Professional Mentoring for Serious Traders

Forget everything you know about trading.

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If you are reading this web page, it’s because you are either completely new to the financial markets having had prior experience, have found that something in your trading is not working.If something isn't working, there's only one way to make sure it does. You need to take it completely apart and rebuild it piece by piece.

Only by doing this, can you make sure that every single aspect of your trading is working effectively and that you are performing at your optimum level If you have no idea where to begin in the business of trading, if you’ve tried but consistently failed to make money if you are making money but feel like you could be doing better, then this course is designed for you. Whatever your experience level, you’ll receive the skills, the tools, the knowledge and the confidence to trade the financial markets successfully.


In what way is this course different?
This is not just another trading course.
This is one of the most comprehensive trading courses out there today.
It is also completely unique.
The reason for that is simple: it does not simply teach you a handful of "setups".
Successful traders have not simply learnt a setup. They have learnt a process.

I train traders to:

- Understand the dynamics behind the setups they trade
- Understand why some setups work and others don't
- Be able to increase their performance
- Be able to discover new patterns which they have not been taught and which they can successfully exploit for profit

This process is vital because by learning a setup, you are only on the same level as the person who taught you it and everyone else that has already learnt it.
By learning a process, you are given the knowledge to step out in front of the competition.

As a professional trader, I will walk you through each step of this process, provide you with specific exercises
to help you discover and continually improve both yourself and your edge and guide you while you successfully implement it.

How does the course work?

The course teaches the two strategies I use to trade each day.
The first is a trend trading strategy I have been using for over 5 years now.
The second is a short term time frame approach which I learned from the world know forex trader wich can help you reach profitability quicker.

This is done through:

1-2-1 Coaching
It all starts with three 60 minute sessions of exclusive
1-2-1 coaching where you will learn how to read the markets like an institutional trader! That's right - no patterns needed, just real, powerful knowledge that most traders miss! All sessions are recorded for you to keep.

Your Personal Trading Plan
After your coaching session, you are given a personal trading plan unique to you - that's right, a strategy that you can use to trade the markets based on your powerful new "Investor" mindset.

Institutional News Feed Service
Access order flows and information that is only normally available to professional traders paying thousands of dollars.

Follow up Personal Development Sessions
To keep you on a track you also get 2 additional 60-minute sessions on a Tri-Monthly basis.
Study under live market conditions

This course does not rely purely on hindsight examples.
I place equal weight on explaining a technique and then showing exactly where I will bid and offer the market in the future.
It is only by doing this that the student can gain the necessary confidence and experience to trade profitably.

For details please click here

Trade with the Trend (lesson1)

Trade Only With The Trend

The golden rule. The most important rule of my strategy and my trading success: Trade only with the trend. Don't ever break this rule. If You can't stick to this rule, then your no different to the amateur newbie trader.

This is the fundamental rule of all; Trade only with the trend. If you can't execute one simple rule, then you are not a professional. It is that simple; Trade only with the trend, nothing more. People lose money because they don't follow this rule.

"How can you become a professional trader if you cannot execute one basic/simple rule consistently?"
Please, do yourself a favor... first, learn to walk before you try to run.

Success is built upon small steps of achievement. Learn to achieve one task first, then another, then another, then another... and sooner you will meet your success.
You cannot create sentences or write words if you don't know your alphabet. It will be very difficult and most likely be unsuccessful without knowing your alphabet.

The alphabets are the basics... Trading with the trend are the basics... The difference between a Professional and an Amateur is that a Professional have mastered the basics.How far do you think you will go without mastering the basics?

Trader Alen

Naked Charts Trading (lesson2)

Trading Naked is Overrated

I've traded using naked charts and pure price action. There is one problem I encountered. Trading naked charts actually have more subjective interpretation compared to using a simple moving average.

One of my objective in developing and creating my system was to eliminate as much subjectivity and discretion within the system. I discovered a flawed trading with naked charts.
Trading without any indicators leaves room for unnecessary error. Interpretations are slightly more subjective.

A classic abcd formation can occur above and below a moving average. A consolidation can also occur above and below a moving average. If you remove the moving average, you are left with a subjective interpretation whether the formation is within a given uptrend or a downtrend.

By adding a moving average, it will provide you an objective view of the price average within its calculations.

Trading pure price action and with naked chart leaves room for error. Trading naked charts won't solve your problems. Whether you are an experienced trader or not, you are subjected to an error in judgment. Learn to read price action, but don't dismiss the power of moving averages. Don't be arrogant in confidence that price action alone is the answer. Trading naked charts are overrated.

Trader Alen

Probabilities (lesson3)

We are going to talk about probabilities.
This is important if you want to become a professional forex trader.

You need to understand that there are no sure things in trading. They don't exist and as soon as you realize this the better. We can't know what is going to happen in future, so we don't where the currency will go. So what we do we control everything we can till we enter that trade.

We make high probability low-risk trades, we look at fundamentals, technicals, Intermarket, sentiment... we look at strong levels so we can have a high probability trade, and we understand that that trade can win or lose. Once we enter the market we can't control what happens next, we manage it.

That's why you always manage your risk and use stop loss, if you move your stop loss further back you are not accepting that your trade could go wrong.
Dont think in terms right or wrong when it comes to trading decisions, the only right or wrong is if you follow your trading strategy or not.

There are bad trades that lose money and there and good trades that make money. Just because your trade loses doesn't mean you shouldn't take that trade, if you think much about that you will always second guess yourself.

Trader Alen

Why Traders Fail (lesson4)

Number 1 reason why traders fails is

• Laziness

Looking for path of least resistance ( Holy Grail )

Many traders and news traders who come in this market think they will follow signals or someone's gonna tell them where to buy or sell and they will have magical indicator that will predict market correctly and they will be able to make money trading without doing any hard work and that is not realistic because this is profession, with unlimited profit potential and just like any other profession you need to invest big amount of time, dedication and you need to become independent thinker.

• Unrealistic expectations

Many new traders think they will double their account in month or week, some even days and that is not realistic

• Lack of knowledge

Many time traders come and focus only on technicals, they are looking for technical strategy, robots, indicators where they look at charts at their indicators trying to trade markets not understanding fundamentals of the market, market flow, sentiment, Intermarket analysis, equity, commodities.

This is all things you need to understand if you want to become a consistently profitable trader.

• No consistency

You need to be consistent with your approach to the market, you need to have a trading plan, the way you look at the market.

Example: what's happening in big picture fundamentals, what's happening with central banks, then what economic data is coming out for the session then you look at market sentiment, next look at Intermarket analysis- equities, commodities.

Then you can go to your charts and you know what you are looking for, you need to have a proven edge, you don't want to change your indicators every day, week, month.

What you are doing is just find the new strategy or indicator lose and ditch it, then repeat the process over and over again and you will never be profitable that way.

It is the never-ending circle where many traders are trapped.

• Fail to implement risk management

Many traders don't use stop losses, they trade to large lots, risk too much. Don't fall into that trap.

You can blow up your account if you don't use stop loss just on 1 trade, that trade could be fatal to your account, so always use your stop loss and manage your risk, it's the basic thing you need to do.

• Trading Mindset

You need to be thinking like a trader, think in probabilities and understand that anything can happen.

We need to everything to line up so we can have low-risk high probability trade.

It is almost impossible to know where a market will go next.

You need to think like a trader not like a forecaster.

Trader Alen

Your Edge (lesson5)

We will talk about finding an edge.
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.

Rather than spending time trying to find some Holy Grail of trading, why not spend time finding a way to interpret market movements and go with the flow? To convey the point better.
The first thing you need to do is develop your trading strategy that fits your own profile ( I recommend you use my trading edge you will learn later).

There are evidently multiple edges to be exploited. The important thing is that you stick with one for some time and act in a consistent manner before deciding to discard it, continue with it, or modify it. Consistency is the key to building useful trade statistics that will allow you to quantify your edge.

For example, some traders are working full-time jobs, some dedicate the small amount of time to trading.
Those traders need to adapt medium term strategy because they are not in front of charts very often or you could trade very short term strategy wit your time available ( wich I don't recommend and you will learn why).

You need to trade a proven method, for example, I trade one price pattern a lot of the time, I understand it and makes sense to me. You will see these patterns happen over and over again, I keep it simple. It can also be the confluence of support and resistance, fibs, pivots...

Some people go more complicated as Eliot wave where you are labeling all price cycles and predict what's coming next. There is no right or wrong, there is a lot of different traders that trade a lot of different methods like this. The important thing is you are not just focused on technical analysis, as long as you are including fundamentals, market analysis, sentiment when you are applying your edge.

Whatever method you chose you want it to be something you see easily in the market, something that jumps out.
I believe that an edge starts with using a low-risk idea. A low-risk idea is an idea with a long-term positive expectancy, which must be traded with an appropriate position sizing method that allows for short-term fluctuations without compromising long-term results.

Trader Alen

Trading Plan (lesson6)

It is important to have a trading plan.

Always have a structured plan when you look at your charts.

Example: you review your current fundamental situation, you look at central bank information, how are traders positioned, news thats happened for the day or upcoming news so you know on what currency to focus on. Then when you find a currency you want to focus on and go to your chart and find good areas for entering your trades.

Be methodical about how you approach the market every day. This will ensure that you are not overlooking things, or missing things because there is a lot of noise so you need to know exactly what you are looking for every time you are ready to trade.

You need to build a consistent approach to the markets, write down your trading plan and follow it every day until it becomes a habit.

Trader Alen

Fundamental Analysis (lesson7)

Welcome to the course where we talk about Fundamental Analysis.

We will be getting in mechanics in why prices move and what drives the market over the long and short term.
We learn how detailed understanding of fundamentals can help you build your conviction and why this is vital to your trading.
Forex fundamentals revolve about Central Banks of each nation, and the markets expectation what that bank will do next.
The bank uses economic indicators to determine a state of the economy and implement certain tools to help improve those indicators and keep everything stable.
In this course, we will learn about all of that and learn the whole process of analysing and understanding all the parts why fundamental analysis is so important to forex trading.

We will break this concept of analysis into 2 parts.

• Underlying Fundamentals 
• Sentiment

A simple way to understand this is that Fundamentals is the big picture- things that don't change too often, they are driving the price for week and months and sentiment are short term things that drive price over an hour or couple of days.
Sentiment can drive prices against the trend, but the trend will resume at some point and sentiment will fade.
Understanding this 2 concepts and how they work provides us foundations for identifying various trading opportunities over the trading day.
For example, some traders use short-term sentiment to trade the longer term trend while other trades take advantage of sentiment and trade in line with that to make a quick profit.

The concepts you will learn in this course will give you everything you need to identify the trading that fits you the best, would you like to day trade or position yourself for longer term moves in line with underlying fundamentals.
Fundamentals are very important to successful trading, there are 4 central areas to successful trading that you need to learn to become a profitable trader.
This course will give you something called conviction. Conviction simply means confidence, but traders use conviction to determine how good the trade is and how likely it will win.
If you have very high conviction trade based on all the thing you learned in this program, then chances of your success are much higher.
Traders that do not pay attention to conviction levels or simply or don't know how to increase their conviction have very low chances of success.
You must constantly be aware of your conviction and how to measure and how to control it to achieve levels of success that we are looking for.

We will now look at a concept of Intermarket analysis.
It is important to understand Intermarket relationships and understand our process in this as speculators.
We play an important role to market wich is liquidity and better prices to trade from.
Speculators contribute to all markets and generate movements across of all asset classes.
We will look more deeply in markets in other markets being traded, how we can use this information to profit from it and most importantly how they are relevant to us FX traders.
We will look in the futures market and how this helps us in forex trading.

Main assets that that are important are:

• Bonds
• Commodities
• Equities

So let's start with Bonds.
A bond is simply a form of the loan, so you and I would borrow money from a bank or maybe even family but for the very large company or government, this is impossible because banks are not in a position to lend this big amounts of money safely while keeping their balance book balanced.
So these large entities raise money by splitting that loan between thousands of investors in the open market.

Anyone offering bond to investors is called issuer, in exchange of invest of money the government of the company will pay the money back at certain date wich is know as maturity and to the top of this, they pay to investors interest.
This is also called coupon. Bonds are known as fixed income securities course the amount of money we invest or receive at the end of the loan is known in advance and guaranteed by the issuer.
The coupon is paid twice a year and at the end of the period, the investor receives their original investment back.
For example: if you buy a bond with a face value of a thousand pounds and has a maturity of ten years and coupon of 8%. This means you will receive 80 pounds every year for ten years and then original thousand pounds back.
When purchasing a bond you are purchasing debt.

There are 2 main types of bonds

• Corporate bonds wich company issues
• Government bonds wich are directly in ties with interest rates

Because governments are very dependable and stable, the chances of not paying are very low making bonds low-risk investment.
Because they are traded on the open market you can buy a bond and sell it anytime before the maturity date.
Some people get confused by a price of bonds and the yield on the bonds. When pricing bonds it's important to remember that face value is the price we are returned to investment on maturity and the price of the bond is how much it cost the investor to buy of another investor before that maturity date.
When a bond trading a price above its face value then we are trading at the premium, but when it's trading below its face value then it trades at the discount.
The interest coupon can be based on fixed interest rate that is tied to its face value.
For example: if you buy a bond for a thousand pounds and have fixed rate of 10% you will receive 100 pounds each year not matter what happens to markets or in a case of US treasuries it can be tied to the index.
The price of bonds with lower coupon tend to fluctuate more while higher coupon prices tend to be more stable.

The maturity date can be anything from a day to ten years, and sometimes it can be high as 100 years as in a case of Mexico in 2015 when they launched world's first 100-year bond priced in euros.
The length of maturity will also dictate what price it is because the bond with 1-year maturity is much more predictable then bond that matures in 100 years.
The longer the time to maturity the higher the interest will be. Of corse, this all revolves around risk, higher the risk the higher the coupon will be. To help investors handle this risk there are several bodies that alert investors that find the highest and lowest entities out there.
This help investor makes correct decisions based on their own risk tolerance.
There are several grades that split each issuer into investment grade or junk grade.
An issuer with multiple A rating is the highest quality to deal with while triple B or single A rating are still strong.
Anything that has triple B rating or below is considered speculative and much higher risk.
Governments and their bonds that are rated as Junk are not safe and they offer the much higher yield to tempt investor in.
The most confusing part of the bond story seems to be so many prices to measure, to simplify this I will make it as clear as possible.

The Yield is simply the coupon amount divided by the price of the bond, to understand this better we will use the example to explain it.
Imagine you buy a bond that has face value of thousand pounds and coupon of 10% so if the price remains the 1000 pounds the yield is simply 100 pounds per year, however if the price of the bond goes down to 800 yield now increases to 12.5% because the coupon payment is based on the 10 % of the original face value of the bond. This means you will be receiving 100 pounds for 800-pound bond wich is obviously better than 10%. The reverse is true if the price goes down.
So simply when the price goes up the yield goes down, and when the price goes down the yield goes up.
So if you are in the market for buying bonds your primary concern is the high yield but if you are the bond holder and you have your yield already locked in you want to see a price of the bond increase so you can have the option to cash in for much bigger profit later on.
Bonds are in close relationship to interest rates.
Interest rates are important to the bond market as they are important to fx markets.
When interest rates rise the price of bonds in the market fall, so they raise the yield of the older bonds to bring them in line with news bonds that are being issued with lower coupons.
That's why bonds are so effective by rate adjustments and speculation surrounding them.

So there are 3 types of government bonds

• Bills - that mature in less than a year
• Notes - that mature in 1 to 10 years
• Bonds - that mature longer to 10 years

All of this marketable securities from the US government are collectively known as Treasuries.
US bonds are videly watched in the markets because its safest form of investment avaliable because they are issued directly by US goverment.
Other first world governments are also very safe, the UK for example.
Now because secure nature of the bonds the fact that they provide guaranteed payout they are extremely popular by large investments and pension funds from around the world looking to ensure growth in the safest way possible.
Bond markets relate to FX on 2 main levels
Interest rates and speculation - by watching the bond markets we get clues can similar moves happen to FX.
The other correlation for example during times of increased risk or low domestic yields large funds may decide to invest in the bonds of foreign government.
For example UK pension fund may decide to buy some US tresauries in order to protect them to be overly exposed to UK assets.
So to do this they first need to buy US Dollars to and sell their British pounds in exchange.
So by trading the bond market they first must trade the FX market effectively selling the GBP/USD pair. In very large volumes this can have impact on various currencies and it is very important to be aware of it.

The next asset class that impact currency markets is Commodities

Commodities are the product of nature that can be bought and sold.
Traders most commonly trade commodities by futures contract.
The relationship between commodities and currencies is based on how prices of commodities will impact the overall performance of the economy of nation wich is producing it or importing it.
For example: USD/CAD
Canada is major producer of Oil and if prices fall significantly in small period of time it will start to reduce amount of money Canada makes from oil and it will start to effect on GDP and growth of the country.
If the economy stagnates and inflation start falling then Bank of Canada may be forced to cut its interest rates wich, in turn, will cause the currency to devalue.
So if you are trading CAD dollar it is important to look what is happening to Oil market.
It is important to know wich country is heavy dependant to wich commodities and how much the 

focus is market giving to commodities.

The truth is commodities prices move every day but not all of this moves will impact the FX.
If oil prices fall hard in one session because some announcment from OPEC it may not necceserly cause big moves in Canadian Dollar, howewer if it moves in strong trend and it haves very good reason to continue, for example: over supply, the nation decide not to cut oil production this can lead to more concern to FX markets wich can lead to panic selling wich can rise if there is also negative data from Canada.
So the key is not just to watch the commodities chart or to try trade correlation but to tune into markets reaction and find how serious the reasons are, and how it could impact the nations economy.
The main reason traders are confused by Intermarket analysis is that they try to interpret each move as fixed rule.
For example: if oil goes up Canadian dollar must go up.
The reality is that the most of the time the market may not even look at oil prices.
The market is people.
So your analysis should be sentiment based rather then purely price based for the best results.

Another asset class is Equities - or stocks and shares.
Equities are simply stocks and shares of companies around the world.
Traders use the stock market to see how much market is expecting economy of that nation to perform.
So if they are expecting an economy to do well then the stock market will rally and push higher and another way around.
As with commodities, this is not an exact science because most of the time FX markets trade on their own issues leaving the stock to move their own way.
But sometimes they will become obsessed by some company in the equities market.
For example: maybe there is a big sell-off in the stock market and it moves to FX market and creates panic, crushing both markets.
This is the exact type of scenario that occurs and brings both markets into the spot line.
Stocks can be also impacted by FX.
For example: if a company haves many sites around the world then they will need currency of each country in order to pay their staff in those places. This can have the impact on currency over the short term.
If central bank of that nation decides to implement dovish behaviour and leads to depreciate its currency this can impact the future earning potential of companies that export a lot of products abroad.
Depreciation of this currencies can give this company more competitive edge because the cost of the items is now much less wich lead to more profits wich leads to the higher share price.

As you can see all markets are interrelated on many levels and one does not always lead to other and none of them are necessarily related at all.
But when the market has concern and idea on its mind correlations can be very powerful and can lead to very good trading opportunities.

So you need to use a market reaction to know when to be focused on particular correlation.

Trader Alen

Fundamental Analysis (lesson8)

Now we will look closely into Central Banks.

We will look closely in role what they play in the markets.
Central bank is here to make sure that economy stays on track.
We will go deeper so we fully understand their role in the FX markets.
Central banks main job is to control monetary policy and they do this by manipulating the money supply.

This entities are generally considered to be the lender of last resort. When economy is struggling and commercial banks cant cover demand for money Central bank has power with is resources to step in.
In other words central bank is there to stop the banking system as a whole from collapsing.
The primary objective of any Central bank is to provide country's currency and price stability.
It also has regulated authority over nations monetary policy along the sole right to produce and circulate new currency inside that country.
Central banks are completely separated from the government of each nation and their political issues.
Central bank is often termed the Government Bank. They have been around for hundreds of years.
So the central bank plays very important role to the stability of the economy and we will look into each central bank in more detail.

The most important currency in the world is the US dollar making the Federal Reserve the most important Central Bank in the world,
Central bank of each nation is most relevant to each country's currency, but it is very important to understand that most of the time other central banks are watching the FED before making policy decisions on their own.
This makes the FED the big deal in FX market, however the Bank of England, the ECB and the PBOC are also important along with the other banks of western nations.

So lets go through 8 major central banks so we can understand them.

The first bank is Federal Reserve (FED) in the US being the most important bank in the world and having the currency that involved almost 70% of FX transactions each day.
The FED actions can have impact on most of the currencies.
Within the FED there is a group of people called Federal Open Market Committee or FOMC.
This group consists of 7 governers from the federal reserve board and 5 presidents of reserve banks.
The FED mandated is to achieve long-term price stability and sustainable growth and they meet to discuss and change their monetary policy 8 times per year.

The next bank is European Central Bank (ECB).
This bank was established in 1999 and the group of the bank that decides monetary policy is called the Governing Council. The Council consists of 6 members from the board of ECB and governers from each nations central banks.
The ECB likes to provide the market something called Foward Guidance and this means they try to let lots of clues and hints about policy they are going to make and when to minimize market reaction.
Because the more known something is to market the less violent the reaction in the market will be.
The ECB mandate is also price stability and growth but they also want to make CPI growth just below 2%.

Next we have Bank of England (BOE).
The structure is Monetary Policy Committee or MPC wich consist of 9 members.
Governer, 2 deputy governers, 2 executive directors and 4 outside exports.
The BOE is one of the most effective central banks, their mandate is to make monetary policy and price stability.
The BOE monetary policy mandate is to keep price stable and to make confidence in currency.
It has inflation target of 2%, if prices breach that level the central bank will look to curve inflation while the level far below 2% will prompt the bank to boost inflation.
They also meet monthly to discuss and adjust monetary policy.

Next major central bank is Bank of Japan (BOJ).
Their structure consist of monetary policy committee wich is made of BOJ governor, 2 deputy governors and 6 other members.
Because Japan is very dependent on exports BOJ has even more interest then ECB does in preventing strong currency.
The central bank is known to weaken its currency by selling against US Dollars and Euros,
The BOJ is also extremely vocal when it fells concerned by currency volatility and strength.
Its mandate is to maintain price stability and ensure price stability of financial system wich makes inflation cental bank top focus.

The next is Swiss National Bank (SNB)
Their structure is composed of 3 person committee that makes decisions on interest rates.
Unlike the most of the central banks the SNB determine the interest rates band rather then specific target rate like Japan or Eurozone Swiss are also very export dependant wich means the SNB will not have interest in their currency being strong.
Main thing about Swiss is investors see its currency as solid stable thing to invest in wich causes currency to strengthen.
Their mandate is to ensure price stability while taking economic situations into count while being the less active bank.

Next is Bank of Canada (BOC).
Their monetary policy decisions in the BOC are made governing council wich consist of the BOC governor, the senior governor and 4 deputy governors.
The mandate is maintaining the value of the currency. The central bank has inflation target between 1-3%.

Next is Reserve Bank of Australia (RBA)
The monetary policy committee consists of 6 members.
The Central bank governor, the deputy governor, treasurer and 6 independent members
Its mandate is to ensure the stability of the currency, maintain full employment and economy stability.
It have inflation target between 2-3%.

Next is Reserve Bank of New Zealand (RBNZ)
The decision power of making monetary policy is on Central Bank Governor alone.
Its mandate is to maintain price stability and to instability in interest rates and exchange rates.
It have Inflation goal between 1-3% and focuses hard on its target.

Any speeches made by boards or members are important to the market because they have because they have impact on what monetary policy should be.
Each member has a Bias, some of them prefer to keep interest rates low while others think interest rates should be high and that's better for the economy.
One that favor low rates are called Dovs, while the ones that favor high rates are called Hawks.
So we look comments from hawks and dovs that are different from their traditional bias.
For example if a hawk made a speech and in that speech he said he is concerned by economy and how rate cut would be a good idea the market will react bigtime.
Same other way around.
Very often you will see this comments across the news feeds and this can be a great opportunity.
When the economy is doing poorly its usually because money supply is low and the simply way to counter this is to increase the money in the system, if the economy is taking off to quickly this means the inflation got off control and requires restriction over money supply.

The 3 core things central bank can do is:

• Reserve Requirements
• Interest Rates
• Open Market Operations

We have Reserve Requirements, as general rule or commercial banks are mandated to keep certain percentage of their deposits in the bank to facilitate those people that want money out.
These are called Reserve Requirements.
FED for example sets reserve requirements for all banks in the US and the other central banks do the same.
By decreasing reserve requirements less money has to be held back wich means the more money can be lent out and injected in the economy.

The next on is Interest Rates, this is where entire FX market revolve around on daily basis.
FED have charge on discount rate wich is the rate FED charges other banks borrow from it.
They also have control over Federal Funds Rate wich is the bank charges each other for overnight loans.
So for example if the FED reduces discount rate the more banks will take money to reloan out and there will be more money in economy.
This works because interest rates are basically the cost of money. So when rates are lowered the cost of money goes down and money supply naturally increases. The problem with reserve requirements and interest rates are results they can take little longer to filter through then central bank would like.

This is where 3 core area comes in of Open Market Operations.
An Open Market Operation is a way affecting money supply by buying or selling securities and mostly Government Securities. So the FED wants to inject money in the market then it will turn to the market and buy Bonds.
When it buys these bonds it gives a sellers of those bonds money wich in turn makes way to economy.
When FED wants to decrease money supply it does so by selling bonds and collecting money in exchange.
Open Market Operations are reserved when urgent actions are needed however they do also engage in more common form of operation. This is knows as overnight repo purchase agreement.
A FED repo basically alters the money supply by very shoer period of time by temporarily buying or selling bonds.

Trader Alen

Fundamental Analysis (lesson9)

We will look into Economic Cycles and indicators that influence these cycles, and how central bank acts in order to move the economy from one cycle to another.
We will look deeply into these cycles and why are they important.
Central banks perfect scenario is where the economy is growing while their currency stays weak but this never happens because of the impact of various economic cycles.
First, we will look why a state of the economy is important and what role interest rates play in all of this.
Imagine you are the wealthy investor looking to protect and grow your wealth, what would you do?
Imagine you are responsible for a capital of large pension fund with exactly the same goal in mind.
You would want to place capital somewhere where is politically stable with good growth potential and with a high level of interest payouts.
This would be perfect scenario low risk - high reward.
This is why interest rates are so crucial in the FX markets, investors from over the world are looking for places with stability but higher rates of interest on money. So they watch the markets very closely
for any signs of any stable country will start to raise rates anytime soon, and when they do there is flood of excitement and demand as they try to get funds in this country early to take advantage of situation.
Example: if Japanese pension fund wants to invest in the UK then they have to first purchase Pounds wich of corse haves direct effect on the currency. As more investors come in the value of the currency rises and rises until the economy is no longer attractive and it turns again.

Traders like us know this will happen and when economic cycles become improving we try to get in on expected increase by buying the currency ahead of those investors.
Remember we provide the liquidity to the markets wich also means we are lighter and nimble when it comes to getting into the market quickly.
It may take a large fund several weeks to process the transactions and make decisions before converting their huge capital by wich point we are already in and riding the wave up.

This means there are 2 distinct ways to account for:
The first wave is the reaction wave and this are generally speculators try to beat the larger players in the position, and over time comes large secondary wave that is caused by those relocations in investments taking place.

This is one of the key reasons why economic cycles are so important in predicting interest rates and why interest rates are so important in predicting the moves of larger players.
This is the type of information and trading opportunity that speculators exist to take advantage from.
One of the most important concepts in FX is of corse Inflation and Deflation.
Central bank tries very hard to keep their prices rising but only gradually, if prices rise enough that encourages growth and spending because people know in the years time the thing they are considering buying will likely be more expensive so they may as well buy now.
However if prices rise too fast and it can get ahead od peoples earning power and impossible for them to afford goods and services creating the situation like hyperinflation wich kills the economy and destroys the value of local currency.

As currency traders, we need to be aware of any signs that inflation is getting off to high and you will very often see the central bank taking action to stop this occurring.
At the other end of the scale, we have something called deflation and this is where prices are in fact falling, you may think this is a good thing but in fact it can be deadly to the stable economy.
The reason for this goes back to what we just looked at, how good growing economy needs constant consumer spending to keep that growth rate up.
If all of the people think that the item they gonna buy will be cheaper next year then day may just save the money and wait for prices to come down , as a net effect on the economy this can have disastrous results and also something that central bank will do almost anything to stop.
So for major developed economy the sweet spot is generally to be around 2% per year inflation.
The banks will have the tolerance of around 1% before taking action.
The most powerful tool to tackle inflation is interest rates and a simple way of knowing what impact
inflation will have on interest rates is to remember the rule - to cut inflation you need to hike rates and to hike inflation you need to cut rates.
Aside from the main issue of inflation, central banks are also concerned about overall economic cycles because they play the part in a stable financial environment.
Economic cycles are inevitable and it is virtually impossible to sustain economic growth, sooner or later the cycle will change and economic conditions will change again.
This is precisely why there are cycles in first place.

So let's look at this cycles in more detail so we can get a good understanding.
Each cycle is made of 4 phases and they are expansion, peak, recession, trough.

In the expansion phase, the consumer spending is growing especially the purchase of big ticket products, although the interest rates are relatively low at he beginning of expansion they generally rise as the economy grows. Stocks perform well during expansion, including technology companies, durable goods manufacturers, and construction companies.
The currency tends to stop strengthening during this phase as the markets anticipate higher rates to come.
When the expansion is under way it eventually reaches a peak of productivity, at his point business in the economy are expanding however interest rates are climbing because investors and central banks are concerned about risks of rising inflation.
Rising interest rates make new homes less affordable for some consumer, as a result, the number of layoffs rises in the housing sector.
The stock markets anticipate economic peak so it's usually in decline by the time peak arrives.
The currency starts to top out as traders start to anticipate the start of next phase wich of corse will lead to interest rate cut.

We then enter into recession phase and early in this period's sale of the consumer product like cars, begin to fall leaving manufacturers to cut production, unemployment rises, income falls, interest is generally higher at he beginning of recession and fall through recession.
Most stocks perform poorly during the recession but companies like those that produce food,care products, farmaceut firms, financial companies often hold their value because these goods and services are that people need even more when times are tough.
Currency now starts to sell off as the market tries to predict how low the interest rates will be cut and speculators wait for banks next moves to combat a recession.
There are many different causes of recession but there are also few things hat will happen over and over again.
The first thing that can have the impact is rising interest rates conducted by the central bank if the economy gets too strong then inflation will get out of control so the bank needs to keep a closer eye on this and step in if it needs to.
They do this by raising interest rates and try to balance interest rates with economic growth so the economy doesn't grow too quickly and get out of hand.
The bank does not always get this right, for example, in 1982, the Federal Reserve in the US caused major recession because they had to hike interest rates quickly in order to bring down inflation that got over 13%.
Many economists say that they waited far too long to act wich resulted in recession.
Another common cause of recession is that business collect too much inventory this leads to very optimistic view at economy or simply because demand naturally drops.
When the build up occurs many manufactures cut production to bring it back in line, wich then lowers employment and income levels. This then spreads to other sectors and results in the slowdown.

Next we will look in Asset Bubbles.
Asset Bubble is when irrational demand drives up prices for certain assets the one that we would normally consider reasonable.
This happens when investors buy something just to because everyone else is buying it rather than carefully analyzing the benefits for themselves.
You may hear this be called the heard mentality.
In the past, many recessions have been caused by this asset bubbles forming and then selling off sharply when the markets realize what is happening.
This sellofs lead to drops in confidence. In the US massive selloff in the housing market was the reason for recession that started in 2008.

Oil price sharks can also be common sign to economic stability and growth this can occur in spiking prices cuts consumer spending power and increases business costs wich lead to recession.
We have decreased in exports as commom cause of recesion, this is expecialy for the nation that relies haevely on selling their products abroad because this has negative impact on the coutries income and growth.
For example: in 2008 major cause of recession in Germany was the drop in exports that occurred due to financial crisis spreading around the world.

Last phase is trough, during economic trough businesses have lowered prices for big ticket products the economy finds its footing as consumers spending starts to pick up, sells of new homes start to rise as buyers are lock in attractive prices

The stock market tries to anticipate the economic expansion and transportation stocks begin to rise.
And of corse currency traders now start to try to predict the expansion phase wich mean the interest rates will start going up.
This can be volatile for currency prices as the market tries to find the fair value based on upcoming expectations.

Understanding economic indicators will help you to identify this phases.

Trader Alen

Trader Alen

Fundamental Analysis (lesson10)

We will talk about Economic Indicators.

Economic Indicators form the backbone of all trading analysis for central banks and traders and are vital for us to be successful.
Just think about it this is what banks are using to adjust monetary policy and if monetary policy is what traders use to direct their trades, surely it makes perfect sense for us to get into any moves caused by this banks as early as possible.
We can do this by analyzing the indicators and try to work out how will the bank react to them.
So we almost are waiting for them to act in a specific way more rathe then simply wait and see what they do.
As you can probably imagine once you get a feel for each bank and how important are they focusing on each indicator, you can basically position yourself ahead of certain releases ad central bank events because you will know what they steps will be based on what they mentioned in recent past and how their indicators are forming in line with that.

There are around 15 indicators that are vital, but most important thing to bear in mind with all economic indicators is that we only care about is what central bank cares about.
So if they are focused on inflation, then we watch inflation if they switch their focus on wage growth then we become obsessed with wage growth indicators.
By doing this we are constantly tuned in what banks are concerned with and of course, this allows us to get a clue of actions bank may take as this specific data points are released.
And we will discuss how you can tune in into this things later on.

Now there are many indicators released but not all are this important.
The indicators we will look here are known as tier 1 data points, but there are plenty others and this are known as tier 2 data points.
You can research these data points but it's extremely rare that these points move this market.
An example of tier data 2 points include initial jobless claims or natural gas inventories, wich is only watched by specialists and not really by FX traders.
Economic releases are scheduled the week or sometimes months in advance so traders have plenty of time to prepare for them.
The key points to bear in mind they are generally released in the certain order so 1 indicator can be used to next indicator.
An example of this is employment data being lead into NFP but again we will cover this in much more detail later.

When using indicators in your trading routine there are 4 things you must consider all time.
Firstly the key number for an announcement, analysis of indicator, forecast before an announcement, and finally the streaming news of the release.
You will see the indicator announcement released by the news feed by audio squawk first and then followed by text headline with some extra analysis details.
Most important factors for any economic indicator is consensus for the actual figures, and all this means is what analysts and economists think the figure will show.
For example: if the figure comes better then the previous month or worse, and if so how much better or worse.
Traders can then use this number to base their expectations on.
These consensus numbers are generally gathered by major news companies like Reuters; Bloomberg, MNI...
Along with these numbers, they also provide consensus for a high and low figure.
These high and low figures give traders a range to base their expectations, traders then use this information to position themselves ahead of the event.

Just think about that for a minute, professional traders do not generally trade news releases as they are released but more rathe they get in based on thinking what it will be in the days leading up to it.
This is what we call trading into risk event and we will talk more about this later on.
Another factor to bear in mind is that markets will very often pay attention to the numbers behind the headline.
This explains times when we get really good headline figure but the price goes completely the wrong way.
This can be frustrating but there are sometimes things inside the overall figure wich means despite positive headline things are not actually good as it seems.
This concept can apply to any type of a figure and to illustrate it we will use employment data.
So if the employment numbers take higher than expected to show more people than ever are in work you may think this is good, however if on close inspection you find that pay dropped dramatically that's actually bad because the overall standard for people is worse.
So the headline alone is not enough to tell us if its good news or bad news for the economy and the currency as a whole.
This is a classic situation where we get a good headline but the details mean the price will go opposite way, and as traders you need to be aware of this and make sure you quickly research all of the analysis before deciding how you will trade particular event.
Tier 1 data points are more important than tier 2 data points, so generally the market will react to this events first but sometimes this may not be a case.
For example: if the entire market is really concerned about oil prices and the impact falling oil prices will have on inflation then this makes oil inventories much more important in that moment.
If they show oversupply of oil then this means the further decline in price wich can lead to low inflation wich, of course, leads to central bank cutting its rates.
As you can see a lot of analysts are formed from starting point of what the market is focused on most of the time.

This is important to have in mind if you want to be successful.

So let's begin with the indicators that are most important.

First, we have GDP.
GDP is growth indicator, this represents the big picture of economic health and as such it's important to all major central banks.
By understanding this indicator you will also start to understand what leads to healthy economy and insight what makes each component of the figure tick.
The biggest thing to bare in mind by GDP is it helps you think how the economy behaves, and having this kind of insight trading financial markets is crucial.

So let's refresh our memories of what the definition of GDP is.
GDP represents the total production for a country, measuring total production can be quite tricky especially for larger economies but we can try to simplify by breaking it down to 3 core ways of calculating.
So number 1 is adding total spending of economy and 2 is by all of the total income earned by economy and third is by adding value added to each step of production and distribution.
When analysing GDP data markets tend to pay particular attention to the annualised quarterly percentage changes in overall GDP and its major components.
When researching the markets you will come across the term real GDP quite often, so its important to understand what this is and what it means.
Real GDP is simply inflation adjusted to take into account change in value of the currency.
By adjustin figutre for inflation we are able to get much more accurate picture of wether the economy is growing more based on historical trends or simply making more in cash terms but producing less that it was in the past.
Most traders are refering to real GDP when thry talk about GDP, but its worth understanding diferences.

The next indicator we talk about is Consumer Price Index, also known as CPI.
CPI is inflation.
Most developed nations try to keep the CPI reading between 2-3% over the long run.
If CPI reaches the upper band of this range the central bank will increase interest rates to balance growth and to try and slow inflation down.
If it comes in lower bound of the range they will try to cut interest rates to try to spur growth and CPI.
So CPI reading outside the range can be very bullish or very bearish depending on what central bank will do.

The next indicator on our list is Producer Price Index, also known as PPI.
This figure measures changes in prices of goods offered by farmers and manufactures,and financial traders follow this trends as they are released monthly.
This indicator is subject to revision.
If PPI increases expectation by market is interest rates will also increase wich leads to higher currency.

The next indicator we look at is Industrial Production.
This indicator measures the monthly volume of goods produces by industril firm such as factories, mines...
Industrial production can reflect the tone of overall economic activity and positive reading is positive for the local currency, while negative is bad.

The next indicator is Trade Balance.
It measures the imported and exported goods, when imports and spending exced exports and earning country has a trade deficit, wich is neagative thing, because money is flowing out of country.
When exports and earnings exceed imports and spending country has Trade supurlus wich is a good thing for country and currency.

The next indicator that is watched closely by the market is ISM Manufacturing Index.

The ISM Manufacturing index is an index based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries.

The reason traders watch this indicator closey is because FED watches it very closely.

The next indicator is Current Account.

This measures all of the money coming into country and all of the money coming out of country.

The positive reading  can strengthen the currency.

The next important indicator is Unemployment Rate.

This is used by central bank while they are monitoring monetary policy.

The steady rise in unemployment is never good and can indicate detoriation, wich leads to waekness in currency.

The next indicator is Consumer Confidence Report.

The U.S. consumer confidence index (CCI) is an indicator designed to measure consumer confidence, which is defined as the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending.

It is important because it has effect to overall GDP reading, if its positive it can indicate growth to follow.

The next indicator is IFO Business Sentiment.
This gives a good reading of overall economic health.
Growing IFO reading signals optimism wich leads to the strengthening of the euro.

The next indicator is Durable Goods Orders.
An economic indicator released monthly by the Bureau of Census that reflects new orders placed with domestic manufacturers for delivery of factory hard goods (durable goods) in the near term or future. Durable goods orders come in two releases per month: the advance report on durable goods and the manufacturers' shipments, inventories and orders. 

It can move prices in short therm as they are released.

The next important indicator is Home Sales.

It measures the amount of homes sold and available for sale. High reading indicates economic boom and low reading indicates deflation and even recession.

Related to this is Housing Start and Building Permits.

It is also watched carefully by FX Traders.

And then we have most important indicator wich is NFP.

A statistic researched, recorded and reported by the U.S. Bureau of Labor Statistics intended to represent the total number of paid U.S. workers of any business, excluding the following employees:
- general government employees
- private household employees
- employees of nonprofit organizations that provide assistance to individuals
- farm employees
This monthly report also includes estimates on the average work week and the average weekly earnings of all non-farm employees.
It can be the biggest market mover if the central bank is focusing on it.

It is very important figure that of overal economy, it measures the rate of employment in US as a whole.

Trader Alen

Fundamental Analysis (lesson11)

In this section, we will look at Central Bank Tools.

When a central bank is decided that action is needed they must decide what action to implement and how strongly to do it.
Understanding this section will help you interpret news reports and research articles each day and become tuned into markets and most importantly actions that bank takes in such a way to be able to take advantage.
Let's refresh our memory what central bank tools can use to control price stability and monetary policy.
We will break the tools down in 6 categories.
The most important thing to understand about central bank monetary policy tools is they are interrelated to basically achieve the same result wich is to control inflation and economy, ensure growth and keep the value of the currency stable.
If they didn't do this entire banking system would collapse.

The first core element central bank looks to control is the monetary base.
The monetary base is the amount of commercial banks reserves held the central bank plus the amount of total currency circulated in public domain.
In order to control the monetary base is central bank will use open market operations, and you will remember this is simply buying and selling bonds by the bank on the open market.
We looked at how Federal Reserve use something REPOS to conduct this buying and selling.
While ECB in Europe use refinancing operations.
When conducting your daily research you will very often come to terms like REPOS or LTRO.
All this term simply relate to the regular ongoing operations by various central banks around the world to keep the monetary base steady.
This generally has no impact on the market because they are so regular.
For example, ECB conducts his operations weekly and sometimes daily but it's worth understanding what going on when you read this information and how to approach it.

The next concept is Reserve Requirements.
The central bank is in charge of controlling all the commercial banks.
One of the ways it exercises this control is to require this banks to hold a certain amount of assets as liquid cash so it can be used anytime.
By doing this the bank control how much money is available for loans and financial system as a whole.
Therefore if the bank is trying to get the money into the system this is one simple way to achieve that.
Changing reserve requirements to often can have negative consequences creating volatility and fears in the system.
This kind of volatility can disrupt the banking system.
One of the most useful features of central banks tool kit is something called discount window lending.
The purpose of this tool is alow commercial banks a means of borrowing money quickly at below market interest rates.
This is very useful if the bank is going through temporary liquidity issue. By keeping this supply of money available to commercial banks the central bank ensures the stable economic environment that allows us savings and investments wich encourages growth and employment.

Next, we have Interest Rates.
FX world revolves around interest rates.
Interest rates are used as a tool when the central bank wants long term effect on inflation rate or money supply.

The next core element of central bank toolkit is Currency Board.
A currency board is basically where one nation pegs the value of their currency to devalue the another nation's currency.
The local currency is backed by foreign one and if the local bank wants to grow their money supply they first need to increase the amount of foreign currency they have in reserve.
There are 3 reasons the central bank may decide to do this.
First to import the credibility of the foreign nations monetary policy.
Second to maintain fixed exchange rate with foreign nation
A third to establish credibility with exchanges.
A currency board is practically the same as gold standard.
This is tool applied by smaller or developing central banks.
Tolls can be abandoned any time.

 Final concept we will look at is unconventional monetary policy.
This is tools used when interest rates are already at 0 but it's not having a desired effect.
For Example the rate could be at 0 but the economy is still heading to deflation wich we know is very bad.
In this scenario the bank may implement Quantitative Easing wich is basically printing the money to inject into the system via government bonds.
The impact to this is to devalue the currency encourage growth and to stimulate inflation.

Another policy that can be used when interest rates are at 0 is something called Credit Easing.
In credit easing, the central bank will purchase assets from the private sector to improve liquidity and access to credit.
The Federal Reserve performed credit easing in 2010 when it bought 1,2 trillion dollars worth of mortgage securities.

The final tool is Signaling or Language.
This is simply when the central bank tries to signal markets what they will be doing over coming months in terms of monetary policy.
The reason the bank tries to do this is to get desired impact immediately to without a lot of action.
It usually depends on central banks credibility with the market, if the bank is known to be unreliable very often the use of language will fail and a market will not trade as central bank wishes.
Another purpose of this language is to offer stability to the market.
All of this tools are used around the world and our job is to identify what central bank mandates are, what indicators are they concerned with and what tools will they use in order to deal with any issue they have.
The whole FX markets are based around this concept of central banks focus, and when you predict the next central banks move you are on the way to profit consistently.

Trader Alen

Fundamental Analysis (lesson12)

At this point in the program, you may be felling little overwhelmed with all the information that is been presented.
The main reason we include this information is that there are some concepts and words you will be coming across every day as you conduct news and research.
You should have already formed the routine of personal research using the resources you will receive in this part of the course.
Reading list contains the extremely useful sites that contain vital information you will need as part of your trading routine.

The purpose of this section is to take you through that routine and all of the tools professionals use.
Trading firms themselves pay thousands of pounds each month to access this tools and if you are part of the trading floor you receive access to this as part of your desk. If you decide to trade independently then you will need some of this tools to stay tuned into the markets and what the central banks are looking at also.
So let's begin with the general overview of research and analysis in the first place.

It is important to remember the central bank really want the market to know and understand their plans for future monetary policy, the reason for this is because they are focused on maintaining price stability and one of the best ways to ensure this is, is to reduce the amount of surprises the market experience so it's close to 0 as possible.
An unknown something is the more reaction will get.

In 2015, SNB unexpectedly cancels their floor on EUR/CHF currency pair causing the pair fall 40% at one stage.
This move wiped out brokers hedge funds and trading funds in seconds as a scale of the move caught many off guard.
The reason it was so analysis was because it was totally unexpected, just 2 days earlier the bank themselves said they would defend the floor no mather what.
In another example the RBA cut its main interest rate at the beginning of 2015, this can be expected to cause currency fall hard however because of the speculation of coming cut weeks to an upcoming event the price of the AUD/USD rallied in the days following the cut.

So as you can see the information the market already has plays the major role in the reaction when events happen.
Central bank knows this so they will do their very best to provide forward guidance, wich means they will tell the market as clearly as possible its intentions and timeframe for caring those intentions out.
With this in mind, the first place you research and analysis should take you is the central banks themselves .
They realease statements and forecast regulary by their websites , very often traders will focuss heavly on certain words within the central bank release because this words and phrases are the things changed and placed when a policy is about to change.
For example: around 2013- 2014 the Federal Reserve stated that they will likely wait for considerable time before raising its interest rate, traders in markets new that when economic conditions improve the FED will be forced to remove that word from statement, sure enough few months later they removed that phrase and instead stated they will be patient in beginning to normalise monetary policy.
This change may seem small but in the markets, this is the very subtle step to rate hikes, without being so dramatic and cause chaos it the markets.
This is a very good example how central bank provide its forward guidance, communicates the market in tiny little steps any changes its wants to make.

This ensures the markets are very often expecting the moves before they happen and limits the reaction significantly.
By switching to the word "patient" the FED effectively allow themselves more flexibility when rate hike would come and communicates the market that it will happen only if data supported such a move.
This is an example of word games played by central banks around the world.
Very often you will not worry to figure out wich words are important or what they mean because that is a job of analysts to conduct this information for us, so as traders we have a clear picture.

Another concept is the central bank watchers, this very usually journalist is monitoring and studying central bank members and try to decide what central bank may do next.
This journalist usually has very close relationship with central bank members wish sometimes results in leaks happening, wich results in writing article about the next move.
Because this occurs very frequently the market pays very close attention to this watcher and anything they write usually gets significants market reaction.
Very often the watcher will speculate when or how the central bank will adjust its interest rate wich, in turn, is traded on the markets in central bank risk event.
The first step to understanding the central bank is to look at what they themselves say in their speeches and press conferences.
All of this information is freely available on the central bank websites and they are easy to find online.
When you got a good idea of where the bank is and how are they viewing economy the next step is to get a good solid understanding of how the market is interpreting this as a whole.
The simplest way to do this is by following analysts and economists and interpret it too easy to understand actionable information.
This anayists tend to work in a house of large banks and brokerages and post their research on blogs and social media and news feeds, so if you follow this thing you will be updated reguraly.
The job of this analysts is to break all of this information and express it in a way so traders can use it and position themselves in the market.

All major trading firms have the team of analysts working to decode and interpret this information and deliver it to trading team.
Following this research you are geting the exact same edge as all other professionals.
So where do you access this information?
Aside from the resources, I provide the best sources are dow jones, Reuters, Bloomberg, and MNI.
All of this companies have services that professional traders subscribe to in order to access analyst research.
There are also free resources that many professionals use including forexlive that give the detailed analysis.
While trading with me you will have access from this type of research from my service in the same way as any other professional firm, but when you decide to go alone you need to locate and identify your favorite resources.
The guide of all of this is to identify on what the central bank is focused on and what actions they are likely to take next, we do this by monitoring the same indicators, absorbing the research made by analysts and going into conclusion about a most likely move in monetary policy.
By staying tuned into this big picture of each central bank you will know wich way each currency should be trending long term wich in turn will help you whether or not current moves are on or against the trend.
Even the trading smaller intraday moves that may be completely unrelated with longer term picture your analysis will be improved by having this big picture understanding of what is going on in the markets as a whole.

Trader Alen

Fundamental Analysis (lesson13)

In this section, we will talk about Market Sentiment.
Sentiment can be best explained by the mood of the market.
As moods of individuals, it can change quickly for many reasons.
The best way to view the market is as the giant living person, as essentially it's made of thousands of people all thinking and feeling and reacting in the same time in their own unique way.
The market is simply the body of feelings thoughts and actions. If you are short term trader then the sentiment is going to be your primary concern when trying to analyse the market and identify trading opportunity.
There are no mechanical rules regarding sentiment and it can last an hour, day or even several months depending on what it is causing it and how relevant market sees that cause.
Interest thing about sentiment is sometimes the reaction to a certain economic event will be quite strong but few weeks later exact the same scenario will hardly even cause the slightest move.
From this point on you may be thinking the sentiment is going to be tricky to deal with but when you understand the concept deeper you will skill and intuition will improve dramatically to the point you will find a straightforward process to identifying sentiment on any given pair or the reason behind the price move.

The concept of sentiment is similar to underlying fundamentals and the most important thing in trading is to identify the reasons why the market is moving in a certain way. but why the underlying fundamentals tell you why is moving in a certain way over the long term, the sentiment tells us why it's moving the certain way in here and now.
And this is why it's so important for day traders and scalpers, no matter what you are trading the first goal should be identifying the sentiment in the market you are active in.
The sentiment is the form of fundamental analysis but short term rather than the big picture.

As we already looked the golden rule of the sentiment is the more something is known the less impact will have on the market and this is something you should always keep in mind when trying to identify the sentiment and the expected market reaction.
Sometimes the market focus on something but then something else happens and the first thing is completely forgotten instantly but on other occasions sentiment will last for weeks and weeks as the market will become more obsessed.
This is a very good reason to always be thinking in the market as living, breathing person, because often market will display strangely human characteristics of fear, greed and irrational behaviour.
This offer means the market will never be 100% predictable but image if you could tell when it's behaving in this manner you would like to avoid this times, wich will stop you wiping off your profits that you worked so hard to generate during good times.

We will spend most times on looking what types of moods market experiences and common reasons why prices are driven in one way or another during a trading session.

The market tends to be made of 2 distinct moves- Risk On and Risk Off.
Risk on is when the market is feeling it want to hunt the profit because there is no risk in the market at this time and they will trade currencies that give them yield or the good return on their money.
So currencies that move a lot, the currencies that have the highest interest rate attached to it will become the most attractive option for investors and traders.
You will very often see this currencies rally during risk on a session.
Risk Off is when the market sees risk and doesn't want to get involved and they become scared and volatility cause losses so they exit trades in big moving pairs and pairs that have high interest and move to safer currencies.
Safe currency is the currency that has the stable political system...
Basically, the safest currencies wich is usually JPY.

When market goes to this safe currencies during risk off times it is known as safe haven flow,
and one of the most extreme moves in the markets is driven by these safe haven flows.
Safe haven flows occurs when a market is worried or scared to move enough capital from risky currencies to safe currencies.
There are several currencies that are known as safe haven currencies at this times
For example, if war breaks out between Russia and Ukraine and threatens to drag in Europe and the US into it then we have a solid safe haven situation.
On the other hand, if it's some conflict reported but markets don't really react we can be sure this is something that will not concern investors too much.
Very often trade is caught because they try to interpret some event but the actual market just doesn't seem to care about.

So when we get safe haven flow wich currencies are most likely to move?
The US Dollar is one of the key safe haven currencies as we already learned its words most liquid and used currency .
The US Dollar is least attractive safe haven currency.
Next currency is CHF, it is extremely active currency during turmoil because its backed by the country that haves stable economy and political neutrality.
The final currency is most popular safe haven currency and gets most flows during difficult times in the market.
The currency we are talking about is JPY.

Another drive in the short term is something called Option Expires

Almost every day we have these option expires on currencies, but how do they move the price of currencies.
Option expire levels, as reported in a news feed, will very often act like a magnet to a price, so if it large option expires like 500 mil this will get market attention and if it's close like within 50 pips you will notice price will be drawn to these option level.

There are also Algos.
Example: when there is the massive unexpected move in price for no clear reason.
This happen regularly and is called fat finger wich means that some trader in a bank or large fund is pressed the wrong button and enter to market with incorrect trade size wich moves the price heavily.
When fat finger enters the market also are ready and they will trade it back to where it was for a nice profit.
The further the price move in a shorther amount of time the greater are chances the price will retrace from that move.
The sentiment is driven by news and events that are driven through the session.
When there is nothing on the calendar then range bound trading happens, this means the price will move in choppy range with no direction.
This is the sentiment that catches most traders.
Traders that focus only on technicals are the ones that fall into that trap.
Most professional traders will either stay out of the market or adjust their trading to range bound price action.
Recognising the sentiment will greatly improve your trading results.

Another market sentiment is Hawks and Dovs as we learned earlier.
These can be fantastic trading opportunities, and you will need to be aware wich member is hawk and wich are dov. Keeping your focus on central banks will also help because this is very rare that other central bank members move the markets with comments in this way.
Another common way that drives the price is related to overall fundamental picture

We are talking about Central Bank Policy Divergence.
What this means is that very often traders simply look at currency pair and if there has been the decent pullback from trend then the market will simply start trading the pair in line with central banks.
For example: if the ECB is in the middle of QE program while the FED in a middle of hiking rates then the 2 banks are going in the oposite direction.
This will cause traders to sell the weaker currency and buy the stronger currency.
This traders bet on pair with clear divergence.

One of the common sentiments is the Buy the Rumor and Sell the Fact.
What does this mean?
Buy the rumor, sell the fact occurs when the market is expecting certain outcome and trade with expectation in mind into the event, then as the event is released and occurred, the market abandons the trade and reverses the price action.
For example: imagine that the market is anticipating the bank of Canada will increase their interest rate , speculation starts 2 weeks prior the rate statement and there are been various leaks by the press by the fact that rate hike is happening.
What will happen in this type of scenario is that the price of Canadian dollar will rally as speculator are trying to get in ahead of the event, as the rate statement approaches the market is fully priced in the hike, so the event comes and the bank increases rates as expected but the market begins selling Canadian dollar.
New traders get squeezed out of positions and end up losing money as the price goes opposite way.
So what happened?
They knew rate hike would happen so they start to position themselves ahead of the event, and when the time came they were in good profit and start taking profits rather than risking getting in fresh position.
It is usually seen at the end of large moves or key points.
As we said the more something is known to the market the less impact will have when it happens.

As you can see short term sentiment is vital for you making a profit.
so if you are not tuned in and don't understand what is happening at the moment you will likely get caught out and lose pips, when in reality you should be making them.
Sometimes there will be no news that drives the prices and a market will move in range, but there is something called asset classes.
Asset classes that lead FX are Commodities, Equities, Bonds.
Generally, if it's clear that the market is simply being lead then there will be the very little trading opportunity.
Or you want to take advantage of this moves, but you need to focus closely on assets and the reason why they move.
Volatility is one of the biggest killers of traders.

Next sentiment we have is Stop Hunting and Squeezing
This is simply when we are hunted and played by other market participants.
For example: imagine you entered short position because you have a very good reason, now as you enter a trade you place a stop above the recent highs because if you are right about the trade market should push price lower.
, what happened next is price start to rally sharply against your position breaks the highs, stop you out then the price starts to fall and goes your way.

What happened?
This is called stop hunt or squeeze and it's not anything personal against you,
Image that you work a trading firm and trade in 100mil of size and also think that the price is going to fall however you are so big you can't just click and sell because the price will likely fall meaning you will get very bad price to enter, this results selling where you wanted to take profit wich is not good and terrible way to try to make a profit.
So in order to get at a good price you need extra liquidity, basically you need a poll of buy orders so you can execute your large sell order.
Now as you look at the feeds all these other traders place stop losses just above the recent highs and stop loss are all buy orders and this is what you need in order to take your large trade.
The only problem is its only a few pips from the current price and everyone is positioning to sell, in this scenario because you are a large player you can simply buy the price up to this buy orders and when it reaches them you can execute your large sell order into all of the stops.

This frustrates all traders, and this explains why stop hunt occurs, so think twice where you place your stops, and start to think like a big player when you are entering the market.

Trader Alen

Fundamental Analysis (lesson 14)

Now in this section, we will look at how you can identify the sentiment.
We will look at what tools professionals use it , and how you can replicate that analysis.
So what you should be looking at?
The things we will be going over in order to prepare for the session are also included in this course.
So let's begin by going through the tools that you will be using to identify sentiment and how you should be approaching these on the daily basis.

All professional traders use real-time news feed and research analyst reports to give them an edge when it comes to deciding where the market should go next.
The point of this tools is to get them news quickly.
You will have access to full real-time news feed as part of this course and we will spend some time going trough how this works, and how you should approach it to get maximum benefits.

This is the exact same information that is being used on trading floors, first of all, the idea of the audio news feed is to get the market moving news instantly without having personally research through hundreds of sources to get that information.
There are trained the team of analysts behind the feed watching the market and with access to every professional news source available.
The cost of this news sources alone are in tens of thousands of dollars each month, and analysts who sit through these feeds are trained to identify only the market moving events.
Once the have been identified they communicate via audio news feeds, the purpose of the squawk is the only total relevant information is communicated so you are not disturbed unless it benefits you and your trading.
These squawks can happen any time of the main European session, so it's best to have audio turned on at all times, to compliment the audio there is also text feed that is constantly updated with everything that is squawked plus extra analysis and research to stay tuned into the markets.

The text feed is there for you to feed you information about what the market is doing, what they are thinking and how they are trading in given time.
These include filters like prices where traders are placing and where they placed stop orders...
As we looked earlier knowing where everyone else is placing their stop can be vital information.
Then we have sentiment wich will tune you into the markets immediately.
Within seconds, you will know reasons behind moves and where the market will be trading in the upcoming session.

This is the first place you should start each day when constructing your daily trade plan.
Along with this, you should be also using your reading list and follow the online sources to get expanded the view of what is happening as it will give you the deep understanding of what's happened.
Of corse for the first few months you will need to follow wit ha professional trader as they analyse and interpret this news for you but over time, you will start to develop the skills yourself and position to be completely independent in your own analysis.
Attending the analysis briefing is your important part in developing in your first months of a carrier.
These experience will give you exact process you should follow each day for you market analysis.
All the professional before looking at market study the previous session and research the current market sentiment and this type of preparation should be part of your trading routine also.
Once you have this information you can then formulate you trade plan.
When you are trading on your own you need to use certain tools you can't trade without.
And we will look at this tools along with some ideas for your personal routine.
So when it comes to tools professional traders use pretty much everything that gives them information edge over the rest of the market, so think of things like premium news feed ( you will get free live news feed), or social media sites like twitter.
Twitter is great because it gives you on the ground analysis all over the world as events are taking place.
The best people to follow are those people that have a job making this news come out fast, financial journalists, economists and analysts, central bank watchers.
Social media should be part of your toolkit, it's not powerful as real-time news feed but it is still good.
The service you will use have all of it included, you will watch my main feed get that information.
You will be constantly tuned into markets so you will be able to make profitable decisions quickly.
Your trading desk should be and the mountain of information.
You may be wondering how you can use all these tools effectively..
So your trading day begins as you reach you trading desk, as we mention this should be at least 30 min before the market kicks off so you are fully prepared.

There is certain question you should be asking and of course answering.
First question: What is the main sentiment driving the markets in yesterday session?
Next question: What happened in the most recent overnight session to effect or drive sentiment?
Next question: What is the market doing at the open of the current session?
Next question: What are the key data points done in relation to the expectations?
Did they come out better or worse?
If so was it by the significant amount?
And how does this fit in the overal fundamental picture?

For example, if we are buying US Dollar in the long run then if CPI data beat expectations
we know there if very good chance we know this move could drive the price through a session.
On the other hand, if CPI comes below expectations there may be a selloff but how long in will really last given the overall picture and the fact the figure is not really much worse than the market was expecting.
This is the type of thinking process you need to form your habits as you trade each day.

The next question: Why would you enter a trade right now?
What is going to make this pair move if i enter the trade?
The better you answer this questions the more money you will make.
If you can't answer this questions then the trade is likely low conviction and you have more chances of loss.

First, you day should start by getting an overview of the markets.
The best way to do this is to visit the sites from your reading list but ofcors you will get this information in my news feed.
But you can also use this list:
[SITES TO FOLLOW]
http://www.centralbanknews.info/
http://www.bloomberg.com/topics/currency
http://www.forexlive.com/
http://www.cftc.gov/MarketRe…/CommitmentsofTraders/index.htm
http://www.cmegroup.com/…/interest-r…/countdown-to-fomc.html
https://www.globaldairytrade.info/
http://www.forexfactory.com/calendar.php

Trader Alen