Forex Trading 3 – Market Positioning and & Market Expectation
Rohit Malhotra | Apr 04, 2020
This is Part 3 of an audio podcast on a guide to forex trading, where we talk about the essential tips and tricks to keep in mind to maximize your returns.
Keep that confidence! You’ll need it. But make sure to come along in this series of essential tips to prepare you for the adventure ahead in the Foreign Exchange Markets.
Welcome back to the Mindwealth Audio Visual MWAV Podcast. I am Rohit and we’re going to continue our series on Forex trading today.
In the last podcast, we talked about being smart while preparing to invest. Who to watch and listen to. We also explained why research is so important in the FX markets.
These questions were meant to make you think, and they’re not meant to be easy to answer immediately, so take some time to mull them over. Before you do though, let’s get to the tips for today’s podcast.
As a trader, it is important to have a stoic perception of the markets. Good or bad, it is just another movement in time. If we can remain objective to the happenings of the market, we will understand market perceptions and expectations.
Start staying on top of ongoing US data releases and trends. Essentially every week, the US releases a slew of economic data. The below link may be helpful.
Depending on the data released, the prevailing wind in the markets aka the mood of the markets and how the market “feels” positioning wise, currency prices and the prices of various asset classes rise or fall.
The better you are at sitting back and watching different “feels” rise to the surface, the easier it will be to see trends, expectations, perception, and so on.
As mentioned in part 2 of this series, you need to be aware of all data released and what it signifies but you cannot blindly trade in the obvious direction.
So for example. let’s say the US trade deficit increased by 1.3% year over year. Economically that may be bad for the USD in the short term.
In a market where the expectations were for a decrease in the deficit or a small increase say, this may imply a trade idea of selling the USD against some other currency.
However, what if the expectation was precisely an increase of 1.3%? Is the data release of 1.3% a good number for the USD?
How is the market positioned when the data is released? What is the market focussed on that day – Retail sales or something else?
Thus data overshoot or undershoot versus expectations matters. The open interest in the market matters. The market sentiment matters. The focus of market participants, on Retail Sales versus, for example, Inflation or the next Federal Open Market Committee or FOMC meeting, may matter.
The first day of my career in a “dealing room” as a rookie foreign exchange trainee-dealer was most instructive. I saw 3 Forex traders trade after the release of US data. They did not do a great job.
Between them, they contrived to lose an amount of money equal to the then-prevailing cost of an MBA at Harvard. In a weird way, this experience gave me confidence that with attention to detail, and following some of the rules mentioned below, surely I could do much better!
To summarize my learning that first day: Good data is not always “good” and bad data not always “bad”.
It really depends on how markets are positioned, how crowded the markets are and what the mood or sentiment is. So, consider data, understand it, but do not trade blindly on data until you have all, or at least enough of the facts or you could get blind-sided.
You may already be asking, how could one comb through the scores of data released nearly every day and discover trends and patterns?
The answer is in SENTIMENT ANALYSIS AND CAPITAL FLOWS
Be aware of capital flows, market positioning in futures contracts or ETFs (exchange traded funds).
This will be of interest if you are interested in the US or emerging markets – both equity and debt markets.
For example, epfrglobal.com covers over 100 emerging and developed markets and gives daily, weekly and monthly updates.
Other sites like stockcharts.com, sentimentindicator.com provide a rich repository of charts and data indicating to what extent market participants are bullish or bearish versus historical bullish-ness or bearish-ness. All these are very useful in avoiding mistakes and optimizing your trading entry or exit.
As you begin your journey in trading in the Forex markets, be aware of the slew of data and analysis that are available to you each and every day.
Take your time to discern what data has what effect relative to the market expectations and perceptions. This is a time when having an objective view may prevent you from making a trade based on your personal opinion.
Sometimes we may find something personally appealing and want for it to succeed, but the market could have other ideas.
MindWealth offers transformational coaching programs to a global audience helping you make it in your career, grow your wealth and achieve mindfulness mastery.
Follow us on Facebook and Instagram at Mindwealthco. Connect with us at mindwealth.co. Elevate your story with MindWealth.
Our next part in this series will be our last. We’ll talk about technical analysis and your end-game.
I’m Rohit and I’ll see you in the next one.