psychology of trading

The Smart Money Trade – Is That You?

Forex Kong 17 Comments

Smart money index (SMI) of smart money flow index is a technical analysis indicator demonstrating investors’ sentiment. The index was invented and popularized by money manager Don Hays. The indicator is based on intra-day price patterns.

The main idea is that the majority of traders (emotional, news-driven) overreact at the beginning of the trading day because of the overnight news and economic data. There is also a lot of buying on market orders and short covering at the opening.

Smart, experienced investors start trading closer to the end of the day having the opportunity to evaluate market performance. Therefore, the basic strategy is to bet against the morning price trend and bet with the evening price trend.

Sounds simple enough. The “dumb money” active in the morning, while the “smart money” work’s its magic near the close.

Check it out – The SP 500 is the top chart, and the “smart money” on the bottom.

Smart_Money_Forex_Kong

Smart_Money_Forex_Kong

The smart money has been “selling into this rally” since June of 2012!

It’s not rocket science, as emotions tend to drive new traders / investors right into the hands of the more experienced.

If you’re “up and attem” in the mornings and can’t figure out why your trading isn’t going so well, perhaps it’s time to really question…….

Are you dumb?

Buy Volatility As Your Hedge – Why Not?

Forex Kong 10 Comments

I must have dreamt it but…..I could have sworn I’d posted this chart some time ago.

A quick look at $VIX.

THE VIX REACHED 90.00 AT THE HEIGHT OF THE CRASH OF 2008 IF THAT MEANS ANYTHING TO YOU.

Forex_Kong_Vix

Forex_Kong_Vix

Volatility “rises” when fear sets in. This cannot be questioned.

The $Vix has “bobbed along the bottom” for the entire Fed driven rally, and cannot / will not break below around 12.50 no matter how high the market goes. This is complacency to a degree BEYOND my scope of understanding….as it’s painfully clear that most people have indeed been “lulled back into thinking” every is going to be alright.

THE VIX HIT 90.00 back in 2008!

Screw You Kong! – What Do You Know?

Forex Kong 7 Comments

The commodity currencies are showing considerable weakness here this afternoon. This –  in conjunction with a “late day sell off” in U.S Equities.

Ya well……”Screw you Kong!” “What the hell do you know?”.

Yes yes…..I’m sure there’s more than just a few of you out there muttering “something similar” under your breath. You’ve scoffed at the idea that things can go down, you’ve disregarded any concerns for managing risk, and I can only assume….you’re also “glued to your T.V” looking for some semblance of WTF is going on.

Hilarious.

You have no place in this mess. Let alone “passing judgement” on those of us with “some idea” of its inner workings. In all…..you deserve to have every single investment you currently hold go directly to zero. And that’s “directly to zero” – OVERNIGHT.

Are you prepared? Have you put the appropriate stops in place? Can you imagine waking up tomorrow to find that “overnight chaos in Asia has led to a -450 open on Dow?” Of course not.

You’ve got this all figured out with your “off the shelf indicators” and your “CNBC news feed” right?

It’s no wonder they refer to the masses as “sheep”. I have “zero” sympathy for anyone out there that’s not taken the necessary precautions.

It’s not about “how much you make” these days…………it’s about how much “you’re lucky enough” to keep.

 

Sunday Trade Planning – Octopus Ceviche, Charts , News

Forex Kong 13 Comments

Sundays are special days for me.

I get up even earlier than usual – and usually start some kind of “exotic food preparation” as the sun pokes up, the birds start “doing their thing” and the wheels start turning.

It’s not unusual to find me in and out of the kitchen for most of the day actually, as an ingredient missed here or there, has me out to the market then back again – all the while “other recipes” dancing around in my head.

Sundays are for planning.

Often what I’ll do on Sundays is – break out the charts on every single asset class known to man, and pretend / imagine that I have absolutely no idea whats “currently happening in the world”, and take a look at everything from a purely technical perspective. Starting with big ol monthly charts, then weekly, then the daily and finally down to the “current action in price”. I’ll then plot some horizontal lines at key areas of support and resistance, and look to identify “how close or far” we currently are from these significant areas of price.

Chop some onions, start steaming the octopus etc….

Then I’ll do the complete opposite.

I’ll start poking around the net at the usual “news haunts” , make note of any significant developments as well any significant announcements due for the week ahead. I’ll re-evaluate / freshen up on interest rates across the board, and do what I can to formulate a general idea of where we are at – “without” looking at, or considering a single chart.

Squeeze  limes, dice tomatoes , wash cilantro…..

Putting it all together in this way, lends itself to keeping an open mind , and often provides fresh perspective where “perspective” is needed. It’s easy to get overwhelmed while you’re in the heat of battle during the week, so the “sunday reprieve” is a fantastic way to just pull back and “re align” yourself with things, get prepared for the week ahead and enjoy some fantastic food as well.

We could very well be in for some big moves here in the week ahead, but for now………lets eat.

Octopus_Ceviche_Forex_Kong

Octopus_Ceviche_Forex_Kong

Take The Trade – When Stars Align

Forex Kong 9 Comments

Patience is paying off quite well here “again” this week, as markets have been more or less at a stand still since last Friday. As tempting as it is at times, to just ” get on in there” – maintaining that “extra little level of patience” can really make the difference.

It’s difficult to get your mind wrapped around it but….for the most part ( at least in forex markets ) you can usually just “let the move happen first” and find your entry later.In fact – I’d say about 95% of the time that the “initial move” ( the move that got your attention / signal / indicator ) is retraced considerably before anything “really big” happens.

I mean think about it……you’ve been watching a currency or stock pull back into an area where you’d be interested in entering on a “daily time frame” – then plan your trade / get your signals on an “hourly time frame” – man…..Even if you waited 8 hours “after”, you’d still not miss a thing really. Imagine looking at a “weekly candle / chart” some weeks later and being worried about “missing a couple of hours”. Drops in a bucket.

As traders we love to be “razor sharp accurate” – as part of the challenge more than anything else. Putting it in perspective it really doesn’t make a lot of difference, if of course you’ve got a sense / idea of where you think things are headed in the longer term.

These days “longer term” may only be 4 or 5 days…..but that’s lots of time to catch some serious movement and make some serious money.

When stars align – take the trade.

I really like what I’m seeing here this morning – across the board in nearly every pair / asset class / indicator etc…with particular attention on the Yen. Pairs such as EUR/JPY have really popped for those looking to “re short” as well USD looks to be running into solid resistance, and could most certainly take a step lower.

I’m close here, but will continue to wait – as we see what “The Americans” are up to this morning.

Forex Analysts – What's With The Suits And Ties?

Forex Kong 10 Comments

I’ve spent some time poking around the forex / financial blogosphere this morning, eyeing up the competition, looking to see what “everybody else” has got to say.

The one thing that jumped out at me immediately (aside from the completely boring and lifeless reiteration of the same levels / numbers/ line over and over again) was the ridiculous number of these fellows all dressed up in suits and ties!

Is it a credibility thing? Are successful forex traders all supposed to look like “carbon copy pencil pushers wearing radio shack suits?”

A forex “analyst” is most certainly not a forex “trader” and I think it’s important to draw the distinction as……until you’ve fallen into the belly of the beast and wrestled “your own” physcology….until you’ve conquered both greed  and fear with your stomach in knots for days on end.Until you’ve contemplated “flipping burgers at McDonald’s” short of grinding out that next turn.

Until you’ve lost nearly  “anything and everything” that was ever important to you – in the pursuit of greatness…..

You can keep your desk job bro. Pacing your cubicle working for pennies, drawing horizontal lines and charts for your boss…

You “are not” a trader.

 

 

 

Investors – I Know You Can Do It

Forex Kong 6 Comments

I’m not sure that most people reading here ( and I must say….thank you all again for reading here ) truly grasp the amount of time and effort needed – in order to “truly” succeed at this.

To be honest ……for anyone “casually checking in” on the news and their current holdings, solely on a daily basis (or even bi daily basis) I imagine that for most part…….you’re not having much luck.

Completely understandable as……..this is a very difficult market to navigate. Such that many of you may just be checking up on my trade ideas and posts…only to find that I’ve already moved on – a day or two later.

For the trader types…fine – you’ve got the time/energy/interest to keep up, and do what you can to fight this thing. Great.

It’s the investor types that worry me the most as…….I’m only doing what I know how to do to survive here. Applying my trade /knowledge/skill after many, many, many years of painstaking work and commitment.

I don’t “choose” the way these markets behave, and do wish things where different.

Investing is not an option here, so you may have to dig a little deeper.

You’ve been through wars, raised children on nothin and built countries from the ground up so….

I know you can do this.

Forex Trade Strategy – Thursday Is A Mover

Forex Kong 20 Comments

So here we find ourselves up bright and early, with the birds chirping, and the palms rustling in the cool ocean breeze. It a beautiful morning here as the sun has just poked its head out – casting a “pinky blue” blanket across the sky. Truly heaven on Earth.

But – Hell in markets!

We’ve got the ECB announcement in 15 minutes which ( regardless of what you are lead to believe ) has much larger implications / market moving potential than any of the usual “phony numbers” on U.S employement – also scheduled an hour or so later.

The European Central Bank ( after the “supposed recovery” – ya right! ) is now considering some form of monetary easing of its own as the recent rise in EUR/USD has hampered growth/exports etc….

If by the odd chance The ECB “does” announce motions to ease ( or perhaps issues forward guidance to telegraph such a move ) watch USD shoot further for the moon , and the EUR to tank.

I’m adding long USD in and around the announcement.

Is Twitter The Top? – I.P.O or P.O.S?

Forex Kong 13 Comments

You know…….If I was currently the CEO of one of the largest social media sites on the planet, I’d likely want to take my company public too. I mean why not right? You and your original investor base, board of directors, underwriters/bankers , family and friends, all made “multi millionaires” – practically overnight.

It’s a fantastic achievement, and an incredible opportunity for those so fortunate as to take advantage. During the internet craze of 2000 I too was encouraged to take my company public – but just couldn’t get through the paperwork / logistics etc…..

So here we are on the cusp of yet another “awesome internet offering” at a time / place where I for one am just a “tiny bit skeptical”.

Twitter has yet to turn a profit.

Of course I understand the model / internet / eyeballs / projections etc……but to be frank, and as an investor – the company evaluation looking like 23 – 25 dollars per share. No profits.

Could these guys be “even smarter” than you think?

Could Twitter’s I.P.O mark the top?

Food for thought people………I’m not involved.

Open’s 25 rips to 40…….then tanks to 12.50?

Sounds about right to me.

 

 

Bagholders – Buyers And Sellers Alike

Forex Kong 10 Comments

We’ll see a pullback in USD here as,  on a purely technical level ( looking at smaller time frames such as the 4H and 1H ) she’s extremely overbought.

Considering the over all volatility this “counter trend move” may also prove to be quite dramatic / powerful as “yet again” late comers ( as I see it  – pretty much the entire financial blogosphere ) chase a train that’s already left the station.

It’s “buy the dip time” in USD.

Commodities got smoked here as suggested,  but in all – gold itself has held up “reasonably well”.

I knew this move was going to be powerful ( although the general “silence” here at the blog “trade wise” has me thinking that most of you didn’t buy that ) and now find myself booking huge profits – looking for re-entry.

I hate to say it but……Thursday is a long way off, and I have a sneaking suspicion we’re not going to see much “tradable action” early in the week.

With some decent numbers out of China over the weekend I expect a little “bouncy bouncy” in AUD and perhaps risk in general as USD pulls back a touch before making the next leg higher.

You’ve really got to be nimble these days to bank profits, and get set for the next short-term move,  as “buy n hold” or “sell n hold” for that matter just might have you “holding a bag”.

Stay safe people…and trade within your means.