Forex Market Movers video
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2022 was a terrible year for most traders !!
In 2022 almost all money managers lost money, because Bond and Stock prices fell sharply. On average hedge funds lost 20%. Traders that speculated on stocks alone lost money, as did traders that speculated on bonds and commodities. Everybody’s pension fund, across the whole world, LOST MONEY !! It was the worst year for trading performance since the stock market crash in 1929. ALL my Forex traders made money in 2022. Yes that is a bold statement, but it is true.
Would you like to know how?
Forex is not a leading market. Forex currencies FOLLOW what happens in the bond and stock market. So understanding everything about the bond and stock markets is critical if you want success as a Forex trader.
In my experience you need to do two things to be a profitable Forex trader:
- Have a simple mathematical approach to your profit target and stop loss strategy. That is what my book is about, and is very easy to implement.
- Have a thorough understanding of all the markets, especially the bond and stock markets, and study them every single day. This is not easy and takes months to master.
I talk a lot more about this in the video above. The video also explains WHY it is the bond and stock market that move first, followed by the Forex market, most of the time. There are some occasions when a currency may LEAD the market and take on it’s own life. For example, let’s say that the Australia has some VERY positive economic news. This might make the Australian dollar stronger for a period of time. However, even when that happens, if the bond and stock markets are in what is called a ”risk off” day, the it doesn’t matter how positive the news from Australia is, the Australian dollar will weaken, because of the bond and stock markets ”risk off” sentiment. My point is that the bond and stock market ”dominate”, and the other markets generally follow.
It will take about 12 months to get very good at understanding the markets as there is a lot of financial information to learn about and interpret. At that point you will be able to make money every single year, without stress, regardless of how the bond, stock and commodity markets are performing.
Consistent profits without substantial risk can ONLY be achieved trading Forex, because Forex FOLLOWS the other markets. It does not LEAD the other markets. Consequently you don’t have to GUESS what might happen today or tomorrow.
Of course you need to speculate. All traders have to do that. But speculating based on solid facts, and based on events that you can see unfolding in the bond and stock markets, is a lot easier, and less risky, than placing money on a stock, or a bond, or a commodity by guessing that it might go up or down.
In addition, currencies have much less volatility than the other markets, so you don’t have the wild swings we get in those markets. This makes it easier to trade the news and information that you read about every day.
For the retail trader, like you and I there are about 3 clear Forex trading opportunities per week on average. YES…just 3 !!!
Don’t be fooled by anyone that tells you any different. Most of the moves you see in currency pairs are random and caused by big institutions(mainly banks) changing their Forex positions and trading in the interbank market, which they do every day. Most of their positions are multi-million dollar trades, and they move the Forex market. Ten banks account for 80% of the volume of Forex traded daily, and they have teams of traders that trade longer(monthly) and shorter(usually weekly) trades, with occasional daily trades. These are the trades that truly move the currencies up and down. The bank traders focus on what the Central banks( Fed / ECB / Bank of England etc.) are doing, and what the economy is saying about a possible recession(or not.)
They also consider geopolitical influences, and how Mega Cap stocks are poised. All this factors into an overall ”sentiment” that they have, which can change quite rapidly depending on all those abovementioned factors. In fact the ”sentiment” can go from good(risk on) to bad(risk off) from week to week, and occasionally from one day to the next.
The banks then place trades based on a number of facts, including the ”risk” tone, which then points to particular currencies that they favor. It is those currencies that are then traded. Most of the time there is a specific CATALYST that triggers a currency move that the banks trade. However there are quite a few ”catalysts” in the markets each week. The skill is in knowing which catalysts are the most likely to be traded by the banks and which ones are not.
So the banks speculate based on a rational, logical argument for one currency to stay strong, and another to stay weak, for a period of time (day,week,month.)
Given that a few very large positions are taken every week by the banks, it follows that if we want to be profitable we should try to take the same types of trades, and take advantage of the moves(based on a catalyst) that those big players create, and this happens only a few times per week. When it does, to the knowledgeable trader, it is clear and obvious.
ALL the other moves you see in the Forex market are random and caused by many factors including global trade, commercial producers hedging, some retail traders gambling, and many trade exits(closing out of existing trades) by the big ten banks I have mentioned.
A trade exit by a bank can fool many traders into thinking that there is an opportunity. For example, you may see a currency suddenly strengthen or weaken significantly. Take any currency, such as the British Pound. If it strengthened one day with no CORE reason for this to happen, it is highly likely that a large bank closed out a short position that it had on the GBP, making the GBP appear to be strong for a short time. A lot of retail traders then ”chase” that fake strength in the GBP. Or let’s say that the New Zealand dollar weakened with no CORE reason to do so, then it was probably a bank closing out a long position that it had on the Kiwi, making that currency appear to be weak for a while.
The banks also speculate heavily in the Forex market via something called the ”carry trade”. Carry trades are not something that retail traders can take advantage of, but we need to be aware of when the banks are taking carry trades because we can piggyback those moves.
However, again, they do not happen too often.
So…it may disappoint some to hear that almost all the short term ”trends” that you see in currencies each day are actually random, and completely un-tradeable.
This is why most technical analysis is useless, and it is the number 1 reason that around 75% of Forex traders lose money. If you want that 75% figure verifying go to the home page of any Forex broker. By law they have to let you know what percentage of their Forex trader accounts lose money. So at the top or bottom of the website you will see the figure. It averages around 75%.
The bottom line is that to be profitable you have to be knowledgeable and only trade the clear and obvious opportunities, of which there are about 3 per week. To acquire the knowledge you MUST spend 30 to 45 minutes every day reading up on the markets using two or three Market News and Forex websites, or watching Bloomberg/CNBC for the latest developments in the bond and stock markets, particularly the U.S stock and bond markets.
This approach to making money is what I call COMMON SENSE FOREX TRADING
If you take the common sense approach to Forex trading you have a very good chance of being consistently profitable, year in, year out.
I have been doing it for over 10 years. So can you !!
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