psychology of trading

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.

Global Market Insight – CNBC Is Dead

Forex Kong 5 Comments

With nearly 60% of Forex Kong traffic / readership coming from outside the U.S, we are a truly international bunch. I take tremendous pride in this, as the broad scope of  information shared here from “people in the know” and “on the ground” in their native land’s holds tremendous value. When our man in Australia pounds out some solid numbers on housing, or the current sentiment on China etc – you can generally take this stuff to the bank.

I want to thank each and every one of you (this means you Schmed!) who have taken the time to contribute here – and encourage you to continue doing so. Considering the absolute nonsense being spilled out of the U.S daily – we are truly “an oasis” in a sea of misinformation and deceit. Something we can all be proud of.

On that note, I occasionally tune in to “CNBC” to get a quick read on the current “news stories/headlines” being peddled to the general American populus – and can usually bare it for 10 maybe 15 minutes tops. They actually state that sound investment principles would have you buying stocks on the sole basis that “Bernanke has got your back”.

“Bernanke has got your back”. That’s the investment thesis. That’s the plan. That’s the “right thing to do”. I can honestly say that I have never in my life heard something so absolutely absurd. Brilliant! A single man working for a private bank, systematically destroying a currency is the “hot investment strategy” of the day. I may now be sick.

CNBC viewership has imploded recently to it’s absolute lowest level since 2005, with really no end in sight – so perhaps there is some hope that people are looking for “legit information” elsewhere. We can only hope.

This from our friends at ZeroHedge:

Kong_On_CNBC

Kong_On_CNBC

Let’s keep things global people – CNBC is dead.

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.

 

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.

 

 

 

 

 

The Psychology Of Trading – Position Size

Forex Kong 13 Comments

One of the most overlooked and misunderstood areas of trading is the psychology of trading. I am a firm believer that once a trader has a firm grip on their “psychological being” that the daily trade entires and exits, and the significance of any individual wins and losses soon disappear into the sunset – as the larger picture (ie…making a living at this!) begins to take shape.

One of the absolutely  most effective ways to “harness the demon” and wrangle those emotions – is to trade small.

I’m not talking “kinda small” either like……you still go to bed the night of the trade with a lump in your chest ( all be it a touch smaller  than the night before ) and your heart is still beating like a rabbit ( as opposed to a hummingbird ) I’m talking “super small”. Focus on your emotions for a week, and completely disregard any idea of “getting rich” or even that of making any money at all – and consider the following:

Would you rather trade a single (micro) contract with a full 200 pip stop (essentially risking $200.00), and wake up in the morning to see that:

  • You are still in the trade ( and have not been stopped out ) – as the 200 pips has afforded you some breathing room when things are volatile.
  • You are a “teeny tiny” ways into profit, with the option to close the trade – or perhaps tighten your stop and let things develop further.
  • You are a considerable ways into profit. Woohoo!
  • You are a fraction in the “red” and see that your current account balance is down a mere 30 – 50 dollars, and that perhaps news has broken – or something fundamental has shifted, and have option to reassess, close or add .

OR:

You traded a full 10 contracts with a 20 pip stop ( again risking the exact same amount of money ) and wake up in the morning to see :

  • Of course you’ve been stopped out without even giving the trade a single day to develop / move learn more about the markets direction, no option to add to the position, no idea of what news may have effected further decision-making and……down -200 smackers.

The smaller trade ( regardless of its immediate outcome ) has afforded you a much better sleep, less chance of heart attack, a myriad of further trading options and some very important insight into your trading by allowing you to watch it develop – and just as much likelihood of profit!

Take a full week and take your position size down to near “0”, observe market action in real-time, and you will learn plenty……….not to mention sleep much better.

And hey…”news flash” – you didn’t get rich this week either! – Surprise! Surprise! – Get it?

Zero Sympathy From Kong

Forex Kong 11 Comments

They can spin this in the media that “China is the reason” – Ridiculous!! China is the only thing “right” in this entire mess.

You all have read and followed along…..and for the most “dropped off” around about the time that I suggested that things where going south. You don’t want to here the truth, you want to believe in a system that is currently “systematically” wiping out your entire retirement.

At this moment I’m about as close as I’ve ever been to completely shutting this blog down, short of putting a big fat price tag on it that none of you can afford.

It’s ridiculous. Shut off your T.V to start…..as the same morons running your countries have long ago bought the television view in front of you. Debate the levels…..consider the “dips” – seriously…..gimme a break.

I’m pissed.

I’m pissed at you – actually……and totally disappointed to say the least.

Good luck – we “may” see you soon.

Kong…………………………totally “gone”.

 

 

 

Event Risk – How To Handle It

Forex Kong 3 Comments

We’d all like to think we’ve got a handle on what’s going on out there. Ideally, we make the right decisions and we make money. Over time the day to day decisions made when trading simplify, and for the most part become pretty routine. Should I buy this? How many contracts of that? Is this looking like a turn? Is it time to sell? – All pretty standard stuff.

However once in a while something “else” comes along….”an event” let’s say – that brings with it much larger implications and ramifications should one “not” make the right decision – and unfortunately find themselves on the “receiving end”.

I believe that tomorrow’s FOMC statement from Mr. Bernanke satisfies all the needed criteria, and more than qualifies as such an event.

Event risk is on.

Now. Everyone has it in their mind of course  – that they have “foreseen” the likely outcome (as every evil, narcissistic , arrogant, big shot trader normally does right?) But more importantly do they know “how the market will interpret the information”?

Getting it right yourself is fantastic – and good for you! But….will the market see things the same way that you do? Will the market move in the same direction as you? How can you be certain? What makes you so sure? What in god’s name will you do if you’re wrong?? All things to consider.

I for one can only speak of my own experience, and after as many years have found a relatively simple solution. I clear the deck of any and all tiny outlying positions ( for good or for bad ) and look to re-enter the market after the fireworks have played out.

When it comes to forex – any level of price that is seen “frantically flashing in front of your eyes” during the excitement will be found happily waiting for you again  on the other side……. only hours later and with a much stronger sense of direction.

I like to pick things up then.

For The Love Of Trading

Forex Kong 4 Comments

You really do have to love it.

Getting in there and slugging it out day after day takes a considerable amount of mental energy,  the ability to remain disciplined, means to handle your emotions and undoubtedly a “love for the sport” – as you’d likely be crazy to consider doing it otherwise.

I had suggested in previous posts that 2013 was going to be extremely difficult to navigate, and that many would unlikely have the ability to trade it well – or even trade it at all. I myself have been challenged on numerous occasions so far this year, and it doesn’t appear that things are going to get much easier.

Perhaps today we will get our “bounce” in USD as well risk in general – as both USD and JPY have more or less been trading flat here, and the commodity currencies continue to struggle.

You want to see strong moves in both AUD as well NZD as solid confirmation that the world is buying risk. An “up day” in the U.S stock markets isn’t gonna cut it.

My feelings are that the larger money isn’t interested in any “realllocation” back into these currencies ( as both have taken a considerable beating over the past weeks ) – and are likely sitting on the sidelines (much like myself) looking for a touch higher prices to continue selling at.

U.S Bond Auctions – Part 2

Forex Kong 6 Comments

Ok…let’s get back down to the auction hall for a minute, and quickly envision we are in attendance at an auction where everybody and their dog wants the bonds that are for sale. I’m picturing something like you see at those big American auto auctions with colored ribbons flying everywhere, thousands of spectators, the lights, the energy , the electricity in the air! woohoo! Ok now we are talking! Let’s get in there and buy ourselves some bonds! Woooohooo! I’m buying bonds!

We’ve got China…I see Japan, Brazil! There’s Switzerland! Canada’s here! Norway! France! Holy shit! The entire planet is going crazy for these bonds! I gotta get my bid in! I’ve gotta get noticed here – I need to get those bonds!

Ok I need to relax.

Obviously this is not the case – but you can appreciate that under “normal circumstances” the purchase of U.S bonds / debt has had much greater appeal in the past, and that a “bond auction” would include a host of other characters aside from a lone bearded man in a Radio Shack suit, loafers with a vinyl duffle bag. By way of  sheer competitive bidding, the prices of bonds stays high – the rate of interest needed to be paid stays low.

A healthy, attractive investment environment in a country that is flourishing – attracts sizeable interest in its bonds. The bondholders win with a secure investment, and the country issuing the bonds wins with its ability to raise money, with very low rates of interest needed to be paid.

Trouble is – when a country can’t attract interest in its bonds, they are then forced to “incentivize” these purchases by raising the rate of interest paid out! In order to get the inflow of foreign purchases in bonds…the price of the bond falls…and the rate of interest needed to be paid out increases. (For example at one point during their crisis – Greek bonds payout rate climbed as high as 27%! – which we all know is unsustainable)

As much as you may have heard of the Fed’s current strategy of “stimulating the economy” with its bond buying – nothing could be further from the truth. The Fed is printing dollars to buy bonds as to not let the planet at large see/realize what real trouble the U.S  is in. If the Fed stopped buying bonds ( like 80 some % of available bonds every month ) the rate of interest would rise so rapidly as to signal the entire planets investment community ( much like in Greece ) – My god! – Something is very wrong over there! Look at those bond rates! If a Government has to offer such a high rate of return on its debt – things must be going down! Big time!

Frankly,everyone already knows this but the point being – the Fed cannot possibly stop its bond buying purchases now, as there is no one else there to buy them.

Unless they are prepared for complete and total “meltdown” and are willing to just face the music – the can will be kicked along a little further, then further – until the rest of the world makes the decision for them.

And the bond hall is “closed for renevations or until further notice”.