I think I am pretty decent at news trading for now. There is one component of my trading that I really want to improve on, and that is taking longer-term trades based on global macro.
I am good at analysing each currency pair to arrive at a bullish, neutral, or bearish bias. For example, recently, I am most bullish on NZD and most bearish on JPY for various reasons. These reasons are rooted in global macro analysis, such as the Japanese government’s strict policy on a weaker yen, and improved NZ economy and expected rate hikes for NZD. To me, these 2 scenarios are the dominant opposing forces in the currency market at the moment. Thus, naturally I have a long NZD/JPY bias.
So in conclusion, I do think I am quite adept at analysing currencies and keeping up to update as new information comes out.
However, the problem is, I have trouble selecting entries and stop losses, and generally timing the move. Generally, I prefer implementing wider stop losses to maintain a higher win rate but also going for a respectable RR, both factors consistent with my news trading structure. That is, I don’t want to be stopped out if I have the direction of the move correct.
I am scratching my head at this point. What advice would you give?
Well, I don’t like to give advice. I love to give information and my own interpretation, perspective, philosophy and principles of things!
What I can say from experience with my journey, I got good at the intraday news trading, which helped lay the foundations for me to expand into swing trading/global macro trading. I wanted quick profits and to “hear the cash register ring”, which caused me to gravitate towards the short term news trading and taking profits/losses by the end of the day. Eventually it occurred to me that there would be some volatility movements that occur that last for multiple days in a row, or multiple weeks. So perhaps I captured 50-100 pips with an intraday news trade, but missed out on the larger move. So eventually it occurred to me that I wanted to learn how to capture the bigger swings. I had to learn about global macro analysis, the battle of scenarios, how the central bankers and the market interpret the data, etc.
I also had to realize that the swing trades didn’t occur as often as the intraday trades. I loved the intraday trades because not only did they give me quick resolution of the trade of whether I was right or wrong, but also because they had a large maximum opportunity set. There are more moves of 30-50 pips, than there are of 300 pip movements. So if I was placing 20 trades for the month in the forex market, all trying to capture swing trades, then I may have been doing something wrong.
So I had to realize that the maximum opportunity set for the swing trades was lower, and that I had to gain more patience, etc. Which wasn’t an easy task for me initially, since I wanted to compound the profits on a intraday basis with a lot of trades, etc.
There is this one quote about Jim Chanos talking about George Soros:
One thing I’ve both wrestled with and admired, that Soros conquered many years ago, is the ability to go from long to short, the ability to turn on a dime when confronted with the evidence. Emotionally, that is really hard.
Another quote by Stanley Druckenmiller talking about Soros:
He’s extremely good at using the balance sheet – probably the best ever. He is able to use leverage when he likes it, but he is also able to walk away. He has no emotional attachment to a position. I think that is an unusual characteristic in our industry.
Making the switch to swing trading can appear hard at times because you have to take in more information, more considerations, more scenarios. You don’t just have to take into consideration what could happen over the next 24 hours, but what could happen over the next 3 days, 1 week, 2 weeks, etc. This isn’t always an easy task because some of the volatility moves only last 1 day, others 1.5 days, others 3 days, etc. So it can be hard to sit on a position when it goes in your favor for 4 days in a row, then it retraces all your profit, and you are wondering if you should stick with it or not.
It can be hard to admit that sometimes the big scenario you thought would occur and cause a trend over many months might be played out temporarily, and that the better choice is to close out the trade and watch the market again to see if it retraces and sets up again.
You have to be asking yourself: “Is a big move going to happen?” If the market already made a big move or trend, you have to ask: “Is the big move still going to continue? Or is the scenario exhausted?
And you also have to ask yourself: How big of a retracement can occur in the market I am trading? Is it worth holding through the drawdown – whether an evaporation of paper profit or a paper loss. If the market does recover and go in my favor, was it worth all the pain?
There is another quote from Cliff Asness that may help:
If risk is about surviving the short term, expected return is about whether, after surviving, you think it was worth it.
So my personal preference is to try to analyze the market on each day and ask myself: Would I still get into the trade at today’s prices? What is the reward risk as it currently stands, not as it existed when I originally put on the position?
As Bill Lipschutz said:
Always understand the risk/reward of the trade as it now stands, not as it existed when you put the position on.
Paul Tudor Jones:
Every day I assume every position I have is wrong.
Dr. Van Tharp:
One great trader said that he treated each day in a trade as an entirely new day. If he could not justify getting into that trade on that day, then he would simply close it out.
Now, that is just information. It is not necessarily advice to go become exactly like them. If you aspire to some form of intraday or swing tactical trading, then the above quotes are very valuable. If you aspire to some other form of trading, then you may have to seek different perspective on the market.
You can also analyze prior historical swing trades that you believe you should have caught, but didn’t and ask yourself what else can I do? What didn’t I understand? What insight or revelation do I need?
The only tiny thing I would add to my previous response is: I try to gain new knowledge every year and refine my methods and analysis through books, articles, conversations, my own trading and life experiences, etc. You may try to make every best effort to improve your strategies and techniques for catching a certain volatility movement / swing trade / etc, there may still be times you miss a trade or a move. From my experience this can be due to three different reasons:
1. You just couldn’t figure out what the market was doing, no matter how hard you tried. So it is one of those missed opportunities because you couldn’t grasp the battle of scenarios, and there was too much uncertainty and it made you stay out. Sometimes a trader just doesn’t know what is going on. The ego craves understanding every tiny market movement and massive profits every trading day, but the great traders can’t possibly do that.
2. You try to interpret the information flow, but interpret it incorrectly and place a trade in the wrong direction
3. You could have caught the swing trade with all your current skills and knowledge, but perhaps you felt a bit overwhelmed and strained in analyzing so many different markets and financial instruments. You try to do better the next time and organize your habits and research better, but from time to time, you may miss a trade that you could have caught because you were caught up in analysis and trades in different currencies / financial instruments.
No matter if you made a mistake some traders can be their own harshest critics. That is necessary at times, but a trader also needs to know how to forgive themselves. To know when to be harsh and when to forgive oneself, is one of the key characteristics of a great trader in my opinion. To always know that your best days and best trades are ahead of you, not behind you.