Lessons from the Pros


Sometimes Finding Good Trades Takes Patience

What with Brexit news going on forever and the continual concerns about the health of the Global Economy and the future of Interest Rates, is it any wonder why FX markets have been so indecisive over the last few months? I have heard many a complaint from traders about how hard they are finding these conditions, but still you need to learn how to adapt. I have found myself sitting more on my hands and waiting for only the very best trades to come along. You can’t force a trade when it isn’t there.

Traditionally, it has been said that the global FX markets offer some of the greatest Trend Trading opportunities across all financial instruments, and many speculators have enjoyed the benefits of such market conditions over the last few years especially. In the early days of my own career the phrase, ‘The Trend is Your Friend,’ was drilled into me repeatedly by my teachers. It’s a lesson I have passed on to my own students for when the time is right to follow a trend. However, we must remember that markets are not in trend mode all the time, even in the world of FOREX.

All markets are in a constant state of evolution and any consistently profitable trader, FX or otherwise, adapts their techniques to suit market conditions. If you have been focusing on just trend trading strategies over the last few months, then I hope you have kept those stops pretty tight as the market has been far from forgiving. Don’t get me wrong, I always like to get involved with the latest trend, but I learned quickly that the market will never do what I want it to do. With that knowledge, now I just sit back, analyze the playing field and pick my plays to match the action. Take the EURUSD over the last few weeks for example:

Forex EURUSD stock chart showing a clear downward trend

Here we can see price action on this currency pair dating back to January of this year. During this period, it is clear that there has been a slight downwards trend in the market with some wild swings thrown in from time to time. These swings made it hard to join the trend without getting stopped out, only to then see a sharp upwards reversal in early March which came from nowhere. Or did it?

From previous articles I have written you will know that we follow the laws of Supply and Demand in our trading strategy, giving us a simple rules-based approach to finding opportunities in the market for all different styles of speculating. If we can clearly and objectively identify the buying and selling activities of the groups which have the most influence over the movements we see, namely the banks and institutions, we can also attempt to buy and sell in the same areas with a high degree of accuracy. These areas, or supply and demand zones as we call them, give us a clue as to where the best place to buy or sell is, also giving us the chance to increase our reward to risk ratios and join new trends when they begin, rather than late in the run. Look on the FX chart below where this upwards price movement on the EURUSD originated from:

Forex EURUSD stock chart showing a demand level

Notice the strong move created from this imbalance? Only a group of institutions could create a move like this, so in conclusion, this is where we should be buying too. And if we got it wrong, then the risk would be small in comparison to the profit achieved. Getting in near the start of the turn in price should always offer the most safety and best profit potential. Buying high after a period of buying or selling low after a run of selling is entering the game far too late, well after the big players have scored their points and headed home with the prize money. Unfortunately, this leaves most chasing the market and depleting their account balance too! Using our core strategy of identifying our zones ahead of time gives us the edge we need to get into the biggest moves before they happen and well ahead of the trend. The Trend will be your Friend most often if you are part of it at the very start.

Free Trading WorkshopDealing with uncertain markets can be tough for any trader. If you aren’t a fan of these scenarios, there’s nothing wrong with sitting on the sidelines and waiting for a new trend to develop. In fact, I would praise any such trader for their discipline and having a strict set of rules, as these are two of the major components successful traders follow. And let’s face it; the trends are where the big moves really do come in. However, markets statistically only trend 40% of the time and there are plenty of opportunities in ranging pairs to look for, if you have the right set of tools for the job. Using Supply and Demand has always given me a solid, objective approach to follow without letting my opinion get in the way. I hope you can use a similar method for yourself in time.

Be well and take care.

Sam Evans – sevans@tradingacademy.com

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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