Articles

Macro Lesson 3: Yield Curves

Thus far we've talked about inflation and central banking. Both subjects we're pretty broad and you hopefully learned a thing or two that will be helpful to you in your sentiment analysis process going forward. Today we're going to shift gears a bit though and talk about a tool that you've probably never thought to use in your trading, the granddaddy of all economic indicators: the yield curve. For those of you who are new to this indicator, the above is a yield curve. Specifically the US treasury yield curve. And while at first glance it probably doesn't look like much, this is the single most important chart for all assets traded on any market in the world. But before I dig into why, I'd like to point out what your looking at... First of all, you can get the yield curve for any country you want to look at in Eikon by clicking the orange circle > charting > curve chart. If you don't have Eikon - and for the life of me I don't know why you wouldn't, you canGet it here Thus far we've talked about infla ...

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How to Harness Volatility

Trading the right markets The Swiss National Bank has recently attracted more attention to the Foreign Exchange market than ever before. Once again, at the Order Flow Trading Academy we wish to keep aspiring traders on the right path and away from trends like this. Many traders are attracted to FX because they are told that it's the “most liquid instrument to trade”. In a previous article we touched on the actual issue of liquidity in the FX market – which is being reduced, not augmented. In this article we are going to explore the actual value – if any – of liquidity and what is instead important for trader profitability (big hint: volatility!). 1. Is there a link between Liquidity and Profitability Let's go straight to the point: when I was learning how to trade, liquidity was the last of my problems. As an individual trader, I am so small compared to the whole market that everything actually felt overwhelming. While liquidity IS an issue for large traders and funds, liquidity is not the key to individual ...

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How to Bounce Back From Trading Losses

Trading brings out the best and the worst in us, mainly because it stacks us up against the most difficult thing to accept: uncertainty. As humans, we just don't like the fact that even through extensive work and preparation, things can still go sour. What's worse is that things can go sour even when we do the right thing, which can be really difficult to accept.

One trait that allows successful people to bounce back from failure is a resilient mindset. In this article, we're going to explore what separates those that can get back up from those who just get beaten by their situation.

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The Role of Soft Skills in Trading

For most of my adult life, I've had a problem. While I've always been great at analytical processes like logic and dealing with numbers, I was at best socially insecure. For many years I went out of my way to avoid people. I didn't have many friends and those that I did have were kept at a distance. And the very idea of actively trying to make new friends was utterly terrifying. That was my problem really. Being insecure about my social skills meant a constant fear that I would say or do something foolish in the process of socializing and be forced to bear the emotional turmoil that comes with rejection. And it was debilitating. There was a time not long ago when I feared ordering a pizza over the phone and would make my girlfriend do it for me so that I wouldn't have to confront my social anxiety. Let's just say it was pretty bad. So when I tell you that the application of soft skills toward growing the fund is the highest and best use of my time, you should appreciate how hard it was for me to get there. Wh ...

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What it means to dream big

I recently re-watched Wall Street Warriors, and while I was watching it I was struck with a flash of valuable insight. In the second season of the show there is a 28 year old private equity guy named Brett Hickey, who at the time of recording had over $100m under management. As I'm watching this show I find myself asking a question; how is it that this guy at 28 years old has already accomplished so much? I'm 39 and I still haven't come anywhere close to that level of success. Which really got me thinking... What is the difference between him and I? How is it that this kid can be 10 years younger than me, yet he's pulling down orders of magnitude more money? Is he really so much different? Is he better? Was he imbued with some massive advantage that I wasn't? In short, why him and not me? Then I started thinking about a friend of mine. He is a very successful man. He's built several multi-million dollar a year businesses, he's been 100% ethical in the process, and he really makes sure that everyone who is a p ...

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How to Build a Trading Position Properly

Over the long run, it's difficult to keep a 70 to 80% batting average. One way to secure yourself some leeway is to maximize your efforts when things are going well, so that you can survive the less than stellar periods. In this article, we shall explore some logical ways to compound a position.

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The Mindset of a Predatory Trader

You will get as far as you believe you can Every day, we subconsciously filter information. How do we filter it? Through the lens of our beliefs. Our beliefs heavily influence how we feel and think about everything in life and in trading, our beliefs can literally determine our results. What we believe about anything, determines how we react to it. At Order Flow Trading Academy we believe that you can learn to change your mindset and view the markets through an objective lens. In this article, we shall talk about how to change your mindset and your beliefs, in order to become a consistent market predator. 1. Beliefs If you believe in nothing, you will fall for anything – Peter Marshall What is the key to a person's success, in any aspect of life? What the best in the world usually say is something like “loosing my first championship”, “losing my first round”, “the school of hard knocks”. It seems that early failure goes hand-in-hand with future success in many cases. Why is this? Because failure helps people ...

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When to Follow vs. When to Fight

Here at the Order Flow Trading Academy, we talk a lot about sentiment, and we also talk a lot about the fact that FX is probably the most complex asset class to analyze and trade. In this article, we're going to bring forth a possible explanation of why this may be, and propose a time-tested routine on how to stay focused and find your way around FX. What is “the crowd”? “The law of an organized, or psychological, crowd is mental unity. The individuals composing the crowd lose their conscious personality under the influence of emotion and are ready to act as one, directed by the low, crowd intelligence.” - T.T. Hoyne An illustration of “the crowd” from Alessandro Manzoni's The Betrothed. Take one person, separate him from everyone else, and he will make some solid, logical decisions. Put the same person in a group of highly influential people, and the decision-maker will become the decision-taker: from following his own ideas to following others'. This is the madness o ...

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Sentiment in FX

How to find your way around At the Order Flow Trading Academy we talk a lot about sentiment, and we also talk a lot about the fact that FX is probably the most complex asset class to analyze and trade. In this article, we're going to bring forth a possible explanation of why this may be, and propose a time-tested routine on how to stay focused and find your way around FX. Sentiment in FX What drives sentiment in FX? What do we, as traders, need to take into account when asking ourselves “what is driving price”? Market sentiment in FX is driven primarily by economic news and geo-political events, which of course can be related to the short term (like a FOMC meeting) or medium term (like the current tensions in Iraq which have been going on for a few weeks at the time of writing this article). So before even looking at charts and setups (I know, we're all chart junkies up to a certain extent), we need to find out what's going on in the World. Where can we find out what's going on in the world? Eas ...

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Trading Through Anxiety

  The Mind-Body Response by JupaFX Trading is a very difficult job, not only because of the technical requirements but also because of the mental toughness and discipline it requires. As traders we are constantly making decisions and we hope for the best outcome knowing that the worst outcome might materialize instead. In a decision context, such unpredictability or uncertainty can evoke threat-related information processing biases and emotional responses in our body, which systematically alter decision making. In behavioral economics, two forms of uncertainty are distinguished that influence human decision making in a suboptimal manner. The first form, risk, refers to a choice in which there are multiple potential outcomes with known or calculable probabilities. A second form of uncertainty, ambiguity, refers to a decision context in which there are multiple possible outcomes with unknown probabilities. In trading, we confront both of these situations and in this article we shall explore ways to cope ...

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How to Specialize

Matching personality with strategy by JupaFX When subscribers ask in our Live Trader Chatroom, “What's the best way to use the order flow and sentiment concepts?” they usually get hit with an answer that they do not expect. The answer goes something like this: “It depends on your personal way of approaching the market.” In this article we shall try to explain better what exactly we mean. The fact is that everyone tries to play the trading game “correctly,” either from buying on strong sentiment, buying pullbacks or shorting the rallies, fading the gaps, or whatever it may be. That’s all fine and good, but the real question that needs to be asked is, “Do we play the right game for ourselves?" Does the style we use in our trading really fit our particular profile or personality?” Getting to the top Many traders believe the key to achieving the top level of success in the markets involves mastering technical indicators and important fundamental rep ...

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The Endless Edge

At Orderflowtrading we proudly profess the use of “sentiment” as a strong tool to possess and use. In this article we are going to explore another use of sentiment on a much longer time horizon and applied to another asset class. We are going to attempt to identify sentiment-based stock investments. Not trades; investments. So for a moment let's step outside our circle of comfort and leave the exciting world of short-term trading to explore a longer term application of sentiment in stocks.   A Definition of Sentiment Market sentiment is a sort of latent process that describes the overall emotional state of the market or of the investors. We're really talking about the realm of “feelings”. Feelings about something or another always represent expectations, although not necessarily rational expectations like Modern Portfolio Theory would have you believe. Market participants build an emotional connection similar to a marriage to an investment. You project love and hate on t ...

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The Perfect Trade

What's behind the need for perfection? by JupaFX   Are you trying to become the perfect trader and trade anything and everything? Are you trying to get that “perfect entry” ? Are you trying to dream up the “perfect strategy”? Are you constantly waiting for the “Perfect Trade” that will solve all your financial problems? Look around you: are you in the perfect house? Do you drive the perfect car? Do you eat perfectly cooked meals? Know this: your quest for perfection is a mental trap. It can be detrimental to your health and your wealth, so pull up the perfect chair and read through.   Perfection is a Mental Trap Just imagine the situation: you're working on your perfect system. You spend all your free time working on this perfect system that generates only profits and no losses. You study, study, study, and study again! Then at a certain point, you trade it live. For a while things go well...then you lose! And again you stop trading, go back to studying ...

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Why Traders Fail

It's not what you're expecting by JupaFX There have been literally thousands of articles written on this subject with thousands of different answers. Why do newcomers fail at trading? In this article, I'll give my own answer which is primarily based on the sheer volume of learning required. Put simply, that learning comes from surviving and becoming educated over a very long time. All of this leads us to a bigger question: How can you survive long enough to prosper? What Business Are We In? It's been said before in a past article, but as the Romans used to say, “repetita iuvant.” We are in the realm of proprietary trading. That means that we risk our own capital in order to come out with more than we went in with. This is totally different from the Sales Trading or Market Making positions that big Investment Banks host. Sales Trading and Dealing are commission-based activities that are meant to create liquidity for market participants (their clients & counterparties) while taking on as ...

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Reflexivity vs. Orderflow Mindset

Was George Soros an Orderflow Trader? by JupaFX After a few very pragmatic articles, we are going to face a more theoretical question this time. In particular, we are going to attempt to understand more about the Orderflow Mindset by comparing it to another very interesting mindset and theory: Reflexivity. Why is this important to the common trader? Every trader/investor must have a “world view”, a philosophy of why things work the way they work, and therefore a way of discerning exuberance and/or wishful thinking. If you can think objectively and be a keen observer of what happens in the markets, you will gain an edge over those who get so caught up in their thinking that they start to draw conclusions out of thin air. Having a mindset, and understanding that mindset, gives you an edge.   My Understanding of Reflexivity Much of what George Soros has written and spoken about has somewhat of a philosophical imprint to it. This is fitting because Soros himself didn’t know for a ...

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A View From the Trenches

Folklore and reality of market dynamicsby JupaFX Trading is not an easy endeavor. However, it can be done if you have the correct mental and practical approach. There have been many rumors and folklore doing the rounds lately and in this article we are going to address some of these myths and sayings, in order to keep new and experienced traders on the right course. Accountability is key in trading, so you need to keep it real and know what falls under your responsibilities and what does not. Sometimes it can be too easy to point your finger at your broker, at the market, at HFT, or at the weather. Selected Topics Many new traders, and even many that transition from equities, seem to have some difficulty adapting to the forex market. While having a deep understanding of market dynamics "should" allow a trader to face any situation on any market, let me try to address the issues surrounding FX in particular and explain some of the bits & pieces that have contributed to my own understanding of the oldest a ...

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The Edge – A Trader's Frontier

Being better than a “professional coin flipper” by JupaFX   What is an Edge? How can you find one? Where do you start in your search for one? Shall you stop once you found one? How can you readily quantify your edge? And how many edges can the marketplace host at any one time? A trader's edge is what defines his style and ultimately what differentiates his decision-making process from a coin toss. It's his material advantage.   What is an Edge? An edge is a combination of elements that you have studied that gives you a higher probability of a certain outcome. Essentially, you are making decisions based on something that is better than flipping a coin. The popular belief about edges is that there is something that a trader knows or uses that gives him or her an advantage over the entire marketplace. Some retail traders believe that using a particular indicator (e.g. the RSI or Bollinger Bands) in a specific manner (e.g. shorting when the RSI is above 80 and/or shorting when price ...

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How to Create a Portfolio in Excel

Spreadsheet basics for efficient portfolio construction by JupaFX In the last article, we introduced the concept of portfolio trading as a way to diversify your funds away from the day to day noise and stress of active trading. We also covered the basics on how to formulate your objectives and your initial asset allocation. In this article, we will take the discussion a step further and illustrate how to create an efficient portfolio using Microsoft Excel or OpenOffice. Darkstar and Efficacy have both created and shared examples on the OFT forum. This article is for those (like me) that are less acquainted with matrix algebra and want to see a step-by-step process in writing. Asset Selection Just a quick reminder on this whole process of Portfolio Optimization. One of the main problems of the whole sub-prime crisis was the faith put in mathematical models. In the large investment banks, complacency took over and everyone forgot what the word “risk” really meant. Also, the Optimizer is ...

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Business Cycle Basics

How to Tie Together the Business Cycle and Asset Allocation by JupaFX In the last article, we explored a basic way of finding the optimal portfolio composition, given certain constraints and certain assets. In this article, we shall explore a simple way to understand which group of assets might be better suited to enter into the optimization process. We will do this asset selection process based on our beliefs of the current state of the business cycle. Investing and the Business Cycle Stated simply, the business cycle (which is also often referred to as the economic cycle or stock market cycle) simply refers to alternating periods of simultaneous expansion in economic activities, followed by a similar contraction in the same activities. This sequence is repetitive, but is not periodic, meaning that a business cycle can last from a few years to more than a decade. The business cycle approach offers potential to take advantage of relative sector performance opportunities. As the probability of a ...

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Price Action Patterns

Price patterns are visual representations of human behavior and occur often and in similar form because human psychology doesn’t change. Every price print, bar, or candlestick is formed because of decisions that have been made by active participants in the market at that point in time. As traders studied charts over time, they noticed certain patterns repeating and have developed strategies to make their own trades based on these patterns. In today’s markets, many traders use price patterns as entry signals and thus create strong order flow that we, as order flow traders, can use to our advantage. Because our goal is to metagame the participants that use this style of trading, it’s important that we stick to the most popular and widely used patterns. We’ll be looking at the 5 major price action patterns that have found their way into current market lore.   1. Rectangle A rectangle formation is about as simple as its name implies: it’s defined by an upper horizontal l ...

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What Are Binary Options?

Options, investments, or coin-flips? by JupaFX In the past few years, binary option brokers have been sprouting up like mushrooms all over the globe. It is time to look into this financial instrument and weigh its pros and cons. In this article we will explore the world of binary options and brokers that offer them, while finding out exactly what they are and if they can actually help us diversify our portfolio.   What are Binary Options? Generally speaking, an option is a financial derivative contract that gives the trader the right to buy or sell an underlying security at a fixed price (strike price) by a certain time (expiry date) in the future. The party holding the right is the option buyer; the party granting the right is the option seller. Looking at your standard plain-old vanilla options, there are two types: a call option and a put option. A call is an option granting the right to buy the underlying security at the strike price; a put is an option granting the right to sell the underly ...

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An Introduction to Portfolio Investing

Tired of Timing the Market All the Time? by JupaFX Why can portfolio investing be interesting? Investors, whether they are individuals or institutions, may choose to hold “portfolios”, which is a fancy name that means “a collection of various securities”. Much of the innovation in investment research over the past 40 years (since Harry Markowitz presented his dissertation) has been the development of a theory of portfolio management. The question it attempts to answer is, “What rate of return will you demand in order to hold a risky security in your portfolio?” To answer this question, we first must consider what type of investor you are (what objectives you have), how to define return, and how to define risk. Another interesting question is, “Why should we be interested in portfolio investing, if we can just trade forex or futures as usual?” The answer is diversification. Just like holding a portfolio of various securities can decrease the actual risk of ...

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How to Trade with a Day Job

Work Smart, Not Hard by JupaFX Trading is a job that can accommodate many different styles, needs, and objectives. Trading is also a job that can give you a great amount of flexibility and can function as a side job that takes up very little time of your day. Yet, for some reason, when newcomers envision their future trading selves, the perfect scenario is something like staring at 10 screens for 10 hours a day and making a bunch of trades. If that's your dream, then you can make it happen. But that may not be the most profitable proposition and it's definitely not what trading is all about to everybody. You can be a market professional and trade well on only a couple of hours a day of work, allowing you to keep your day job. Reality Check Let us start off by addressing a harsh reality: the vast majority of the people that aspire to trade for a living do not have enough capital to make it. Realistically speaking, the amount of risk capital (i.e., capital you can afford to lose without having to cha ...

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Market Structure and Why Other People Matter – Part 4

  Part 3: Empty Baskets, Empty Wallets Part 4: Big, Bad Buyers and Supersize Sellers A quick warning here: This part will be a little bit complicated, so take your time, follow the pictures, and don’t be afraid to go back and re-read. Here we go!   When the numbers on the big board changed, everyone at the market was in awe. Remember, this entire idea of people coming together specifically to buy and sell is brand new and strange already, not to mention someone actually posting their prices on signs. Everyone was previously accustomed to simply speaking about the agreed value of their items and dealing with the same person and same price for every trade.   Forming this concept of a dynamic, changing price was mind-blowing, especially since they already had to re-construct their mental framework on how to make trades in general. Given their daft inexperience with this structure, fear began to set in. After seeing price increase, they couldn’t help but feel like price would b ...

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How to Build a Trading Plan

“If you fail to plan, you are planning to fail!” – Benjamin Franklin by JupaFX Visualize this: you decide you want to be a full-time trader and dump your day job. You wake up the next morning, turn on your computer, sit on a chair (or at a standing desk) and open up your trading platform. Then what? Do you scan the markets? And for what? Is it even the right day to scan the markets? And what markets, for that matter? The very idea of trading professionally seems alluring because nobody can tell you what to do, when to do it, or where to do it. But at the same time, nobody is there to tell you what to do, when to do it, or where to do it. Let’s work on setting up a plan for you to keep your trading day organized and effective.   What is a trading plan? A trading plan is a complete set of rules that covers every aspect of your trading business, right down to your lifestyle. In itself, this is not an exploitable “edge”, but over time the trader with a plan wi ...

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Central Banks Hawks vs. Doves

by JupaFX   Most central banks have a mandate that requires price stability (low inflation) and high employment. This dualism actually creates tension because actions that focus on one side can worsen the other, making the whole thing a balancing act. If a central bank expands its balance sheet - buying securities in exchange for liquidity - in an attempt to stimulate the economy and create jobs, the risk increases that inflation could become a serious problem. Even the “doves” know this, but they tend to think that temporary blips above the inflation target (which is usually around 2%) are acceptable. Let's clarify the distinction between hawks and doves and see how the most influential central bankers match up. Hawk vs. Dove: What does it mean? The terms “hawk” and “dove” are used as a slang to describe the attitude of a policy maker towards inflation. Hawks worry more about inflation, doves worry more about employment. Just like a hawk kills, then eats, so a ...

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Why is Market Microstructure Useful?

The role of private information by JupaFX The market microstructure approach focuses attention on dispersed (often asymmetrical) information and how this information is aggregated into the marketplace. We always talk about sentiment as the current expectations of market participants regarding the future; the microstructure approach deals directly with how the order flow on a certain security directly influences the future dynamics of price. As such, understanding market microstructure is directly related to understanding order flow, with both tying into market sentiment. While traditional technical analysis supports the “weak form” of the efficient market hypothesis, microstructure work has demonstrated how various groups of players actually have access to different information. All of this information is relevant but only a part of it is price sensitive. So when we speak about order flow from a microstructure perspective, we are speaking about informed transactions.   Important dif ...

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Spot Forex vs Currency Futures

By JupaFX It's about time to start thinking about alternative ways of trading currencies. The recent FX probes have been shedding light on many unethical practices, among which “banging the close” (i.e., price manipulation done by colluding banks right before or at the London fix) took the spotlight. The bottom line is that regulators are really digging deep into the opaque FX trading practices at tier-1 investment banks, while regulated exchanges are starting to enhance their product offerings, investing more into FX products to attract clients that no longer have faith in the traditional spot FX market. This brings us to a very pertinent question: If the spot FX market is showing some flaws, what other vehicles are available for trading currencies? The easiest answer is currency futures! And in this article, we'll compare spot FX and currency futures to see which one is right for your own necessities. What are currency futures? A currency futures contract is a standardized and easily tran ...

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The Importance of a Trading Journal

Honing in on Homework: A Thorough Look at the Use of a Trading Journal by JupaFX In this article we're going to explore a subject that everyone talks about but very few explain in detail: record keeping. Unfortunately it's one of the boring aspects of trading, but just as good businesses do their book keeping, good traders that treat this as a business should have flawless records. 1. The Importance of a Trading Journal In previous articles we have touched on the importance of maintaining good records. But why exactly is it so important to have good records in the first place? Keeping good records acts like an attentive coach, quickly spotting where your problems are. For example, at a certain point of my career, I had a tremendous win:loss ratio but I still managed to lose money. My trading journal told me what I was doing wrong: cutting winners at their knees. The journal also informed me of what I was doing right—cutting losses equally fast—but when looking at the whole picture, my average win wa ...

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Price Action – Pt 3

In this third extension, we will go over the topic of refining our entries even further using a technique known as “blind touch trading”. This is an advanced lesson and if you found your way here without reading Part 1 and Part 2, make sure you go back and absorb that information. Some Prerequisites First Without the proper background knowledge, you’ll find this entire article to be confusing and unhelpful. Before going ahead, there’s a set of skills you should have. 1. You should be able to determine these areas of interest on your chart: · Support and resistance levels · Trend lines · Fibonacci retracements · Big round numbers · Significant moving average 2. You should also be able to identify these key price action patterns when viewing candlesticks: · Outside bars · Pin bars / Dojis · Inside bars All of the above should be old news to you. You’ve recognized, analyzed, and acted upon these things numerous times in the past. Again, if you need review, look back at Part 1 and Part 2. If not, le ...

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Value Investing - Basic Concepts and Issues

What is value investing? It’s an approach to investing in stocks where you buy companies that are fundamentally strong when you can enter at a price that is less than what they’re worth. At its heart, there are only two major concepts involved: The Uncertainty of the Future & The Margin of Safety Uncertainty of the Future The first concept is just as the name description implies: acknowledging that the future is uncertain. This acknowledgement is why the focus is investing in fundamentally strong companies, as they have a higher probability of coming out ahead of their peers through time. This also lends itself to viewing diversification as a main cornerstone of value investing because it’s still possible for a company or even several companies to fail despite everything good we can see about it at present. You don’t want all of your eggs in one basket when that basket is about to be set on fire. How do you determine if a company is cheap at its current price? In general, this first involves a careful ...

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We're giving away free stuff!

We want YOU to choose our next giveaway so head on over to Facebook and vote!  https://www.facebook.com/OrderFlowTrading

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Buy the Rumor, Sell the Fact

    What do Wall Street Maxims Mean? by JupaFX Triple Witching? No one can beat the market? Short Skirts? Never fall in love with horses or stocks? There is certainly a wide array of popular beliefs that have stem up from the “street” during the years, but do they still apply today? In this article, we'll explore some of the more robust beliefs from Wall Street and find out exactly what they mean and whether they still apply today. 1. Nobody can beat the market We really don't know whether this belief came from a broker or from a professional investor. It seems strange that an industry built on profit making would actually suggest that nobody can beat the market. So let's dig into it. Who on Wall Street can profit from this belief? Index funds, mutual funds, pension funds, and any passive investing approach. Most of the asset managing that goes on is actually passive in nature (replicating market indexes or some other similar strategy) so the managers can collect their commissions and manageme ...

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If the Russia-Ukraine Crisis Were a Bar Fight

Russia walks into the bar, feeling pretty awesome for throwing a massive party that everyone went to. There he sees Ukraine in a drunken mess, crying and beating himself up over all of his personal problems. This hurts Russia to watch because they used to be pretty sweet bros and even though things have changed, he hates seeing Ukraine like this. Russia also realizes this could be an opportunity to help Ukraine pick up the pieces and rekindle their friendship.

Before Russia can step in, European Union has a hunch what Russia is thinking and wanders over to Ukraine. European Union basically tells Ukraine, “I’ll be here for you buddy. I’ve got your back. But, you have to promise me you won’t get deeply involved with Russia again.” Russia gets a little irritated by this, but maintains his composure and offers to pay for Ukraine’s drinks because he knows Ukraine’s having some money troubles.

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Hive Minds: How Pokémon Anarchy and Financial Markets are Ridiculously Similar

A little over three weeks ago, a genius social experiment was unleashed upon the internet. If you aren’t familiar with Twitch.tv, it’s a website that allows gamers to stream their gameplay to the web while adding commentary, building followers, and all of the things that come with the social media experience. As fate would have it, one user decided that just having a community watching other people play wouldn’t be nearly as interesting as letting an entire community collectively play a single game.

The end result is called TwitchPlaysPokémon and it’s equal parts hilariously frustrating and downright impressive. Through the chat input, users simply type ‘left’, ‘right’, ‘a’, ‘b’, or ‘start’ to mimic the button options of a Gameboy. A code was written to take those inputs and enact those commands into a virtual copy of the original Pokémon game that all of those users get to see. An interesting twist is that these commands aren’t registered immediately, but instead lag 20-60 seconds behind...

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One way of using information

A key to being a good trader is the ability to deduce future price movements. It is about finding situations where people will move the market in your favour after you enter a trade. There are many ways to skin a cat. All methods are valid as long as they have an edge and work for the individual trader.

The most popular approaches to trading in recent years revolve around information in the charts, namely technical analysis, tape reading and price action trading. It is no surprise that they are popular given the ease of learning and somewhat mechanical applications.

But, given that we are living in an information age, it seems pretty wasteful if traders are not making use of information available outside of the charts (I shall refer this as outside information from this point on) to improve on their own performance.

There are many ways to using outside information to get what you need.

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What is Benchmarking?

Performance measurement is generally viewed as an objective process, and we have covered various statistical metrics that can be used in a previous article. However, there is one subjective element that cannot be underestimated: benchmark selection. Professional investment managers must adhere to very strict criteria for performance reporting, and yet they are generally free to choose the benchmark they compare their performance against. Active managers that strive to attain alpha, frequently criticize benchmarks. Managers that have difficulty attaining alpha, instead, can't live without them. In this article, we shall try to understand exactly what the purpose of a benchmark is and why the big fuss about them.

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What are Central Banks - The big boys in the park

One of the main drivers of the currency market in particular, is interest rates. Interest rate differentials create the Carry Trade strategy, and they also influence currency trends. Basically, interest rates (and thus, yields) drive money flows, so it's only natural that we would be interested in knowing who commands interest rates. Central Banks command interest rates, and we should get to know them better. Just remember: it's not the actual level of the interest rates that's important; it's the expectation of where rates are going in the future that drives our day-to-day flow in the markets.

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Trading Metrics - How to measure your trading success

After you have been trading for a certain period of time, recording your trades and creating a performance track record, you're ready to evaluate your results. But how do you define “good trading system” vs. “bad trading system”? And how can you showcase your results, in order to attract capital or investors? Many people simply look at the net profit assuming the system with the more profit must be the better system. It's like a doctor saying “this man looks healthier than the next” without doing a proper tests. In this article, we'll explore some solid metrics to evaluate your trading results that can tell you much more about your trading than the mere profit margin can.  1. Why do we need performance metrics? Imagine wanting to allocate capital to a trader that has a proven strategy. You have many traders to choose from, that trade many different “systems” they have created. Which one do you choose? There is no one single score you can use that ...

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CFD TRADING - Contracts for Dummies?

Contracts for Difference (CFDs) are an important financial innovation, and their use by hedge funds and individual traders has grown exponentially over the past few years, especially in the UK, Continental Europe and in Australia. CFDs are mostly traded OTC and only the ASX (Australian Stock Exchange) has been providing some standardized regulated CFDs since 2007. But what are these CFDs exactly? Why do our forex brokers seem to be continuously enhancing their product offering with more CFDs? Why should a trader prefer a CFD over a stock or future trade? Let's try to answer these questions in this article.   1. What is a Contract For Difference?   CFDs are future-style derivatives designed such that their theoretical price (without transaction costs) should be equal to the price of the underlying security. They provide traders with the opportunity to take highly leveraged (margined) “effective” positions in stocks or other traded financial instruments without actually owning them. & ...

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What is Price Action (Pt. 2)

In this second article, we will cover slightly more advanced topics on understanding price action: how confluence can increase confidence, how some indicators may be useful to gain perspective, and how we can use multiple time frames for fine tuning entries. If you missed part 1 of this two-part article, read it first and understand just What is Price Action? 1. Price Action: What We Know In the first article on price action trading, we have shown how price movement is determined by investors' decisions in response to a complex mix of psychological, sociological, political, economic and monetary factors. We, as chartists, have chosen to study the visual representation of actual exchanges made, which is reflected in the current market price of the asset traded. By doing so, we are avoiding as many abstractions as possible because we are only interpreting what we see play out. We have also seen how Japanese Candlesticks can help up us understand the current psychology playing out in any given moment ...

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What is Price Action

In the following two articles, we will cover the topic of understanding price action. As market participants, we cannot ignore the messages that price action leaves behind as it moves up and down on our charts. The key is knowing what to look for and where to look for it. 1. What is Price Action and Why is it Important? Price action of currencies, stocks, bonds, or financial markets in general, is a reflection of human nature. Price movement is determined by market participants' decisions in response to a complex mix of psychological, sociological, political, economic and monetary factors. Price action trading is done by measuring the strength of these price movements while staying alert to potential changes. On the surface, the line between Technical Analysis (TA) and price action trading is blurred, as both methodologies look primarily at price itself and draw predictions from it. As Edwards & Magee put it in Technical Analysis of Stock Trends, Tenth Edition, “Technical Analysis is the science o ...

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After Hours Trading - What is Pre and Post Market Trading and Should You Care?

There are many different markets to trade: Equities, Bonds, FX, Futures...and each one has it's own peculiarity. Today we'll talk about one of these peculiarities in Equities trading: the pre-market session and the after hours session. It's true: you can actually trade before the bell, and you can trade after the close – but is it really worth it?   1. After Hours Trading in a nutshell     Trading before the bell or after the close is very different than trading during the normal market hours. We will talk about after hours trading in reference to the NY trading session because it is  arguably the most important stock trading session in the world, even if it's not the only market that offers after hours trading (in fact, the Italian Stock exchange was the first European market to offer After Hours trading in May of 2000).   To understand the main differences between the regular session and the after hours sessions, just think of the participants that are acti ...

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ORDERFLOW GAME PLAN 2.10.14

  Planning the week ahead   In this weekly report, we will try to direct our attention to the currency pairs and assets that are most likely to offer trading opportunities during the coming week, based on a combination of sentiment, order flow and price action analysis.   1. On the docket for this week   Taking a glance at our calendar we can notice the more important news events for the week. For the coming week starting Feb 10th  2014, the main events are:   Monday: JPY Current Account, CHF Unemployment, OECD Leading Indicators, CAD Housing Starts.   Tuesday: AUD Home Loans-Housing Index-NAB Business Confidence, US Redbook, Yellen Testimony   Wednesday: AUD Westpac Consumer Sentiment, FOMC Fisher Speaks, CNY Trade Balance, CHF CPI, EUR Industrial Production,  UK Inflation Report & Carney Speech, FOMC Bullard Speech, ECB Draghi Speech, US 10YR Auction & Federal Budget Balance   Thursday: AUD Employment, CHF PPI, ECB Monthly Report, US ...

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Gaining an Edge With Order Flow Trading

Use the news or miss the clues by JupaFX Some say that “Free things are worth what you pay for them”. I disagree. Orderflowtrading.com has a FREE Forex News feed that keeps traders connected to every major and minor market event. Trading happens in real time, not on historical charts. Sometimes what you don't know can seriously affect your bottom line. Every trader has a different way of using the information, so here is how I worked the Order Flow News Feed into my trading plans last week. What we saw coming into Jan 27th Going into the week, EurUsd was on everyone's radar. There were sellers at 1.3700 but the flow was still to the upside. Late Monday morning, the newsfeed reported the following:     If you read the Orderflow Mindset Lessons, you would know you have some options available when seeing this type of information, depending on your personal objectives and the market context. So if you were a shorter term trader, you might have used the intraday move to target t ...

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ORDERFLOW GAME PLAN 2.2.14

Planning the week ahead by JupaFX In this weekly report, we will try to direct our attention to the currency pairs and assets that are most likely to offer trading opportunities during the coming week, based on a combination of sentiment, orderflow and price action analysis.   1. On the docket for this week Taking a glance at our calendar we can notice the more important news events for the week. For the coming week starting Feb 3rd 2014, the main events are: Monday: AUD Building approvals, CNY Non-Manuf. PMI, Spanish-ITA-FR-GER-EU-UK Manuf. PMI, US ISM Manuf. PMI, CAD Manuf. PMI Tuesday: RBA Decision, GBP Construction PMI, US Redbook & Factory Orders, NZD Unemployment Wednesday: SP-ITA-FR-GER-EU-UK Services PMI, EU Retail Sales, US ADP, CAD Building Permits, US ISM Non-Manuf. PMI Thursday: AUD Retail Sales & Trade Balance, CHF SECO Consumer Climate, GER Factory Orders, BoE Decision, ECB Decision, US Nonfarm Productivity-Trade Balance-Jobless, CAD Trade balance & Ivey PMI Frid ...

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Go With The Flow - Jan 27 - 2014

Planning the week ahead by JupaFX   In this weekly report, we will try to direct our attention to the currency pairs and assets that are most likely to offer trading opportunities during the coming week, based on a combination of sentiment, order flow and price action analysis. 1. On the docket for this week Taking a glance at our calendar http://www.orderflowtrading.com/ForexNews/EventCalendar.aspx we can notice the more important news events for the week. For the coming week starting Jan 27h 2014, the main events are: Monday: Sunday Night sees BoJ minutes and Trade Balance; Monday sees GER Ifo, US New Home Sales, GER Weidmann speaking Tuesday: AUD Nab business conf., UK GBP, CAD GDP, US Durable Goods and Consumer Confidence Wednesday: GER Consumer Climate, UK Nationwide HPI, FOMC Meeting, NZD Building Consents Thursday: CNY HSBC Manuf. PMI, SP GDP, GER Unemployment, US Jobless – GDP – Pending Home Sales, NZD Trade Balance Friday: JPY Unemployment – CPI – Ind. P ...

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Do Forex Brokers Hunt Stops?

It's a common question that many aspiring traders ask at one point or another. So I figured I'd offer up my thoughts on the subject.

Want to learn more about how you can protect yourself from stop hunts? Or better yet, to learn how you can earn consistent trading profits by hunting peoples stops yourself? Check our our Order Flow Trader Education Program


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Bull and Bear Markets - Not Your Granddaddy’s Definitions

You’ve seen these terms explained before, right? 

Well if you haven’t, now you have. This is how a “bull market” and a “bear market” are defined in the classic sense. I’m here today to shit all over that and explain the relevance in today’s markets and hopefully leave you with something new to consider.

Usually when we talk about a “bull market” or “being bullish”, we’re simply referring to rising prices; we expect price to rise or are describing a market that is in an upward trend.  When using the terms “bear market” or “bearish”, we simply mean we expect prices to go down or are observing a down-trending market.

But in the definitions posted above, there are two pieces of additional information that are critical: time and emotion. Bull markets are characterized by their slow, steady climbs and are due to investor confidence and optimism. Bear markets, on the other hand, are nearly the opposite: they happen quickly and powerfully with fear, panic, or uncertainty to blame. Again, these are more of the classic definitions but that’s exactly why they can actually lead us to some pretty awesome underlying knowledge.

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Painful Losses: How to Deal With Them

Fact & Fad about Prop-Trading Pt.4
by J.C.Paolini

In this last article of 2013, we shall confront our worst enemies: losses, and ourselves. Through personal experience, I'll show you my journey through torture and pain; how I tried to learn from every loss; how I tried too hard to learn from every loss; how significant every loss was; and finally, how dumb and stubborn I was. Losses are the cost of doing business. There is no way to avoid them, so the best practice is to learn how to manage them early on in your trading career. Get your mind around this task and the pain of trading might even dissipate...

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