From time to time I am reminded of a quote from my former Head of Trading at Goldman Sachs, who told me that if you’re going to trade international markets, then you’d better get out there and understand what they are about, i.e. travel to those destinations you’re trading in and meet people face to face to harness a more granular appreciation of what makes that market tick.
It’s a lesson I’ve carried with me ever since and some of the best advice I’ve ever received, not least of which because it can be applied across myriad industries.
Everyone is different. We all have different skill sets and all the skills required to be a trader: macro, technical, stock analyst or algorithm coder are all different.
Traders who use fundamentals are students of the market and learn patterns in asset prices driven by human behaviour and I consider myself to be in that bracket.
I had and continue to have the privilege of travelling as a trader and meeting others to learn about new trends developing in markets, meeting successful traders globally and learning their habits.
I thought I would share some insights to self-directed retail traders looking for an edge or a fresh perspective as we all navigate the rough waters of financial markets.
This is my process which I have developed over the past 15 years, and whilst it is not right for everyone, it works for me.
Map out the economic calendar for the week. There’s plenty of these available on the internet. I use Bloomberg which is excellent for news but perhaps a little overwhelming. The key here is not to just read it. I would type out every event each week and then summarise the most important ones at the top of the sheet to prioritise data and news.
I’ve found the effect of typing it out ingrains the news and data into your brain a little more than just reading it and trying to absorb everything. And you find yourself remembering the data and news easier than you otherwise would.
Functioning on a weekly basis lends itself to trading from that perspective. Whilst I trade day to day, I do it within the context of a weekly chart as the longer timeframes for breakouts and resistance are more reliable and usually more powerful.
Analysing charts on a weekly basis allows you to frame the daily moves better. A currency pair might move 70 tics in a day in one direction which prompts people to begin calling a trend or things like “this is the next big move” when the reality is the move is a normal price move when placed in a weekly context.
It also allows you to day trade a little more effectively if you have a longer time frame as a guide.
Take a view. Rank your level of conviction from 1-10 on the trade and allocate risk accordingly. Place the trade. Enter a stop.
What comes next is the market at work. Is there opportunity around this data to position for more risk or to lighten up? How do we do this?
Trade around the edges. Give yourself enough room to add and take profit at intervals where you are comfortable. Employment, GDP, Central Bank decisions? Are there opportunities to day trade around events given pricing moves in the market? How to assess?
Look for signs of affirmation or refutation on your trade. How to do this?
- New information resulting in a Fundamental change to the basis of your trade;
- Correlated assets are trading well/poorly;
- Fresh technical set ups that evolve;
- Then adjust accordingly.
On top of these steps I put a broader framework of rules around my trading for when I am sitting around bored. I find that is the most dangerous time to be a trader, when the market is just doing nothing. You can find yourself searching for trades that aren’t there and losing money.
I call these Matt’s Magic 8 rules to remember.
That’s me on TV in China, giving my thoughts on the Australian dollar, in 2017.