Lessons from the Pros


As The Crow Flies

What is the fastest and most logical route from point A to point B? Without question, the answer to this simple question has the simplest answer of all: a straight line. Sometimes you may have heard a distance referenced as being a certain number of miles “as the crow flies,” because this is the distance directly from one point to another without any obstacles in the way. In many aspects of life I have found that the simplest approach tends to be the most efficient way to do something. Adding moving parts to a machine will always mean that there are more aspects to the machine which may need maintenance in the future or just that there are more things which can go wrong! In trading, the very same rules apply.

If you are hoping to achieve consistent, low-risk profits in your FX trading, I would strongly advise you to think about adopting this “as the crow flies” philosophy into your trading as well.  But this can often be a far harder task than people first think and it is very important to recognize why this is. Of the many misconceptions there are about the currency markets, I would say that the two biggest challenges the FX trader faces on a daily basis are with the economic news releases which come out daily, and secondly with the conventional forms of technical analysis which they are using. In the last few years, there has been a constant stream of information and opinion flowing out of the European markets, with this all having huge repercussions on the prices of the EURUSD. Ask anyone on the street what their thoughts are about the future of the single European currency and they all have an opinion!

Do we think this is a good thing? Well some would say that it isn’t, as it makes it tough to make the right call on the market when there are so many relentless factors potentially shaping prices. On the other hand, I would say that myself and the students of Online Trading Academy’s Extended Learning Track (XLT) think that all the rumors and conjecture are a great thing, but only if you know how to objectively recognize Supply and Demand imbalances in the market place beforehand. These are the areas where the biggest players in the FX markets are likely to be entering their orders to buy and sell, these players being the major institutions and banks. These groups are smart enough to understand that markets exist to facilitate trade, nothing more and nothing less. Are they really concerned about how accurately prices reflect the true fundamentals of the Euro or are they looking to buy the currency as cheap as they possibly can and sell as high as they can?

Let’s look back to a snapshot of a recent XLT in the currency room which I was leading on August 2nd:


 What you are looking at is a snapshot of the XLT room with me leading the session and the students attending live and typing their questions in the chat-box. On the right of the shot, is my own screen being shared with the students in the room. At the time of the XLT session which was precisely 8.20am London time (see the time highlighted in green) we were looking at the EURUSD and objectively planning out our institutional demand and supply levels where we would be willing buyers and sellers accordingly, as marked in purple. These were the areas where we would be happy to get involved in the market – not in the middle where we were at the time. Only a novice trader would jump into the market in the middle of nowhere without any kind of plan in place. Our levels of objective supply and demand offered us the lowest risk and highest reward opportunities available. We were looking for the cleanest opportunities which were easy to identify according to our plan and finally which offered the best reward. This approach is vital at all times to help to keep us as unemotional as we can be and to stop us from being influenced by the factors around us. On this particular day, staying objective was even more vital than normal because we had a very busy economic calendar ahead of us on that day: 

There were data releases of high priority, including the Spanish 10 year Bond Auctions, Interest Rate statements for both the British Pound and the Euro, ECB Conferences and US unemployment claims to boot. It was a packed day to say the least. Now, the real question I want you to ask yourself at this point is this: do you think that the institutions and major banks were looking at this economic date beforehand and trying to figure out where they were going to trade, or do you think they already knew what their plan would be in advance? Let’s take a look how our levels worked out later in the day: 

As it turned out, the day became an incredibly volatile one with swings on the EURUSD between our demand and supply levels as expected which was a range of around 200 pips give or take. It was the trading in the middle of these levels which would have been the high risk and low reward trading for a novice. It would have been the novice who would have attempted to decipher the economic data and been chopped to pieces, whereas the professional patient traders (institutions and members of the XLT) waited for price to come to them, set their stops and placed their targets and allowed the market to do its thing as planned.

If you are looking to be right more than wrong when you are trading, instead of becoming consistently profitable from implementing an objective core strategy, then I would guess it is turning out to be more frustrating that you originally planned for. If instead you are happy to just trade what you see rather than trade what you think, you have already managed to sharpen your edge in the marketplace ahead of the rest. As we spoke of at the start of this article, the quickest way from point A to point B is direct as the crow flies. Do you want low risk trades? Do you want objective opportunity? Do you want consistent profits? If the answer is yes to these questions then you need to learn to think and act like a professional institution or bank and these groups always look to travel the path of least resistance…maybe you should too. I hope this helped.

Have a great day,

Sam Evans


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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