how to trade forex

Canada Continues To Pull Ahead – Short USD/CAD

Forex Kong 2 Comments

More good numbers out of Canada today as the economy appears to be firing on all cylinders.

Firms in Canada may look to raise consumer prices amid the underlying strength in job growth along with the expansion in private sector credit, and a positive development may heighten the appeal of the Canadian dollar should the data spark bets for a rate hike.

Meanwhile south of the border:

The city of Detroit filed for Chapter 9 bankruptcy protection in federal court Thursday, laying the groundwork for a historic effort to bail out a city that is sinking under billions of dollars in debt and decades of mismanagement, population flight and loss of tax revenue.

The bankruptcy filing makes Detroit the largest city “so far” in U.S. history to do so.

Obviously I’m suggesting short USD/CAD sets up quite well at these levels. I’ve booked 2% on the trade and will look to reload on any further “pop” in USD which gets less and less likely by the day.

You Can't Day Trade Forex Without Conviction

Forex Kong 9 Comments

I try my best to strike a balance, and offer as much insight as I can to both longer term “investor types” as well those “short-term traders” looking for a little more action in their day-to-day.

I’m often confronted with “frustrated short-term traders” dissatisfied that suggestion of a “stronger Yen” or “weaker dollar” on any given day – did not provide the desired “instantaneous result” of  being made a millionaire overnight. Over leveraged and grossly under funded these short-term traders are quickly taken out, as the industry’s  own marketing strategies are fundamentally built upon this “promise” of instant riches.

You can’t day trade Forex.

No matter what you think, and no matter how many “bells and whistles” you’ve got on your charts, no matter how many “small wins” or perhaps even with a few “larger wins” the inherent volatility on smaller time frames will reduce your account to zero – long before you’ll ever  set up shop on the beautiful Caribbean ocean , bikini clad babes and tequilla in hand.

You must learn the fundamentals, as you’ve no conviction in your trading otherwise.

A quick “spike” here or “dip” there and you freak out / stop out with absolutely no conviction behind the trade – because in reality – you really have no idea at all as to “what the trade is even about” anyway. Without a fundamental reason for taking a trade you will never have conviction, and without conviction – you’re just a tiny fish getting smashed around in the surf.

I pop in and out of trades on smaller time frames all the time – only in that I’ve already got the larger time frames and the fundamentals “behind the trade” to begin with. This takes time and a considerable amount of learning but is absolutely key if one hopes to survive.

Market Recap – Looking Back In Time

Forex Kong Got something to say?

When trading longer term time frames ( weekly charts ) the information listed below pretty much says it all. You can have fun with the day to day stuff sure….but with no longer term vision / no “real idea” what’s going on (short of the recent headlines on the tube) – you’re essentially just rolling the dice.

2013 trading:

https://forexkong.com/2013/01/31/2013-you-will-never-trade-it/

U.S Housing Recovery:

https://forexkong.com/2013/05/21/u-s-housing-recovery-media-spin/

Canada / U.S Market Topped:

https://forexkong.com/2013/03/30/has-canada-topped-tsx-weak/

SPY At Major Point of Resistance:

https://forexkong.com/2013/04/20/intermarket-analysis-questions-answered/

It’s interesting that “eternal bulls” appear frustrated as hell here at the “relative highs” – with consistent “claims” of “knocking it outta the park” when in reality – they sit confounded, and likely struggling to figure out “huh! – why isn’t this working out?”

Bulls n bears both get slaughtered – Gorillas make the money.

China GDP Statistics – Monday Alert!

Forex Kong 6 Comments

China’s numbers are due on Sunday night and I feel it prudent to give everyone a very, very serious heads up as to the implications and ramifications in equities markets come Monday morning.

Look out below as the GDP numbers out of China are more than likely going to disappoint. This has “ugly” written all over it  as coupled with a likely string of “disappointing earnings reports” to follow out of the U.S – the combination could prove to be one for the books.

We’ve known this for some time now, and considering that my short-term tech went “short $SPX” on Thursday afternoon, and has also signalled “long JPY” for Monday morning – the rubber meets the road here again on Kong’s ability to forecast / see this stuff coming long before the crowd.

I am at complete odds as to why the entire planet isn’t already in complete “duck for cover” “risk off mode” but then on the other hand…… not really that surprised. Ben’s got your back right? Oh boy.

The plan is to “get ahead of this stuff” not “react to it”.

In any case….we here at Forex Kong we’ll know exactly what’s up late Sunday evening, and will continue positioning accordingly.

Check the real-time tweets etc.

The Ultimate Risk Off Trade – EUR / AUD

Forex Kong 5 Comments

Of all the currency pairs I track and trade – there is no more a beast than EUR/AUD ( The Euro vs The Australian Dollar).

This currency pair as well as it’s sister pair EUR/NZD makes some of the largest intraday moves of the entire currency world “if not” theeee largest moves, and hav the ability to devastate an account – literally within minutes.

Trading this pair takes acute knowledge of “fundamental under currents” in currency markets, as the pair functions as the “ultimate risk off / on trade”. Get it right, and you can see crazy profits practically overnight…get it wrong and watch your account go to zero. It’s truly a beast and commands the utmost respect. I would argue that this pair is the most volatile / high risk / strange / powerful / beautiful monster in the entire currency world. I love it. I fear it. I trade it.

NEVER TRADE THIS PAIR WITH A FULL POSITION AS THE DAILY VOLATILITY WILL WIPE YOU OUT IN A HEARTBEAT.

I am talking about several hundred pip moves ( up and down ) within a single days trading, and as much as “thousand point moves” weekly. Two hundred pip intraday action is totally normal, so for any of you “newbies” hoping to catch a quick buck – you can forget it. The stops needed to trade the pair are larger than your account balance.

Imagine EUR/AUD like a big red button you’ve been presented with, and asked if “you should push it or not” -the temptation is there, but equally the risk.

I am currently long both EUR /AUD as well EUR/NZD and suggesting that risk is – OFF.

 

Big Price Moves On Low Volume – How?

Forex Kong 10 Comments

If you think about price itself being the “mind” of the market – consider that “volume” is the heart.

Try to think about volume as the amount of people behind a given move, or even the “emotional excitement” (or lack there of) surrounding  moves in a given asset. Volume measures the level of commitment in a move, and lets you know how many people are behind it.

When an asset makes a considerable move in price on very low volume ( as USD has now done over the past two “holiday” days ) we deduce that very few traders /investors  are actually involved (relatively speaking) – and that the movement lacks the commitment one would like to see when looking for momentum.

Simply put – if there are only buyers (and in this instance to “few” sellers) an asset can make considerable leaps in price with little actual participation. One could argue that on low volume days markets aren’t exactly balanced, so it’s not at all uncommon to see dramatic movements in price – even though fewer people are actually involved. Counter intuitive yes. Glad you’ve now got it under your belt? Excellent.

A valued reader asked me just today,  if I was considering throwing in the towel on my USD shorts. A valid question considering the giant leap in price we’ve seen here today. Hopefully,  now that you as well have the ability to factor “volume” into your analysis – you’ll be able to ride out a couple of these instances and stick to your guns / trust your instincts and not let the market push you around.

All good in Kingdom Kong – I haven’t even blinked.

Have a great weekend everyone.

Kong…..gone.

 

Japanese Candle Sticks – Get To Know Them

Forex Kong 7 Comments

Every trader has their own “favorite type” of technical analysis to apply when viewing charts, and that’s great. However it’s been my experience that having only one “go to analysis tool” is generally not enough to get an accurate read on things – technically speaking.

You need to see things from several perspectives and apply your knowledge of at least a couple different methods of analysis in order to make sense of it all.

I follow price action almost exclusively – and have very little in the way of other “indicators” on my charts short of the “Kongdicator” (my proprietary short term tech tool) which “does” essentially follow pure price action.

Japanese candles are a very large part of my “graphical / visual” evaluation of markets action as with a simple glance, one is able to deduce:

  • The high of the given time frame
  • The low of the given time frame
  • The opening price of the given time frame
  • The closing price of the given time frame

*and even more importantly – the “difference / variance” in price over time – purely in a visual context.

So when you see a candle ( your eyes get so used to identifying them over time) that suggest to you “hey! in the last 4 hours price has jumped dramatically (or perhaps the inverse) – you take notice!

Google’em – there are piles of excellent websites outlining Japanese Candles – and how to use them!

Sideways Trading – How To Survive

Forex Kong Got something to say?

You can pull up a chart of virtually any JPY cross but lets look specifically at USD/JPY on a 1 hour time frame.

Looking back from  June 20 to present ( so lets say 5 or 6 full trading days ) you can clearly see that price has ranged “sideways” within a very small range of around 100 pips. If you’d have been lucky enough to “short” at the exact top of the range….or gone “long” at the exact bottom  – you may have been able to squeeze off a decent trade depending on your TP ( take profits) and who know’s maybe you grabbed 25 – 50 pips somewhere in there. Great.

What most likely happened ( as with any most trade systems ) is that you got confirmation to enter about 25 pips late on either side, and ended up entering either long or short dead smack in the middle – and have now spent a full week wondering daily – “Is this thing going up or down?”.

For the new comer there really is no easy answer here. The smaller time frames will grind both your emotions and your account to dust. The absolute best suggestion I can make is again -TRADE SMALL.

Now pull up a daily of USD/JPY – Is “that” trading sideways?

Here you’ve got alot more information to go on – a downward sloping trend line, horizontal lines of support and resistance, you’ve got lots of historical price action to look at, as well all the  longer term moving averages and indicators you may also have on your screen.

Trade small over time and look to the larger time frames for direction –  and ideally you WILL survive the dreaded “sideways”.

Forex Trading – The N.Y Session

Forex Kong 16 Comments

If any of you are a touch “frustrated” with your forex trading as of late – perhaps I can give you a little more insight.

It’s important to note that throughout the trading day ( that being 24 hours ) there are very specific times when markets tend to make their moves. Missing these times of high liquidity, and entering the market during times of low liquidity can be extremely frustrating for a newbie trader  – and can really make the difference in your overall performance.

There is absolutely nothing worse than having your trade order filled, only to see within a matter of minutes that the trade has moved a considerable distance against you – or even worse that you’ve been “stopped out” before you’ve really even gotten started. It’s very likely you’ve simply been caught, entering the market at the wrong time – and not that your trade idea wasn’t valid.

If you want to trade effectively during the N.Y session, you’d better be prepared to get up early – very early.

I don’t have any supporting data to further verify this – short of my own experience, but what I can tell you is that 90% of the time the larger part of the move has already been made “before” the U.S pre-market equities session even gets started.

What you are “really seeing” is the last bit of Asia and the larger part of London’s session that have already made the majority of the move – while the U.S session tends to grind your account and ( for the most part ) move counter trend.

If you want to get a jump on the N.Y session – you need to be at your terminal and planning your trades at least a full hour before the open, then wait until the last hour of trading for further confirmation – or for opportunities to add.

Very often you’ll find that your trade ideas are actually fantastic, but it’s your market entry timing that needs a bit of polishing.

The Psychology Of Trading – Stay Positive

Forex Kong 2 Comments

In general I’m not really much for the whole “self-help movement” and all that stuff about “channeling” and “finding your spirit guide”. For the most part I’ve been far too busy working my ass off my entire life, to have stopped  and spent too much time “hoping for a miracle” or “rubbing some crystal”.

But I must say…for those that do find it beneficial  – “if it ain’t broken why fix it right”?

When it comes to trading though, I have learned that one must do everything in their power to stay positive and continue to move forward at any cost – as it’s those first few years that will break your spirit….and in turn your account.

As opposed to looking for “answers from above” I’ve found it helpful to read / and at times “re read” motivational anecdotes from some of the worlds most highly respected thinkers, visionaries and pioneers. In a sense “putting myself in their shoes” with the knowledge of what great obstacles they’ve overcome – and in turn the challenges I face.

I might suggest printing a number of these that strike you directly – and keeping them near your terminal for some “quick reference” when things get tough.

  • “Obstacles are those frightful things you see when you take your eyes off your goal.” – Henry Ford
  • “Only those who will risk going too far can possibly find out how far one can go.” -T.S. Eliot
  • “Great spirits have always encountered violent opposition from mediocre minds.” – Albert Einstein
  • “Knowing is not enough; we must apply. Willing is not enough; we must do.” – Goethe
  • “The best way out is always through.” – Robert Frost
  • “When the water starts boiling it is foolish to turn off the heat.” – Nelson Mandela
  • “It’s kind of fun to do the impossible.” – Walt Disney
  •  “Stay Hungry. Stay Foolish.” – Steve Jobs
  • “The distance between insanity and genius is measured only by success.” – Bruce Feirstein
  • “I hated every minute of training, but I said, ‘Don’t quit. Suffer now and live the rest of your life as a champion.’ ” – Muhammad Ali
  •  “I am always doing that which I cannot do, in order that I may learn how to do it.” – Pablo Picasso
  •  “I owe my success to having listened respectfully to the very best advice, and then going away and doing the exact opposite.” – G. K. Chesterton

You can find a pile of this stuff on the net, along with tonnes of other material on positive thinking etc, the point being – it’s unlikely that anything else you will choose to do in your life, will present you with the unique challenges trading has to offer.

You MUST stay positive.