“If I can trade stocks profitably, I can trade anything profitably”. This is a common belief that many aspiring FX traders bring with them when looking to transition to the Foreign Exchange market. But trading EURUSD is quite different than trading Apple.
In this article you will learn what some of the differences are, and how mimicking the routines of experienced FX traders can facilitate your transition from other markets to FX.
London: the Main Money Center
Currency markets trade 24 hours a day and a simple way to follow the flow of information and market movement is to focus on the action within each main money center (Tokyo, London, New York). Market wraps are quite popular in FX because traders located in the various money centers, before opening their trading stations, will scan the news to understand what developments there have been in the previous session.
London still remains the principal money center in FX due mostly to it’s geographical location: it picks up part of the Tokyo business day and it ends well into the New York business day. Along with the rest of European bourses (Frankfurt, Geneva and Paris) there is a decisive pickup in liquidity, transactions and thus price movement, if compared to the (usually stable) Asian session.
Large corporate flows or M&A activity (real money, as it’s called in jargon) happen during the London business day and fuel the trendy moves that happen at or near the start of London.
Another, more quantitative way, to view the importance of the London business day is to compare the average range in Asia to the average range during London and New York. In a sense, FX markets “wake up” during London and that’s why one of our trading models attempts to capture this dynamic in a rules-based fashion.
How To Trade The London Open
Our model is a short-term trend/momentum-based strategy which combines the experience and analytical prowess of our team, with a sentiment overlay and clear risk management.
Yesterday’s London Open Signal, sent to clients ahead of the Eurex Open.
Most aspiring traders believe that entry tactics are the most important ingredient. We respectfully disagree and have evidence on this. Steve, Alan and Justin work in a rules-based fashion to identify background conditions that create a positive expectancy. This is then issued to clients ahead of the Eurex Open.
The team does this by using the same analysis methodology to scan various markets and work in a top-down fashion:
- what are indices and commodities doing?
- what are the strongest and weakest instruments?
- what is current sentiment on the leading instruments?
- what broader trend & momentum signals are the daily and large hourly charts showing us?
- are there any overbought/oversold readings?
- are there any key levels to pay attention to?
- is there any event risk or holiday that could invalidate today’s analysis?
Again, most traders that have not been in touch with industry or ex-industry participants tend to believe that “price is everything” and hence technical analysis is the only thing they need in order to profit. Again, we disagree. Our experience tells us that as a rules-based discretionary trader,having an appreciation for market sentiment and key risk events allows traders to avoid unforced errors.
Clients receive our best choice for the day during a very specific time window (from 6.30 to 7 AM BST) and the trade is managed actively depending on how well the market behaves. In the best case scenario, the market continues to trend away from our entry and the trade can be rolled over to the next day. Other times our trades require more of an active approach – for example if momentum starts to shift intraday in an aggressive way (off of a news event for example). However, we are not scalping the market and hence our updates are usually infrequent.
Educational Value of our Trading Signals
Traders that wish to trade the London Open may not have the time (due to a day job) or the experience to tackle the London Open in this way. This is why our signals are built with an educational slant.
Many aspiring traders seek trading tips, trading signals or expert-advisor generated signals in order to copy them without any consideration for the “engine” that generates the trades, therisk-adjusted returns of the model (our London Open Signals have a Sharpe Ratio since inception of 1.53 – although past performance is not a guarantee of future returns), and often have no intention of learning anything about the markets as well!
Traders that do not invest in their own education, and actually want to learn how the markets function and how to “play the game” consistently will have a hard time. Unless you have:
- the same degree of risk aversion
- the same preparation
- the same strategy
you cannot understand why we are trading a particular instrument at that particular time, and why our stop loss is positioned at a certain distance from entry.
This is why we exist. Through our trading signals, not only do you get trades with an edge, but you also get to be exposed on a day-to-day basis to the thought processes and methodsof some of this generation’s premier traders. And you get this in the context of a complete trading frame-work that teaches you all the elements of successful Forex trading – as any good trader will tell you, the actual entry is only about 10% of the equation.
Also, given your risk appetite and objectives, you can modulate your position sizing. This gives you a significant advantage over using some form of copy trading service or managed accountbecause you retain control of the elements of your trading strategy that generate the returns. It’s the “how much” you trade that matters, far more than your actual entry. Think about it. Emulate the practices of top traders:
- Carefully construct your position-sizing model to achieve your objectives
- Have a comprehensive risk management frame-work
- Swing big when the stars align
If you give up these elements, then you give up much of the power in your trading. Instead it’s much better to follow and model the practices of experienced practitioners who have, over the years, mastered this practice on a very subtle level. Finally, we want you to understand what we’re doing. The role of the Trading Tribe is to act as a support group for the traders involved. As another Market Wizard said, “trading is 100% psychology” and it’s being a part of our group that you can understand, inquire, and learn why and how we do what we do.
Over to You
Our London Open Signals are an efficient way to outsource your entry and exit decisions while you educate yourself – through immersion with our team – but that’s not the whole story. By being curious and embracing the trading tribe concept (pioneered by Ed Seykota, Market Wizard) you gain access to information.
Even Bill Lipschutz, “the Sultan of Currencies” admitted that “Foreign Exchange is all about the flow of information”. It’s difficult to compete with traders who can:
- Source trades through a mixture of technical and market factors, using proprietary trend and mean reversion models to aid in the decision making process.
- Through his contact network, acquires market and analytical information.
- Brings together technical, fundamental and information based insights to generate trade ideas.
So why not “outsource” your entry and exit rules to the people in a better position to provide accurate and timely trades? Free yourself of any mental constraints that limit your performance, and use the advantages available to you.
Your trading will never be the same, for the better.
About the Author
Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.