I have started on my Daily habits and I feel tremendously overwhelmed by it. I am not sure if I should less pairs but right now its just 6 pairs and I am floored by the time im done. Is there any way it could get easier? I am at GMT+8 and I start at 10am local time. The thing is the only I can think of and the only thing running thru my mind is the markets. How the heck am I going to cope? I hope I wont get a nervous breakdown. How did you cope with it when you first started out? Any ways to make things easier?
When I first started, I did follow 8 currencies – the EUR, GBP, USD, CHF, JPY, AUD, NZD, and CAD. It was hard in the beginning because my habits were not fully developed and I wasn’t completely sure what information was important and how to record the news impacts. But as I figured out things such as the different types of news trades, how to record news impact, proper scenario sheets, global macro environment the market is currently in.
Throughout that process things went faster because I realized that I didn’t have to know everything. I just had to know and focus in on the scenarios and key 1-5 things that were causing or going to cause the market to move. Most of the time it is just a list of 1-3 key reasons why a market is moving or will move.
So while the scenario sheet may show 20 different scenarios for bullish or bearish, you can filter them out by applying global macro analysis and seeing what the economic data is, and what the central bankers have been saying over the past few days and few weeks. When you apply that macro filter, combined with the market sensitivity information you glean from how the market responds to news, then you can focus on the key 1-3 scenarios or so on any given day or week that can move the market for the currency pair and financial instrument you are looking at. You want to focus in on the closest scenarios to the current moment.
The book More Money Than God explains this:
Soros saw no point in knowing everything about a few stocks in the hope of anticipating small moves; the game was to know a little about a lot of things, so that you could spot the places where the big wave might be coming.
And as George Soros explains it himself:
Investors operate with limited funds and limited intelligence: they do not need to know everything. As long as they understand something better than others, they have an edge.
My mistake when I was first doing it was that I was thinking about fanciful and extreme scenarios that stood a low chance of happening. I had to form more accurate scenario analysis and expectations analysis. And I would probably look at and record too much information which was repeat, or it wasn’t relevant. And I would try to gather information from too many news sources thinking that if I had 10 news sources, that somehow I had an edge over other people who only followed 2 or 3.
When in reality, it isn’t always about the quantity of information. It is also about the:
Quality of the Information: The articles/news sources that you do read, are they filled with the key elements you are looking for, or do they have a lot of B.S. information about things you don’t believe in that you have to sift through? For example, I try to choose sources that don’t have too much technical analysis or quant algorithms, etc. I don’t want to see that information or sort through it.
Usually I just use Bloomberg, Reuters and IFR news from Oanda. All those sources can have information that is not relevant, and I just skip it over. Bloomberg, CNBC, etc they all have articles on their homepage that are there for show and drama and to try to get viewers. And they are just junk and distract you from the making of money. So I just discipline myself and don’t view them. I focus in on the articles that are relevant to my expectations analysis, scenario and macro analysis. IFR news has a lot of useless information in my opinion. I just uncheck the boxes that I deem not relevant to my trading.
I will try to show some examples further on in the lesson.
How you Interpret the Information: Once you have the information, you need to know how to interpret it properly. Ten people can look at the same piece of information and come to different conclusion.
One person can take the ECB Press Conference today on Wednesday, October 2, 2013, and say that it is EUR bullish and want to aggressively buy EUR/USD targeting 1.40 as a swing trade.
Another person looks at the information and says it is EUR bearish and the EUR rallying today about 1.3600 was a shorting opportunity since they discussed rate cuts and inflation is low at 1.1%.
Another person looks at the Press Conference and believe it doesn’t mean anything and isn’t willing to commit to a trade yet. They wait for information.
Another person looks at the Press Conference and believes that it was only good for a intraday trade to attack the 1.3600 barriers and then fade them down, and then thats it. Any new moves will occur from new information flow in the next few days and weeks. (my personal view today)
Another person believes it is EUR bearish, but they want to wait for the EUR to rally a few hundred pips before shorting it.
So everyone takes a different view of it. They key is to find the most accurate view. The most truthful view where the news/sent/fund/macro order flow will allocate aggressive capital to. Sometimes the answer is that the macro is confusing and it just gets choppy and you don’t play for big moves and only choose smaller tactical intraday trades like fading stops, etc.
How you Sort/Organize View the Information: Even after you find the right information, interpret it properly, you still need to find some way of storing the important information and viewing it when you need it. Some people come up with amazing ideas for amazing trades. They find the amazing information and insight that is going to move the market. They interpret it properly, but they didn’t organize the information properly. Perhaps they didn’t have that trade idea front and center on their trading desk or office. So they missed the trade opportunity because they were doing other things while they should have been reviewing the important information.
I have combated this problem by having the daily habits in their own file, synced up to the Cloud, so you can access it from multiple places. And I have placed the little notes on my charts about the important news and macro information that was released. So that way, important macro information is displayed on my charts and can help explain the past volatility movements in the market.
I try to place bullish news below the price, and bearish news above the price.
Here is an example chart:
Once I fixed those things, then the process became easier.
You do have to develop the skill of reading between the lines.
Here are a few examples:
1. From the Bloomberg Homepage, I can quickly know the potential relevant articles (in green) to the currencies and financial instruments I trade, and the ones that are irrelevant (in red):
As you can see only 1 or 2 relevant articles to the risk appetite / risk aversion in the market. All the other articles don’t really have anything to do all that much with trading. If I find myself watching the Panda video or an article about BitCoin, I know I am wasting my time and it isn’t going to help make me money or speed up the daily habits.
I am looking to do the work that needs to be done, then that’s it. Typically it takes roughly 2-4 hours per day, but I do analyze many futures/commodities as well and some stocks too. So if you are only doing 6 currency pairs, you should be able to get it done within 1-2 hours per day. If you are spending more than 2 hours per day following 6 currencies, then you may be wasting time on irrelevant information or not grasping the key elements and scenarios in play.
As for the Bloomberg currency page:
As you can see, most of the articles are not relevant. I am looking for information and facts about why the market moved TODAY. The expectations, sentiment, scenarios, fears, hopes, etc of the market participants and the money flow TODAY. If I can figure out what happened Today, then I can use that as the current moment and project out future scenarios and see if any are likely for a trade opportunity.
Today is the most important day!
As Bruce Kovner said in Market Wizards:
I assume that the price for a market on any given day is the correct price, then I try to figure out what changes are occurring that will alter that price.
How I Do The Habits
Some people may get frustrated because they see the price moving or has already moved and they can’t fully explain why it happened and they immediately go to the news websites, and consume themselves in them to find the reason.
I obviously do a bit of that, but I do something before that.
The first moment I look at the market during the day, I am seeing which currency pairs made the big moves. Then I am playing out scenarios and potential explanations in my head for why they happened. Usually I have the reason why the market moved yesterday and in the past few weeks in my head, so I can form potential reasons why the market moved even before I start reading the news.
For example if the GBP/USD is up 100 pips, then even before I look at the news, my mind will instantly go to 3-7 different scenarios for why the market could have shifted expectations about something. My mind thinks about that maybe there was good UK data, and the market believes the BoE will be forced to hike rates. Or maybe there was some weak USD data. Or perhaps some Fed official said they could keep delaying taper. Etc.
Or if the USD/JPY drops 100 pips, I start thinking about the risk aversion from the debt battle and if it potentially escalated, as the longer it goes on, the more economic damage it can do. I start thinking of of the Japan govt / BoJ disappoints the market with lack of aggressive measures. Etc.
My mind instantly goes to the closest bullish and bearish scenarios to the market.
Throughout this process and the checking up on news, I am thinking about writing in the 1-3 sentences explaining why a currency pair did what it did today. I don’t need a whole essay and pages long to describe why a currency pair did what it did today. Usually I just need a few sentences or a few lines describing the stops that were tripped, the news released, the 1-3 scenarios that moved the market, etc.
That’s all I need: just a few sentences describing what happened on that day.
I try to distill the day’s action into those few sentences.
I will show you some of my currency habits for Today: Wednesday, October 2, 2013: I really don’t put all that much information in some of them. I copy and paste a lot. I paraphrase. And sometimes I write my own sentences or paragraph describing the day’s action.
October 2 – EUR/CAD hit 1.40 then retraced
DO NOT BUY TOP TICK
CAD getting hit as what is bad for US growth is bad for CAD growth
Canada’s dollar fell against the majority of its most-traded counterparts as the U.S. government shutdown persisted, imperiling economic growth in the nation’s biggest trading partner.
GBP/CAD tripped stops above 1.6800, then fell back
DO NOT BUY TOP TICK
October 2 – Spanish Unemployment Change at 25.6k / 12.3k / 0.0k
Minimum Bid Rate at 0.50% / 0.50% / 0.50%
ECB Press Conference
EUR sold off 30 pips into the press conference support at 1.3510, then bounced. Barrier a 1.3600
EUR spiking higher on initial Draghi remarks from Press Conference.
There was a discussion of rate cut, but they decided against it. Some governors thought improvement in economy make the cut unnecessary, but some governors though it might be necessary, so there was a discussion.
EUR did not go down at all on news of a discussion of rate cut. That is bullish sensitivity.
EUR is spiking higher by 30-60 pips or so. Not sure why. I wouldn’t chase it.
The ECB seems to be shrugging off the low inflation, etc. Some members were concerned, but it seemed they were not able to get a rate cut passed.
Draghi didn’t talk down the currency and didn’t talk much about a new LTRO, etc. So there was some Euro short covering.
Italy concerns seem to have subsided, not that they were effecting the EUR anyways
EUR/USD knocked out 1.3600 barrier, then fell back
DO NOT BUY TOP TICK
“The ECB seemed little worried about the latest euro appreciation across the board and the Letta government survived a confidence vote in the Italian parliament,”
October 2 – Construction PMI at 58.9 / 60.1 / 59.1
Housing Equity Withdrawal q/q at -15.4B / -7.2B / -13.4B
GBP/USD: -8 pips FM, then NS
EUR/GBP: +5 pips FM, then NS
GBP shrugged off the weaker data
GBP sensitivity is bullish
The USD is shrugging off the stronger data, while the GBP is shrugging off weaker data, thus GBP/USD grinding higher
Prime Minister David Cameron gave an upbeat outlook for Britain on Wednesday, saying the economy had turned the corner since his Conservative party took power three years ago.
October 2 – JPY strengthening across the board again. On risk aversion, but also some disappointment with Abe / BoJ
USD/JPY down 80 pips going into NY open
The longer this debt ceiling, govt shut down drags on, the more USD/JPY will keep going down.
USD/JPY tripped stops below 97.50
DO NOT SHORT BOTTOM TICK
EUR/JPY tripped stops below 131.60, then bounced
DO NOT SHORT BOTTOM TICK
“At the moment, investors think the U.S. shutdown will end soon, but if it drags on it could start to hit economic fundamentals, such as consumption, and that’ll strengthen the yen and have a negative impact on Japan,”
The yen strengthened to a five-week high against the dollar as the partial shutdown of the U.S. government showed no signs of ending, fueling speculation there will be another standoff over raising the debt ceiling.
October 2 – ADP Non-Farm Employment Change at 166k / 177k / 159k
EUR/USD: +16 pips FM, then NS
USD/JPY: -24 pips FM, then NS
S&P: -1.5 pts
Bonds: +9 ticks FM, +5 ticks over next few min
Gold: +6 pts FM, ret half, then +2 pts over next few min
More USD weakness today as govt shut down raises risk that Fed delays taper, etc.
Companies added fewer workers than projected in September, indicating the U.S. job market is struggling to gain momentum, a private report based on payrolls showed today.