the same:

I started 2019 doing fairly well. But I have just blown up my account. I need help.

At FXRenew we are here to help. This blog post is a technical explanation of what market factors generated this recent trend, which bad habits led to the problem, and how to change tack and move forward with confidence.

The First Issue: Volatility Cycles

The first quarter of 2019 saw one of the worst trading environments I have ever experienced, and this feeling was echoed by other contacts who currently work in the industry. What happened was not just a collapse of volatility, but also of directionality.

However…I’m sure that the very same market conditions that professionals know to be “unfavourable”, were instead seen by many retail traders as “extremely favourable”. Here’s why:

  • the low volatility would have put many retail traders at ease with their outrageous position sizing;
  • the lack of directional movement means that the common mindset of picking tops & bottoms seemed to work wonders.

I imagine that most traders expected these conditions to continue forever. But if you’ve been around the markets for any significant amount of time, you know very well how things are cyclical. Let’s take volatility cycles for example. FX volatility had already seen extremely low levels back in 2014. The 2019 lows were very close in nature.

More in general, volatility is cyclical and here is a chart of the Euro (which continues to be the least volatile FX pair as of today, making it one of the hardest to trade). On it there are 3 proprietary volatility measures that are essentially measuring the volatility over

  • 7 days
  • 3 weeks
  • multiple years.

I believe most participants do not monitor volatility conditions and as such are oblivious to these cycles. However, volatility goes hand in hand with profitability of directional trading strategies. And since everything is cyclical, periods of low volatility will certainly give way to higher volatility – and vice-versa.

In the chart below, you can see how the April volatility lows in the Pound were certainly an exaggeration. We were expecting volatility to rise and sure enough we have been getting wider range days.

In the same way, some currencies have started to reach extended levels and are bound to slow down from here (at least temporarily).

In brief, I believe these traders that have blown up their accounts were oblivious to the fact that volatility is cyclical in nature and that large range days were bound to return sooner rather than later.

The Second Issue: Fading Momentum

But volatility alone does not explain how a trader can blow his account. Here is the second obvious reason: most retail traders love to catch turning points (or at least they try), and keep fading momentum. The chart below shows retail positioning. Notice how the masses turn into sellers when price rises, and then they flip the stance and start buying as price drops.

Source: MyFXBook Outlook

Obviously mean-reversion strategies do have their place in a trader’s arsenal – but here we are dealing with traders that do more of the same thing, attempting to achieve a different result. Retail positioning data has been around for around 20 years (Oanda was the first broker to disclose it in the early 2000s). The tendency is always the same. We have internet, great trading books, academic proof of some concepts…and yet people continue to fight momentum.

The solution is obvious. Change your mindset and go with the flow instead of fighting it.

The Third Issue: EGO

There is a third and final component that is necessary for traders to blow up their accounts. Technically speaking we may call it poor money management. But it goes deeper than that. It’s about EGO.

It’s common knowledge that you should keep position sizes below 1% of your risk capital.

It’s common knowledge that your risk capital should be 5-10% of your net worth.

It’s logical that without having a trading strategy that you have tried and tested for at least 3 months on a demo account, you shouldn’t be risking your hard earned money anyhow!

Around 65% of all social interaction has to do with ego: praising yourself, downplaying others, gossiping, shooting selfies. Naturally the same tendency is brought to the markets and it shows up in various forms:

  • doubling down on a losing position (it will turn around, I am sure of it);
  • pouring more money into an account to keep losing positions open (I know I’m right..it’s the market that’s wrong);
  • overtrading (I need to make the amount of money I told my friends I could make);
  • revenge trading (I don’t want to admit I don’t know what I’m doing/I don’t want do accept the loss)
  • etc.

You really need to stare reality in the face: unless you have proof that you have a viable trading model, you shouldn’t trade with real money. And if you are trading with real money, don’t pour all your risk capital into the account at once. Deposit 10% of your risk capital and see whether you lose it all or whether you break even or whether you are able to grow it. Throw more money into your trading account based on merit – not ego.

If you let ego make your choices for you, you might just not know when to stop. That’s when trading becomes an addiction and people end up throwing their entire life’s savings into the markets, ultimately ruining their lives.

This is serious stuff. I’ve personally helped people who were in this situation. They come to me seeking a trading coach. I end up being a life coach because once reality hits, and they realize what has happened, the psychological impact is harsh to say the least.

So do yourself a favour and substitute ego with humility.

Over to You

A combination of low volatility, lack of directionality, bad trading habits and ego have recently seen many retail traders lose all their chips.

To those retail traders I say this: it’s done. It’s in the past. Don’t let your emotions about this guide your behaviour going forward. This is not the end. It’s only money. It comes and goes, and it’s by no means the most important thing in life. Ask yourself the proper questions: what can I learn from this experience? What is the reality about this situation? What do I need to do, to ensure it never happens again?

To the other traders out there I say this: monitor volatility. When it contracts, reduce your trading activity and your profit objectives. When it expands, increase activity and profit objectives. Trade in the direction of momentum. Trade trends. It makes life easier. Use proper position sizing and risk limits. If you lose all your chips, you’re out of the game.

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 Help! I Just Blew My Account! appeared first on FX Renew.

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With no influential developments over the weekens, markets will likely pick up where they left off last week. Markets remain nervous, though a true risk-off move has arguably failed to materialize so far. US/China headlines will be the main focus this week, despite the busy data calendar.

Themes for the Week:

US/China Trade Debate: Markets will be on guard for details to China’s pledge to retaliate and the risk of a spiralling effect. Analysts are also watching the 10yr/3mo spread again as it approaches an inversion.

Italy: a plethora of negative developments has impacted Europe’s largest bond market. Within the ruling coalition there has been a corruption scandal that cost a junior minister his job; BlackRock ditched a proposed rescue of Carige bank; European Commission has warned that Italian finances may deteriorate further. How talks on deficit targets may pan out could become clearer at the May 16 Eurogroup meeting of finance ministers. Watch BTPs and FTSEMIB.

Data in the week ahead:

  • UK Employment
  • GER ZEW & GDP
  • CNY Industrial Production & Retail Sales
  • EUR GDP
  • CAD CPI
  • US Retail Sales
  • AU Employment & Elections

On the Radar:

I continue my short bias on Dow and FTSEMIB on trade jitters and potential Italian escalation. In FX, I still favour JPY and CHF longs vs. NZD and GBP.

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 13 May 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 13 May 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 Definitive Guide to Developing a Winning Forex Trading System 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-bank and hedge fund 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 13 May 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 only real story in the markets in the last week has been the escalation of the trade war between the US and China. This has seen US equity markets fall. Importantly, they are falling from major resistance levels and we may see triple tops in place on the DOW and S&P500. But as of yet, this is by no means a stock market rout. The S&P500 formed a bullish hammer on Friday, so price action, whilst bearish, is already showing some signs of recovery. The challenge with this all is the drivers for the USD are a bit of a mixed bag. On the one hand, the USD has been responding poorly to the negative trade news. But on the other hand, if equities do fall, the USD should still be one of the safe havens of choice. Where will trade talks go from here? It is likely that it will take some time (at least a couple of months) before there is a resolution, but a resolution is still the most likely outcome. Technically, the DXY has shifted back into a sideways MT, but we are only just back inside the range and the long-term uptrend remains in-tact. I continue to like to buy USD, preferably on a dip towards 96.80.
  • Wait GBP/USD. – MT is sideways normal. After a strong performance in the prior week, GBP was unable to hold onto the bull MT. There is not much progress with Brexit, which was perhaps what was weighing on the pair, along with negative global risk sentiment. Watch for jobs data on Tuesday to reaffirm that the fundamentals are not too bad.
  • Wait USD/JPY. – MT is bear normal. Negative risk sentiment has pushed the currency pair down to support at 109.70. Trade tensions and risk-off flows have been the main drivers. US bond yields have fallen slightly. If stocks continue to fall next week then we should see support broken. If there is a full blown rout then 105.00 is not out of the realms of possibility. To be fair though, I would not be surprised to see support hold. We seem to be in a range trading environment with the USD.
  • Wait AUD/USD. –  MT is bear normal. The Aussie is just holding onto the key .70 level. There is likely to be a rate cut in coming months and of course the US/China situation is not the best for the Aussie. It’s possibly holding up a bit better than expected. I think there is opportunities both ways from here depending on stocks/ China etc. but the upside should be limited with the pending rate cut (or cuts) later this year.
  • Wait EUR/USD. –  MT is sideways normal. The EUR has shifted back into a sideways MT. Data has been slightly better then expected out of the Euro-zone. Watch out for German GDP next week for more confirmation. Over-all though, the divergence theme is still in play. We will need to see how the implementation of tariffs impacts the US economy. We can expect risk-off themes to continue to play an important part in the way the currency pair trades. In saying that, there was little movement last week. In this environment, selling on a pull-back to 1.13 seems like the safest play.
  • Sell NZD/USD. –  MT is bear normal. There was a rate cut last week. But the school of thought is that is will be a “one and done” scenario, and there is a lesser chance of further rate cuts. The currency remains in a bear MT and considering the risk-off environment, we can continue to sell the pair.
  • Wait USD/CHF.  – MT sideways normal. Risk-off has pushed the pair down to prior resistance turned support. This environment should support CHF strength. I would prefer to play it vs. the crosses.
  • Wait USD/CAD. – MT is sideways normal. There was stellar job data from Canada on Friday. This is keeping the pair firmly within the range that developed in Feb. Bond yields are also supportive of USDCAD weakness. Oil, while lacking momentum, is still within the weekly bull MT. Wait for now.
  • Wait EUR/GBP.  – MT is sideways volatile. The pair failed to take out the low last week (I had anticipated it would) and bounced sharply to remain withing the range. The correct strategy in this MT is to sell from the top of the range near 0.0820.
Crosses
  • Wait EUR/CHF. – MT is sideways 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.
  • Sell CHF/JPY.  – MT is bear normal.
  • Buy GBP/NZD. – MT is bull normal.
  • Buy EUR/NZD. – MT is bull normal.
  • Wait AUD/NZD. – MT is sideways normal.
  • Buy EUR/AUD.  – MT is bull normal.
  • Buy GBP/AUD. – MT is bull normal.
  • Sell AUD/CAD. – MT is bear normal.
  • Wait GBP/CAD. –  MT is bull volatile.
  • Wait EUR/CAD. – MT is sideways quiet.
  • Sell NZD/CAD. – MT is bear normal.
  • Wait GBP/CHF. – MT is bull volatile
  • Sell CAD/CHF.  – MT is bear normal.
  • Sell NZD/CHF.  – MT is bear normal.
  • Sell AUD/CHF. – MT is bear normal.
Other Markets
  • Wait Gold. – MT is sideways quiet.
  • Sell Oil. – MT is bear normal.
  • Wait S&P 500.  – MT is sideways quiet.
  • Wait DAX. – MT is sideways normal.
  • Sell Nikkei. – MT is bear normal.
  • Wait T-Notes. – MT is sideways normal.
View bank reports and fundamental analysis in the chatroom (members only)

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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 Definitive Guide to Developing a Winning Forex Trading System 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-bank and hedge fund 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 13 May 19 appeared first on FX Renew.

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Recently in our System Development Workshop, a student illustrated his intent: to build a system that catches big trends! We would all love to have such a system, but the truth is that we really never know when they will appear.

So the best we can do is have a very clear idea of how to play a trend once it starts, when to stay away, and when to re-engage. Here is one way to do it.

Select Your Trend

The issue that traps most aspiring traders that haven’t found their footing yet, is the fact that they look at their charts and say “that’s what I want!”. Then, they try to find “Holy Grail Indicator” that will tell them when that condition is appearing.

Source: TradingView

To make a long story short, and to help you avoid wasting time searching for the pot of gold at the end of the rainbow, here is the cold hard truth:

  • you cannot know in advance when a large trend will start – so that is not a good objetive to pursue;
  • you cannot use hindsight bias to justify catching turning points from which trends start – usually that turns into fading rallies and catching falling knives;
  • nothing works all the time, and almost anything will work sometimes – which means that you can study something that worked well in the past 3 months but in reality it is a statistical fluke and is not robust.

So what is the solution?

If you want to trade trends, go back to the basics and identify a trending market type. We also have an indicator for MT4 and TradingView that will do it for you.

Source: TradingView

Most people have day jobs and need to fit their trading into their work schedule. It is perfectly logical to use robust daily charts as primary timeframes from which to identify the trend, so your trend won’t change very often. Now here are the rules for using Market Types:

  • if the market type is bullish, only look for LONGS;
  • if the market type is bearish, only look for SHORTS;
  • if the market type is sideways, LOOK ELSEWHERE! Don’t make life complicated by trying to trade choppy markets. Specialize in one thing only: trading trends. Let others mess with range-bound conditions.

Source: TradingView

So now we have a market type filter that tells us whether the market is best left alone (sideways) or what direction to trade (Long or Short). The next component is to make sure we have near-term momentum on our side. What does this look like on the charts? It could be:

  • a particular candle formation (doji, spinning top, hanging man, etc);
  • price closing back in the right direction, after a pullback.

Basically we’re making sure that:

  • the broad market movement is directional;
  • the near-term market movement is directional.

This is often called self-similarity, and it is aligning various timeframes together, which makes trading easier.

Source: TradingView

So once you have the first two pieces of the puzzle in order, you can drill down to a sub-daily chart (this is the 1H chart) because you get more opportunities to enter the daily trend, and you can get keener risk placement. In the charts that follow, we have simply used pullbacks to support or to supply areas as our trigger on NZDUSD.

Source: TradingView

As you can see, the daily market type never shifts to neutral; it remains locked in the bear market type, but the market has leeway to retrace. This is where the self-similarity concept helps. It makes sure you are not entering the market in a retracement. So from April 25th all the way to May 1st, you’re sitting waiting for the market to close back in the direction of the trend, before re-engaging.

Source: TradingView

Simple and Subtle

These 3 steps shown above are truely sufficient to trade trends with a robust structure. And I’m not the first person to talk about this! This is common knowledge that is spread across the internet. So the question becomes: why do we not see more profitable traders? Why do most retail traders continue to fade trends and look to catch turning points? Here are my thoughts, after a number of years helping traders:

  • pressure to perform: the moment traders focus on the money and not the process, progress is derailed;
  • discipline: most people cannot stick to a predefined set of rules for any length of time. It is very much the same reason why most people cannot lose weight, or keep the weight off;
  • being too clever: as humans we tend to overcomplicate things. Sticking to a simple, uncluttered structure seems to be a challenge for most people;
  • confidence: the markets always throw curve balls at us and a season of poor trading conditions (such as the first months of 2019!) can undermine the confidence of a trader who is just starting out on his journey, even if the model he is using is sound. Naturally what happens is that he tweaks the model or goes on a tangent. And never finds his way back;
  • trying to fit a square peg into a round hole: sometimes people just are not cut out for this business and need to be honest with themselves about this.
Over to You

Trading trends is simple, but not easy. We have given you the ingredients but it’s up to you to bake the cake. Take what I’ve shown you, study it, apply it (on demo initially) and take detailed notes (perhaps also latch it up to MyFXBook or some other trade recording platform).  Learn the model, gain a feeling for it. I’m confident good things will happen – but you can always shoot us an email if you get stuck somewhere.

And don’t forget to let us know how it goes!

Good Luck,

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 I Want to Catch Big Trends! appeared first on FX Renew.

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With no influential news out over the weekend, the start in Wellington should be relatively calm. Also, tomorrow (Monday) is a UK bank holiday so don’t expect much out of the European Session either. But it will be an influential week, especially in the Southern Hemisphere with RBA and RBNZ due amidst other local data. The main theme for Friday’s trading was USD weakness post-NFP, which was a little counter-intuitive given Powell’s upbeat speech and decent NFP data.

Themes for the Week:

  • Volatility remains compressed at record lows…but not in FX! Finally we have seen some movement and currency pairs seem to be waking up from their slumber – including GBP. However, VIX and other cross-asset volatility measures are still at record lows, so there is a cautious tone prevailing and everyone expects a volatility surge sooner rather than later.

  • Green shoots from China? We get Caixin Pmi data and CPI this week from China, and investors will be observing just how resilient China is (or isn’t) amidst the current global slowdown. Keep an eye on Trade Talks as well, which start on Wednesday.
  • RBA & RBNZ: they are both expected to reinforce their dovish stance but will the RBA cut rates or the RBNZ or both? With an election coming up soon, the RBA may decide to remain steady. So the RBNZ is the favorite for a rate cut this time round.

Data in the Week Ahead:

  • China Caixin PMI & CPI
  • AU Retail Sales
  • NZD Inflation Expectations
  • UK GDP
  • CAD Employment
  • US CPI

On the Radar:

I remain biased long on Dax and Nasdaq going into the week. I remain bearish on Crude Oil. I like the odds of further NZD weakness vs. GBP and JPY. I like GBP strength vs. Eur and CHF also.

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 6 May 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 6 May 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 Definitive Guide to Developing a Winning Forex Trading System 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-bank and hedge fund 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 6 May 19 appeared first on FX Renew.

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