Weekly Forex Trading Calendar for Jan 7, 2019

Weekly Calendar Calls

We have just posted our weekly news trading calendar for the week of Jan 7 2019. You can download the pdf and excel file by clicking on the Read More Link. These are soft biases on economic data and not trades that we directly trade or track like BK Swing and News.

PDF version of calendar010719

Excel version of calendar010719

Three Trading Truths I learned This Year

Boris Schlossberg

1. “Never” and “always” are the two most dangerous trading words in the English language.
Idiotic statements like “smart money is never wrong” or “this setup always works” are a straight path to a blowup. The other day I was watching a YouTube video with more than 150K views where the guy was arrogantly pitching as his own the SSI strategy that K and I helped develop back in our FXCM days. Basically, the FXCM SSI index measures the client positioning in any given currency pair and then takes the opposite side especially as the positioning goes to the extremes. Now generally that is mostly a good idea. Most of retail is usually on the wrong side of the trade most of the time. But not always. In the case of SSI the FXCM brass was so sure of their new little indicator that they convinced a large French bank to trade the model with a very sizable prop account. Unfortunately, at that time the euro went on about a 3000 pip slide with no stops along the way and as retail kept getting shorter, the bank kept getting longer and blew out more money than you can imagine. So no. The “dumb money” is not always wrong and you can lose even on “never-gonna-happen” bets. The only proper way to use those words in trading is: “There is always a chance I am wrong,” and “I will never bet my whole bankroll on this one trade idea.” In short, the most important things I learned in 2018 is to be humble. Always. And arrogant. Never.

2. Robots trade better than I.
After years and years of resisting rules-based trading, I finally realized that my strategies are much more profitable when they are executed systematically. Robots don’t hesitate on entries. Robots don’t pull stops. Robots don’t sleep and miss out on trades. Robots don’t accidentally hit a buy instead of a sell button and robots don’t trade ten times the intended position size (unless you configured them wrong). None of this means that systematic trading will automatically make you profitable, but it does offer you a multitude of advantages over point and click trading. One of the traders in my chat room noted that we should view our trading robots as assistants -- and I think that a perfect analogy for how we should view the systematic process. There is no such thing as set it and forget it trading. Robots help you with execution and logical structure, they free you from the tyranny of looking at every tick on the screen but it is still up to you to analyze and adjust the strategy and always be aware of the market. The future of retail trading is robot. The sooner you realize that the better a trader you will become.

3. F- passive. After several years of ranting against the mindless advice of Bogleheads that passive investing is the only way to get rich, we are finally seeing the disaster that it truly is as we close out the worst December in market history. The pain is just starting. If you have all your retirement money in equities prepare to possibly lose 50% of your money, just like Bitcoin traders. The worst part is that passive investors couldn’t do anything about it even if they wanted to because they don’t have the skills to manage risk. They’ve been taught to ask no questions and drop money in their retirement account every month, with the same monolithic fervor of a North Korean people’s rally. Even if I am 100% wrong ( and I certainly can be -- see #1) most passive investors will not survive this dip because they are completely unaccustomed to risk and they certainly capitulate at the bottom. On the other hand, we retail traders live and breathe risk every day and at very least know a thing or two about position sizing and stops. So let the passives enjoy a few more months of illusion. As market regime changes from an unending one-way rally, we retail traders will be ready to surf the price waves and keep risk under control. Here is to a great 2019!

Happy Trading everyone.

Weekly Forex Trading Calendar for Week of Dec 17, 2018

Weekly Calendar Calls

We have just posted our weekly news trading calendar for the week of Dec 17 2018. You can download the pdf and excel file by clicking on the Read More Link. These are soft biases on economic data and not trades that we directly trade or track like BK Swing and News.

Excel version of calendar121718

PDF version of calendar121718

What Really Matters in Trading

Boris Schlossberg

Trading can be deconstructed into three parts -- analysis, setup, and structure. We spend an inordinate amount of time on the first two components, but it may be the third part of the process that is most important to long-term success.

Analysis be it fundamental, technical or both is of course crucial to making good trades, but in the end it all boils down to handicapping human behavior. Every trade is an implicit IF/THEN statement that assumes some sort of causation. In a highly dynamic environment like the market where a new input could upend the underlying thesis anytime (just ask anyone who has ever run into a news bomb or some massive order that completely flipped the supply/demand balance) noise is a huge problem for anyone who trades. The shorter the time frame, the greater the noise. That’s why day trading is such a challenge and why I’ve been arguing that the 1-hour time frame is the shortest reasonable period for retail traders to consider.

Of course, we all want to trader shorter because longer-term charts are boring, signals are few and we have to practice the most dreaded four letter word in trading -- WAIT. The issue is further complicated by a seemingly sensible but highly deceptive assumption we all make -- shorter-term trading needs smaller stops, therefore we can use larger leverage. On the face of it, it makes sense. After all, a 10 pip or 20 pip stop is nothing! We can trade on 10:1 lever and still only lose 1% to 2% of equity max. But we always forget the noise factor. A choppy, intraday market can seduce us into false breakout three, four, five even ten times in a row. That’s how most traders lose 10-20% of an account in a day even they hold tight stops. The only way to survive the vicissitudes of daily price action is to actually risk just 10 basis point per trade, but who amongst us does that?

Pulling away from the endless discussions of day trading which often remind me of medieval debates about how many angels can dance on the tip of a pin, we need to realize that what really matters in trading is structure. By structure, I mean the risk/payout factors on every trade. Conventional wisdom always argues for a 2 to 1 risk reward approach. That’s nice in theory where you can argue that you need only to be right 40% of the time to make money, but in practice, it is impossible to do. 40% win rate implies a 60% loss rate -- and that is under the best circumstances!

Imagine losing six trades in a row before you hit a winner. Now imagine doing that five, ten, twenty, fifty times a year. The human psyche is just not designed for so much consistent disappointment. My personal experience with retail traders is that most people can tolerate three losers in a row. After that, they either get angry or depressed, but in both cases, they walk away from the setup -- even if it proves to be profitable in the end.

The only way to overcome this problem is to create a structure that is both logically and psychologically robust. And the only way I know how to do that is with a two target exit. You need a short target that can be hit frequently and long target that will be hit rarely but will pay for your losses when you hit it. By definition, such a structure calls for a 2 unit entry and therefore doubles your risk on every trade. That’s why this final part is KEY to making this structure work. In order for your trades to have a long-term edge, the sum profit of your target must be larger than your risk. For example let’s say you are trading with a 50 pip stop, a short target or 40 pips and long target of 100 pips. There are three outcomes to this trade. You lose 100 pips. You make 40 pips and the second unit stops out at break even. Or you hit both targets and make 140 pips. Notice that in scenario number three your total profit of 140 pips is greater than your risk of 100 pips. That’s exactly what you want. If you have strong set up a third of the trades will stop out at -100. A third will bank 40 pips and the final third will make 140 pips and pay for all the losses.

Almost every quant will tell you that scaling out of a trade is not a logically optimal strategy. And they are absolutely right. And absolutely wrong. To succeed in the markets you need a plan that is both logically sound and psychologically optimal which is what makes this structure so robust.

*Good morning/afternoon everyone!* The U.S. dollar is trading lower against most of the major currencies this morning as risk appetite improves after yesterday’s brutal selling. Stock futures are up, helping to bolster pairs like EUR/USD and USD/JPY. However as we begin the NY session, the decline in Treasury yields could also tip the scale and push USD/JPY lower. Yen crosses on the other hand will take their cue from stocks today. The currency most vulnerable to weakness is the Canadian dollar because oil prices are down more than 2% after President Trump tweeted that he hopes Saudi Arabia and OPEC will not cut oil production because he thinks oil prices should be much lower based on supply. Despite a softer Eurozone ZEW survey, EUR/USD is trading above 1.1250 on the hope that progress could be made on the Italian budget front. the expectations component of the ZEW surely also increased. The best performing currency this morning is sterling which is up on higher wages (despite a higher unemployment rate) and continued Brexit optimism. On the Brexit front, we are getting closer to a deal but with some counterproductive headlines, traders are still reluctant to overload sterling positions but when an announcement is made, we can almost be assured that there will be a strong followup rally. AUD and NZD are also up from yesterday but having risen strongly in Asian trade, they are mostly consolidating and even weakening slightly. We also have our eyes on the Swiss Franc which appears to be topping below 1.0130. *The MAIN THEMES I see today are* +EUR +CHF -CAD -JPY *Trading Biases* +EUR, +CHF, +GBP, -CAD, -JPY mildly +AUD, +NZD, -USD *Today’s Initial Trades* Here’s the summary – 1. Buy EURCAD at 1.4885, Stop at 1.4857, Target 1.4912 2. Buy EURUSD at 1.1247, Stop at 1.1219, Target 1.1275 3. Buy AUDCAD at .9531, Stop at .9503, target .9559 4. Sell AUDCHF at .7270, Stop at .7298, Target .7242

Swing

*Good morning/afternoon everyone!*

The U.S. dollar is trading lower against most of the major currencies this morning as risk appetite improves after yesterday’s brutal selling. Stock futures are up, helping to bolster pairs like EUR/USD and USD/JPY. However as we begin the NY session, the decline in Treasury yields could also tip the scale and push USD/JPY lower. Yen crosses on the other hand will take their cue from stocks today. The currency most vulnerable to weakness is the Canadian dollar because oil prices are down more than 2% after President Trump tweeted that he hopes Saudi Arabia and OPEC will not cut oil production because he thinks oil prices should be much lower based on supply. Despite a softer Eurozone ZEW survey, EUR/USD is trading above 1.1250 on the hope that progress could be made on the Italian budget front. the expectations component of the ZEW surely also increased. The best performing currency this morning is sterling which is up on higher wages (despite a higher unemployment rate) and continued Brexit optimism. On the Brexit front, we are getting closer to a deal but with some counterproductive headlines, traders are still reluctant to overload sterling positions but when an announcement is made, we can almost be assured that there will be a strong followup rally. AUD and NZD are also up from yesterday but having risen strongly in Asian trade, they are mostly consolidating and even weakening slightly. We also have our eyes on the Swiss Franc which appears to be topping below 1.0130.

*The MAIN THEMES I see today are*

+EUR
+CHF
-CAD
-JPY

*Trading Biases*

+EUR, +CHF, +GBP,
-CAD, -JPY
mildly +AUD, +NZD, -USD

*Today’s Initial Trades*

Here’s the summary --

1. Buy EURCAD at 1.4885, Stop at 1.4857, Target 1.4912
2. Buy EURUSD at 1.1247, Stop at 1.1219, Target 1.1275
3. Buy AUDCAD at .9531, Stop at .9503, target .9559
4. Sell AUDCHF at .7270, Stop at .7298, Target .7242

Weekly Forex Trading Calendar for 11.12.2018

Weekly Calendar Calls

We have just posted our weekly news trading calendar for the week of Nov 12 2018. You can download the pdf and excel file by clicking on the Read More Link. These are soft biases on economic data and not trades that we directly trade or track like BK Swing and News.

PDF version of calendar111218

Excel version of calendar111218

In Trading – Great is NOT Good

Boris Schlossberg

In our winner take all world, we are often told to try the best, do the best, be the best.

That advice is a road to ruin in most aspects of life and very certainly in trading.

The very latest in research suggests that human accomplishment does not come from trying to push ourselves to the limit, but rather from gradual and consistent repetition and improvement.

As Brad Stulberg writes, “Take the case of Eliud Kipchoge, who just shattered the marathon world record. He’s literally the best in the world at what he does. Yet Kipchoge says that the key to his success is not overextending himself in training. He’s not fanatical about trying to be great all the time. Instead, he has an unwavering dedication to being good enough. He recently told The New York Times that he rarely, if ever, pushes himself past 80 percent—90 percent at most—of his maximum effort during workouts. This allows Kipchoge to string together weeks and weeks of consistent training. ‘I want to run with a relaxed mind,’ he says.”

The paradox of performance is that when you push less you achieve more. Stulberg again, “This mindset improves confidence and releases pressure because you don’t always feel like you’re coming up short. It also lessens the risk of injury — emotional and physical — since there isn’t a perceived need to put forth heroic efforts every day. The result is a more consistent performance that compounds over time. Research shows that sustainable progress, in everything from diet to fitness to creativity, isn’t about being consistently great; it’s about being great at being consistent. It’s about being good enough over and over again.”

This is certainly true with trading. We are always pushing for more -- more edge, more leverage, more trades when we should all be pushing for less. It’s perfectly ok to take profits early. It’s perfectly ok to miss some setups. It’s perfectly ok to trade on very low leverage for as long as you want. Every one of those behaviors will push you toward success whereas the exact opposite of those behaviors will guarantee failure. Trading -- like marathon running -like almost everything in life -- is a test of endurance.

There is an old movie with Paul Newman and Robert Wagner called Winning. It’s about the 24 hour race at LeMans. (It was actually the catalyst for Newman becoming a professional race car driver later in life). In the movie, Wagner plays a hot shot driver who “breaks things” because he always pushes everything -- the car, himself, the people around him too far. Wagner is the quintessential example of what not to do in trading. In his quest for excellence, he winds up only with failure.

It’s easy to see how that can happen in trading. Hell, I’ve been the Robert Wagner character many times in my life. Always looking to “optimize”, always looking to push trades beyond their limit. But recently I created a process to change that behavior. And it all starts with the 0.01 lot.

Basically anytime I have an idea for a setup or strategy I start trading it with 0.01 lot. My iron clad rule is to trade at least 10 times at that tiny size, but the more I do it, the more I realize that at least 30-50 times is best (this assumes you are day trading, which is all that I do). The money is real, the quotes are real but the size is so tiny that it does not dissuade you from pursuing the setup even after multiple stops out. More importantly, it is truly amazing how many things you notice the more you trade. Every setup and I mean EVERY setup will change its rules as it develops under real market conditions. That’s because even if you have years of market experience your original notion of how the trade should proceed will come with preconceptions that actual market price action will very quickly destroy. But here is the thing. The more you trade your set up. The more you adjust it to actual market conditions. The more accurate it becomes. The more confident you will be.

That confidence will allow increasing the size to the next level which in my case is 0.1 lot -- and inevitably when the losing streak appears you will not abandon ship. You will have that reservoir of confidence from the 0.01 lot days to ride out the drawdowns. This is where the power of gradual improvement really pays off. This is where you realize that good is not the enemy of the great, but rather its basic building block and at that point, you can finally step up to your regular trading size knowing that you have created a truly durable setup to trade.