Developing your Trading Process

Developing your Trading Process

Introduction

In this final section, we are going to be putting everything you have learned together into an actionable trading plan that you can use every day in the markets. The basic principle that you need to always keep in mind is not that you should be following this rigidly step by step but rather that you should be looking to apply these principles over and over again.

The main themes of this training are as follows:

• You need a good understanding of the overall markets and not just how to trade forex specifically. The different markets that we have talked about are interrelated and are terms that you will come across almost every day in your research.
• Fundamental analysis should be the foundation of every single trade you take. The key to fundamentals is understanding the reasons behind each price move in the markets.
• Risk management should be incorporated into every single element of your trading business so that you have multiple defenses protecting you from losses at all times.
• Technical analysis should only be used as a simple method of visualizing a trade to give it structure. All technical concepts are more or less the same when it comes to their effectiveness.
• Trading psychology should be your number one focus once you have the basic 4 elements of professional FX trading understood and the skillsets learned. Working on your inner game is the key to consistent profitability. The ultimate goal for you is to be trading in the zone at all times.

Everything in this course is more than enough knowledge for you to create a trading plan that you can use to start developing and practicing your skills further. Remember, just like buying the best golf clubs will not make you good at golf, consistently hunting for more and more knowledge will not make you a better trader. You need knowledge first, practice and skill building second, followed by working on your inner game from that point on.

With all this in mind it’s time to create the trading plan so that you can move on from the knowledge building stage and on to the skill building stage. There are several things that we will be focussing on in this section but the main goal will be to build up a routine that you can follow every day no matter what the market conditions may be.

Your routine should be comprised of 4 distinct elements:

1. Knowledge phase
2. Analysis phase
3. Execution phase
4. Review phase

To make this clear and simple we will go through each one of these phases and give you the tools you will need for each one. At the end of this section we will look at the routine of a successful professional trader along with a selection of trading strategies that we use that you can also use for yourself depending on your trading style and preferences.

Finally, we will provide some print outs that you can have physically on your desk each day to make sure that you are constantly following your routine and improving your overall performance rather than just going around in circles. These will help you stay on track and also provide a very useful log that you can look back over as your trading career progresses. This will also help when you are working on your psychology and trying to improve your weaknesses as a trader.

Before we get into these 4 phases what we are going to do now is get you up to speed on everything you need in order to be able to actually sit at your desk and plan your trades.

Trading Tools

The first thing that we need to look at is an overview of the tools that we as professional traders use and that you should consider using from this point on. These tools include research articles, news feeds, charting software, and trading platforms.

Research Articles

A research article is anything that gives you the overall flavor of anything going on in the market. This should be either generally or with a particular currency or currency pair. The purpose of an article is to help you tune into what has been happening. This will in turn help you to start to formulate an idea about what might happen in the upcoming session.

These articles do not necessarily give you specific trade ideas, although sometimes they can, but they do help you be in step with the overall market. Researching the markets by reading these articles is the first phase in your routine that should be done every day before you look at anything else, even before looking at the charts. This allows for a top down approach that will help you zoom in on a particular pair. This gives you a much higher probability of success because the chances of you missing something important are vastly reduced.

Here is a reminder of your free reading list and these are perfect sources to conduct your research from.

• Central Bank News: http://www.centralbanknews.info/
• Bloomberg news: http://www.bloomberg.com/topics/currency
• FX Street: http://www.fxstreet.com/
• Forex Live: http://www.forexlive.com/
• EFX News: https://www.efxnews.com/series/central_banks_insider

You are looking for any article from the major currencies that you trade and the central banks that control them. We will go through the process of reading an article in a moment but this gives you a general idea.

Other than these sites there are other sources of information that can provide valuable research and overviews. For example, many traders subscribe to various analysists and receive text or email alerts when they have new information about the markets. This can be achieved by following these types of sources on social media with Twitter being one of the most popular platforms to get market rumors and research extremely quickly.

Research can also be via paid sources. There are various research terminals available such as MNI, Reuters, and Bloomberg. These premium research sources are not vital and only provide a minor advantage over other options. The internet naturally allows almost any information to be found quickly now and can be viewed as the ultimate research terminal itself.

Wherever you source your research from there are 4 key points that you are looking for in order to extract the most important information from each article that you read:

1. The currency pair that has moved
2. The direction that the pair has been moving
3. The reasons why that move has occurred
4. What are the analysts are saying and what their expectations are for that move into the future and their reasons for their opinions

With this in mind let’s walk through a research article together and analyze it to see what information we can get from it and how we can use that to build a plan and find a trade.

From this article you can see that from the title alone we get the currency of focus which is the AUD and the direction being down because we know that interest rate cuts will drive price down over the long run. The source of this information is UBS which is a very large and respected bank so we know that a lot of people will be reading this information.

If we look into the article we can see the analyst trade call for AUDUSD to go as low as USD 0.68 and at the time of this writing the AUDUSD was much higher than 0.68. The reasons for this move lower is potential interest rates being cut further. The RBA has already made several interest rate cuts in the past 18 months as well so we know that this has the potential to make this information more relevant.

From the title alone we have a good reason to open the article and dig a little bit deeper to see if there is something that we can use from this article. In there we find many supporting pieces of information to validate the view that further interest rate cuts are to come. We now have a currency pair to watch for any possible longer term short trade setups.

Keep in mind that you don’t go straight into the market doing whatever a particular article tells you to do. It is simply something that helps to get you prepared for the upcoming session. Different articles will have various time lines from something that could impact in the current session to a more macro perspective for the next year. We want to be focussing on the articles that give us an edge today.

If you just look at a price chart of the currency pair being mentioned you don’t really know what is going on with that pair or why it’s moving the way it is. After reading an article or two you start to get a much deeper understanding of why things are moving the way they are. If you get several articles all saying roughly the same things then you know that it is potentially a much stronger theory here. If you only see one article and the theory is not mentioned anywhere else then the theory has lower conviction.

After reading several articles you will know exactly which pairs you should be focussing on and you will have lots of trade ideas for the upcoming session. The more that you practice this scanning of articles the faster and more efficient you will get at the process.

As you can see the process for deconstructing any research article is pretty simple and straight forward. Once you extract these 4 pieces of information you can then start to build a big picture and put all the different sources together to really see what the market is focussed on and which way certain currencies are most likely to be moving over the coming days and weeks. Think of this process as building the foundation for your trading bias for any potential positions that you might look to take.

News Feeds

Once you have conducted your research the next step is to check the news feeds in order to catch up on the latest sentiment moving the markets over the most recent session. There are many varieties of premium news feeds with costs from a few hundred to several thousand dollars per month. However, there is very little difference in this age of information.

All professional traders in every single firm, fund, or bank on the planet have access to real time news feeds. For anyone thinking that news feeds may not be important then you might want to think again. If you are going to succeed in this program then accessing a real time news feed has to be one of your main priorities, not just as you learn, but for your entire trading career.

The news feed should give you everything that is relevant and most importantly everything that is currently driving the market sentiment at that precise moment. The goal of the feed is to find out quickly what has been driving prices during the most recent session. It should also alert you of anything that happens unexpectedly in the middle of the current session while you are at your desk trading.

The evolution of the audio squawk is an interesting story that began not that long ago across major institutional firms. There are hundreds of different news sources all with their own unique selling features and price tags. It’s not very practical for a trading firm to purchase every one of these trading tools for each trading desk because trying to follow all these news flows would turn into a full time job in itself.

At the same time, traders need to know exactly what is going on and have access to the latest research and developments all while being free to execute their trades without distraction. The solution to this was an audio squawk desk. These desks would be set up in-house in an area away from the trading floor. The audio squawk desk would sit a team of analysts whose entire role was to monitor all available news flows on dozens of monitors all day long. These rooms would be connected to the main trading floor via a sound system so that when something major happened it could be squawked to all the traders at the same time. This meant that the traders could focus on trading without missing out on anything important.

Over time these houses developed and grew and started providing text headlines so that everything that was squawked could also be written and displayed on the screen so that when traders took a break or went to lunch they could see what has happened while they were away from the desk. After a while these houses were a normal occurrence at large trading firms and a niche was born.

It became obvious that demand for this type of service was very strong from smaller trading companies that didn’t have the capital means to have house analyst desk and while at the same time have individual traders managing money. This lead to squawk companies setting up independently and offering their services to multiple trading firms rather than just being dedicated to a single entity. This brought the cost of this information down and made it much more widely available to the market as a whole. This allowed firms to cut down the size of their in-house team to just a few analysts saving costs while still having all of the benefits.

The feed that we use is one of the best in the industry and has been for some time now. This is the Ransquawk news feed.

What happens first is you hear the analyst say the headline. They will only squawk off headlines that are important. This is then followed by a text line that may provide some extra bits of analysis. These headlines are then updated as any new information becomes available.