currency trading

Forex Position Size – Volatility Part 1

Forex Kong 5 Comments

Everyone’s ability to manage risk is different, and risk tolerance varies from trader to trader. When considering “how much risk” you are willing to take in any given trade – obviously the “size of your position” is paramount. Coupled with the stop level ” (or in my case mental stop level – as I usually don’t use stops) a trader should know exactly how much money they are willing to risk / lose in any given trade – long before initiating it.

A general rule for new traders is to consider a “fixed percentage” of your total account (for example 2%) and plan your trades accordingly – never risking more than 2% on single given trade. So a 50k account for example with 2% risk would allow for a 1k loss on any given trade. If one full lot was purchased of NZD/USD  a full 100 pip stop would be used.

I do not trade like this.

When trading foreign exchange it is virtually impossible ( at least for newcomers) to enter the market, and not see the trade go against you almost immediately. This is due to the short-term VOLATILITY in forex trading ( not necessarily a bad trade entry) and must be taken into consideration when figuring out your position size. Some currency pairs range as much as 50 or 60 pips on even a 15 minute time frame – and could range as high as 150 pips on a daily time frame. If you entered a trade in the right direction but only a single day too early – does this mean you where wrong? Of course not. Although without understanding the inherent volatility, you may very likely get stopped out and/or abort an excellent trade idea based on a “little slip” in your timing.

A forex trader must understand the given volatility in each and every individual currency pair they trade – as each exhibit unique characteristics – and in turn adjust position size accordingly.

I would use a much smaller position size trading a pair that ranges 100 + pips a day, than I might in trading a pair that only ranges 30 pips a day. A trader must learn to study each currency pair on its own, and come to learn its individual characteristics.

I get alot of questions about this and the topic could likely run on for several more posts – so for today I’m going to call this Part 1, and plan to let you know how I “position size” on a coming post.

Welcome back everyone – and good luck here in the new year!

Currencies or Stocks – Who Leads Who?

Forex Kong 2 Comments

By the time you hear that “stocks are going higher” I can assure you – I am selling you my shares. Right around the time your broker calls and suggests that “now is a good time to buy gold” guess what? – I’m unloading. Your T.V provides you with the exact information needed  – to empty your bank account and fill mine. The entire system is a complete scam and oddly….you still keep asking yourself – what am I doing wrong?

It’s bigger than you. You can’t win. Stop now. Give up. Don’t quit your day job and god help you if your wife finds out you just bought Apple. Well…..truth be known – you can win. Don’t give up ( but seriously…don’t quit your day job) and be proud of your recent Apple purchase.

Turn off your T.V and Internet for one week, then ask yourself – “do I really know what I am investing in/what I am doing?” Seriously…..do you really think you know what you are doing?

I like to use the analogy of boats on the ocean – where currencies are a gigantic cruise ship and U.S equities are a speedboat. Sure there are waves (in this case volatility) but it takes a long time to turn the cruise ship around, while the speedboat is already sinking. Fact of the matter is – currency markets are far more stable than equities, and it takes more than a rainy day and a little storm to put that cruise ship on its side.

Granted I think you can get a speedboat/license,  and be out on the water in a  in an afternoon  – where as… not every Tom Dick and Harry putz around in a cruise ship. Fair enough.

I promise you – keeping your eyes on the currency markets ( and not just the silly EUR/USD ‘cuz they’ve got you on that one too) should keep you one step ahead of the next guy.

Check this out:

EUR_NZD_Forex_Trading

 

Predictions For 2013 – Apes Will Win

Forex Kong 31 Comments

Making a prediction for the future is easy. (In response to a valued readers questions)

The precious metals have decoupled from the dollar to a certain extent, so putting a time frame on the future prices of these two “asset classes” based on the usual correlations is difficult. I do predict that gold will go up and the dollar will fall. (go figure eh?)

I expect the USD to make its way lower through the first couple weeks of January – then take a usual oversold bounce, and then at least one more leg even lower into the middle/late February. During this time equities will likely push to near term highs then top out and trade sideways. As I am constantly moving in and out of the market I plan to be 100% cash sometime late February early March at the absolute latest, but in a different sense than my usual trading. I will continue to play the safe havens against the risk related currencies with possible addition / focus on EUR.

I plan to  completely re-evaluate my trade plans come March.

A previous article worth reading : click here.

Considering that I trade the fundamentals coupled with an extremely accurate shorter term technical system – I will really just allow price to guide me. As per my usual shorter term entries and exits – I am (more often than not) sitting in cash during times of  “trendless market direction” so regardless of exact dates / predictions I will trade what I see  – as I see it.

I will continue to post real-time trade activity here via twitter, as well through the daily posts. I suggest extreme caution after this next (and possibly final) move up in equities and risk in general  – come mid Feb or early March.

Currency Wars – Japan Turns Up Heat

Forex Kong 11 Comments

This is getting really interesting.

Getting this right could provide some of the absolute best trade opportunities of 2013. I plan to take full advantage. Considering that I expect the coming year to be extremely difficult to trade (and a real minefield for those with little experience) focusing on “what works” will be essential for survival.

As I’d mentioned in a previous article, the dynamics surrounding the U.S Fed’s plans to “print their way out of debt” and the dynamics of Japan’s recent foray into the “monetary easing business” are very different – and well worth pointing out.

Bottomline – Japan’s public debt is predominantly domestically owned (95% is owned by Japan’s own citizens) while the U.S owes more than 50% of its debt to foreigners. Japan’s printing will have little ramifications (globally speaking) and essentially they can print forever – managing  this domestically, with almost no risk of default.

Sooner or later holders of  U.S debt are going to get extremely “choked” as the dollar denominated paper they own is driven into the ground…and worth less and less and less…….

Japanese Economic Story – Trading The Yen

A quick look at a long term weekly chart of the AUD/JPY.

Forex_Kong_Currency_Trading

Forex_Kong_Currency_Trading

The recent monetary policy shifts/ implications out of Japan are a game changer if you ask me – and will likely be cornerstone to my trading plans moving forward. Eventually (as well with consideration of “eventual” rising interest rates in America) the U.S game will come to an end. It’s gonna be messy, and it’s gonna be tricky to trade.

The Yen (at least for now) appears to have a much clearer path on its road to “devaluation” than the USD – as the currency wars are now really starting to heat up. Opportunity will be found shorting both, but the fundamentals suggest that the Yen may provide an easier path to profit.

Forex Charts – Gaps Get Filled

Forex Kong Got something to say?

There is much debate on the subject of “gaps” in charts, and  it’s been my experience that the vast majority of these gaps do indeed get filled. A large percentage (somewhere around 80%) filled during the following day of trading.

A gap in a chart is essentially an empty space between one trading period and the previous trading period. They usually form because of an important and material event that affects the given security, such as an earnings surprise or a merger or in the case of foreign exchange – announcements pertaining to a given countries monetary policy.

Incoming Japanese Prime Minister Shinzo Abe kept up his calls on Tuesday for the Bank of Japan to drastically ease monetary policy by setting an inflation target of 2 percent, and repeated that he wants to tame the strong yen to help revive the economy. Abe, a security hardliner who will be sworn in as premier on Wednesday, when he is also expected to appoint his cabinet, is prescribing a mix of aggressive monetary policy easing and big fiscal spending to beat deflation and rein in the strong yen.

This has produced some very large gaps in nearly every single YEN (JPY) chart I follow – as well as over 7% account profits practically overnight. Generally these kinds of “gifts” don’t fall in your lap very often, and I have a hard standing rule to take this off the table immediately – and then likely wait for the gaps (in some cases 80 pips) to be filled as price dips back down to fill the “empty space” before resuming its trend.

I am expecting the dollar to make its last stand here sometime this week – and then roll over hard into its next leg down – while risk in general looks  full steam ahead . The Yen crosses have been absolutely fantastic and are now either on the cusp of full-scale break out, or a possible breather. I am planning to stay on aggressively until proven otherwise – booking profits along the way, and jumping back in the trade.

Currency Trading – The Sunday Plan

Forex Kong Got something to say?

As I’d mentioned previously – Sunday’s are sacred.

With no lights flashing on my screen, no announcements scheduled, no scandals hitting  the wires, no “fed speak” etc  – Sundays are truly a blessing, for the hard-working and ever diligent currency trader. Unfortunately the spaceships didn’t show up last night (here on the Mayan Riviera) so the world is saved. Back to business for me.

Don’t think for a minute that markets are going to just sit idle  – while you stuff your face full of turkey.

This week could just as likely” rip your face off” in either direction – should you decide to turn a blind eye. I suggest sneaking away (if ony for a minute or two) check a couple of charts, levels, prices etc…and take advantage of this small window of “down time” to check yourself, your trades and your overall market position and exposure.

Never take anything for granted when trading currency – or any other asset for that matter!

Sure its the holidays…..and I do wish you (and all of your families and friends) the best – and all the best in the coming new year BUT! I encourage you to stay diligent, stay focused and never EVER take your eye off the ball  – even when those presents under the tree appear far more interesting.

Happy holidays everyone – and best of luck to you in the new year!

I do expect relatively light trading in coming days – and imagine the dollar will flounder here on its bounce,  then continue in its downward direction. This being said – keep your eyes on equities ( and in particular gold/ silver related stocks) as well tech for buying opportunities as we still look poised to move higher.

Forex – Trade The Fundamentals First

Forex Kong 4 Comments

The Bank Of Japan is set to release its Monetary Policy Statement here this evening.

It’s among the primary tools the BOJ uses to communicate with investors about monetary policy. It contains the outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision. Most importantly, it projects the economic outlook and offers clues on the outcome of future rate decisions.

It’s widely expected that the BOJ will announce further easing of monetary policy – the extent of which remains to be seen.

Looking further out  – I see that a fundamental shift in value of the USD/JPY has finally completed its long-term bottoming process and is now decidedly reversed. As both countries now battle in the “race to the bottom” it makes for some interesting debate when one considers “which will go down more”? when  both countries throw everything they’ve got at currency devaluation.

Who’s got the larger printing press?

This is the kind of thing that currency traders must consider when looking out at longer time frames and potential trends. Monetary policy drives currency markets, and sudden changes or surprises (like an interest rate hike for example) can blow a newbies account overnight. I cannot stress enough – the need to be well-informed on fundamental issues surrounding a given currency or pair – in order to effectively trade it. The technicals and charts always come second for me, after I’ve got a firm understanding of the current and “forward moving” fundamentals.

Short term I have sold all of JPY trades as of last night as well most everything else for a 6% return since Sunday night’s  risk on release. Looking at the shorter term charts – I see the Yen /JPY has fallen fast to a well-known area of support and would likely expect a bounce on the release tonight as opposed to further selling.

As well the USD looks to have run its course as expected in falling hard over the past days. I expect a bounce/retracement there as well.

Currency Markets Are Easy To Trade

Forex Kong 16 Comments

I get the same response from people almost every single time I mention that I trade currency for a living. The vast majority have absolutely no idea what I’m talking about (well…certainly here in Mexico) or perhaps have “heard of such a thing”… but never imagined it was actually possible.

Trading currency is not unlike trading any other asset class – you want to buy low and sell high. In this case instead of buying gold with your money, or buying  stocks with your money – you are buying or selling “money” with your money.

Online I come across many “arm-chair investor types” who suggest that trading currency is a fool’s game, and that I will soon disappear into the sunset “broke and shattered” – the victim of over leveraged trading… and a blown up  account.

Have you taken a shot at trading gold / silver or equities in general lately? Oh ya? – Tell me…how’s that going for you hotshot? Making lots of money then are you? – Ridiculous.

Trading currency through November and December have been my most profitable months all year.

A quick peak at a chart I’ve recently been looking at  – while teaching my girlfriend how to trade. Can you spot the trend?

Trading Currency

Trading Currency

Currencies generally trade in familiar and  recognizable “trade patterns” and are well-known for long-term trend trading behavior. Granted, the money management side of it can be a challenge when first getting started – but anyone suggesting that “it´s way to risky” or “you’re gonna get killed” only needs to have a good look at the example above to clearly see this isn’t the case.

These days…currency markets are much easier to trade.

My girlfriend is doing quite well.

How To Trade A Risk Event – Or Not

Forex Kong 20 Comments

My own definition of a risk event (go figure) –  An event that puts you at risk.

We’ve all got our own tolerance for risk,  as a particular event (such as the FOMC announcements tomorrow) that may be considered a “risk event” by one individual, may have absolutely no significance to another. There are many factors to consider – and it really comes down to the individuals circumstances  and/or evaluation at the time.

I for one  – have an extremely high tolerance for risk.

Almost to a point of fault, I have been known to walk down the odd dark street at night just to “see what’s down there”, or perhaps  hail a cab with no real “company name” visible on the door  – however…..

I do not take undo risk with my investment or trading decisions.

The best suggestion I can make centers on the simple question of “whether or not its worth it” as a risk event approaches – and more often than not the answer comes back the same….absolutely not.

  • Could something occur tomorrow that could potentially jeopardize the profits I am currently seeing on the table?
  • Could I find myself deep underwater tomorrow in the case that something completely unexpected occurs?
  • Am I going to miss “something massive”  if I am not fully invested and exposed to the market?

Questions like these are healthy, and can go a long way in preserving  capital in these volatile times – let alone reduce risk considerably.

Consider your risk tolerance. Ask yourself – Is it really worth it….. for a couple of points or two?

An aside – I have little doubt that tomorrow’s FOMC announcements/outcomes will result in markets moving higher, and the dollar getting sacked. However – it may not play out as “matter of fact”. I have 100% confidence that any trade opportunity that is currently available to me – will equally be available to me tomorrow (and likely the next day for that matter). Do I care?….nope…not really.

Kong banks an additional 2% on the day – and back to the ol favorite – 100% hard cold cash.

Learn To Trade Price Action – The Swing Low

Forex Kong 2 Comments

A good friend of mine asked me the other day to expand a little on the trade term “swing low” – and to outline it’s significance/importance.

If you are not at all familiar with Japanese Candlestick Patterns – I strongly suggest you take the time to read up and learn to recognize these “formations” in your sleep – as they provide excellent graphic representation of price over time, and are invaluable to successful trading.

You can learn more here.

In any case – the swing low. I’ve included the following chart of SLV (a silver ETF) with hopes of pointing it out. Let me try to explain this in as simple a way as I can.

A “swing low” occurs when the “high of a given day” – takes out (or surpasses) the “high” of the previous day in a recognized down trend. So the series of “lower lows” and “lower highs” is essentially broken with the recognition of the “swing low”.

Lets look:

Swing Low

I  Swing Low

I know I know…..”lower highs” and “higher lows” all sounds a bit confusing,  but if you just take your time and work it out candle per candle you’ll see it. A “swing low” is suggestive that the current down trend may be ending as the high of the day is now “higher” than the high of the previous day! Indication that price action is likely shifting from down  – to up!

 

Hope it helps.