Q. What did you think of the 2016 currency markets?
The year 2016 was a bit special. Some currencies were already nicely trending such as the CAD, JPY, GBP and SGD. The USD, as represented by the USD Index, was still in its 2nd part of a long 2-year sideways consolidation. Since November 2016, however, the USD moved up breaking several important resistance levels making it look very strong for the years to come. As the dominant global currency, the USD’s move will most likely also push other currencies (like the EUR, AUD and the CHF) out of their sideways range into trend-mode. This will offer excellent trading opportunities for trend-followers on a wide range of currency pairs. The conditions in the Forex markets have not looked this promising for many years.
Q. How do your systems perform in markets like these?
All three systems are trend-followers. Trades with each system require good trends in several timeframes. Whereas System 1 works well in early trends as well as aging trends, System 2 performs best in a well-established trend. System 3 is a bit special as it requires both a strong trend and a very smooth one — which occurs mostly in full-blown trends or once a market develops a momentum move (e.g. after news events or during stop runs). System 3 typically generates a good number of successive entries offering excellent scaling-in opportunities. All you need are a couple of currency pairs that are trending nicely. With more and more currencies entering into trend-mode now, 2017 promises to be a year with many excellent trading opportunities.
Q. How do you approach your trading week?
Every week on Monday morning, my routine is to put together a short-list of FX pairs in different timeframes with possible entry opportunities for the week. For this routine, I start with a Top-Down-Analysis by examining all pairs from monthly, daily, down to the 4h charts. I am looking for good trends and for special situations that would provide me an edge in the market. This process gives me a list of pairs offering good potential on a higher timeframe which improves the win rate for trades in lower timeframes (e.g. 5, 15 or 60min charts). Then, several times during the day, I am screening my entire pairs universe for patterns of the three systems in lower timeframes (Bottom-Up-Analysis). Combining the Top-Down with the Bottom-Up approach provides me with a full opportunity list. This TradeLog guides me through the entire week with good trades across various timeframes including 5min, 15min, 60min and 240min charts. We actually use this same exact process during my class at the Live Trading Workshops.
Q. Who does better in the Forex markets — day traders, swing traders or position traders?
I think labelling yourself in any of the 3 categories will limit you with Forex trading. You should actually trade the best opportunities you can find, whether they are very short-term, longer-term, or somewhere in-between. Personally, I am very flexible with this aspect of trading. I like to find the best trading opportunities in whatever timeframe they present themselves. Having said that, traders probably gravitate toward a timeframe that fits them best as individuals. As an example, one former workshop attendee has a normal day-job but he is able to trade very successfully the hourly chart and the 4-hour chart only.
Q. You have used your system rules to successfully trade various other markets including large European and American Equity Indexes and Commodities. Do you think your systems would work well on large Asian Indexes?
My first priority is always trading the Forex markets. If it is a day for which I do not find enough high quality opportunities, then I look at the equity indices and trade the system patterns there. I very much like trading the Equity indices such as the German DAX futures and the Dow Jones future. A very big positive of all equity indices (including Asian-Pacific region indices) is that they are highly liquid. This offers the possibility to trade very short-term charts down to 1min, or even tick level, at very competitive transaction costs. I will also look for alternate opportunities in Commodities — once I can identify a strong trend. All three of my systems are derived from beliefs based on psychological biases or flaws you can find in the markets. The systems, therefore, work in any liquid market by applying the same principles and allowing for slight adaptations in the rule-set (see Reading Psychological Footprints for Low-Risk Ideas).
Q. We have had some people from the Asia Pacific region ask if your systems will work during the Asian Forex session — how would you respond?
True, I have been asked this question at various times now. There seems to be some concern in Asia overall, Australia and New Zealand whether the currency market offers enough trading opportunities during the Asia-Pacific Forex session. Did you know that Singapore is actually the third biggest Forex trading center in the world? Combined, Singapore, Japan and Hong Kong actually have a higher global market share of the Forex market than the US. The Asian Pacific region offers a highly liquid Forex market during which all currencies are heavily traded (see Ten Reasons to Trade Forex). Did you know that the market for Asian-Pacific currencies is growing the fastest of all? As an example, currency trading in the Chinese Renminbi (CNY) has doubled compared to 3 years ago. This now makes the CNY the 8th most traded currency in the world, only slightly behind the CHF and the CAD. Growth always offers opportunities! For these reasons, we believe Singapore is a great city to teach a Forex workshop. It is a great city in which to trade Forex as well!
One note of prudence for Asian Forex traders: Asia-Pacific is the first region to start trading Forex on Monday mornings (after the markets have been closed for the weekend). Usually the market needs to gain some momentum first which is why trading the Monday morning in Asia-Pacific should be done with some caution. I recommend to my workshop attendees that they start their trading week on Monday mornings a bit slower compared to the rest of the week.
Also, going back for a moment to trading equities with my systems, I have had some prior workshop attendees tell me they have been trading the Chinese stock market very successfully by picking stocks on daily charts using the patterns traded by my systems. I did not know about this opportunity but again, the same psychological biases and flaws show up in charts everywhere.
Q. Are there any Asian currencies, apart from the Chinese Yuan, that you can recommend trading — or maybe avoiding?
There are a good number of other Asian currencies that trade very well during the 24h FX market — mainly the Singapore Dollar (SGD) with its major crosses such as USDSGD, EURSGD, SGDJPY and the CADSGD. These pairs are all sufficiently liquid to daytrade. As mentioned before, trading in the Chinese Yuan has grown exponentially so that the USDCNY is another good pair to trade intraday. I do not recommend any Hong Kong Dollar (HKD) pair. The HKD is pegged to the USD so I recommend staying away from any HKD cross-pairs.
As an example of Asian currency trades, first the USDSGD offered very good long trade opportunities on the 240 min chart during the last 4 months. Since the Global Financial Crisis (GFC), the EURSGD has been downtrending strongly on the Monthly chart with multiple trade short entries possible on the weekly chart for System 3. From a shorter-term perspective, both SGDJPY and USDCNY have generated a good number of long signals recently for System 1 and 2 on the 15 and 60min charts.
Q. What do you think is the biggest factor affecting currency markets now?
The biggest factor now is that the USD (as you can see with the USD Index chart below) has just broken out of its two-year sideways range. This is actually a Busted Breakout pattern for a long entry (System 1). This clearly marks the start of a long and strong uptrend of the USD against all other major currencies. The USD Index move can drive the FX market as a whole into a trending mode.
I do not know what is going to happen in the months/years to come, however, the USD Index chart communicates that some major events are going to happen resulting in a USD strengthening against most currencies. Remember, the USD Index triggered a Long Busted pattern (weekly chart) with the target being the prior 2001 high — a +40% increase over current levels. This tells me some major things are brewing behind the scenes. The full impact of this would actually be much bigger than the GFC in 2008/2009. To fulfill the 2001 target, massive net capital flows into the USD from around the world would be required. We will get to see if this is related to Trump’s US presidency or to other factors.
Q. One workshop related question — how well have attendees implemented the systems they learned at your workshop once they are back home?
It is very important to me that attendees learn all they need to know during the workshop. Ideally, they should be able to start trading when they get home. I am aware that there are various obstacles that one has to overcome in order to trade flawlessly. I like to try to stay in contact with my attendees to help them after each workshop. I am also well aware that each trader has to transition through specific learning stages in their development. If an attendee is already an experienced trader, this transition can be relatively fast for a new style or trading system. If you are less experienced, you will need to put in some more effort and time. If trading were very easy, many more people would do it, right? Trading well is one of the most difficult tasks you are likely to ever try to learn. Thus, I recommend reading supportive trading material (e.g. books and video courses from Van and other traders that fit my systems). This helps smooth the transition process once the workshop has completed. I highly recommend you stay safely on the sidelines until you can execute the systems with a high accuracy. Trade simulations using live historic replay functions have proven an invaluable learning tool to the Forex traders I have taught.
Q. Is there anything else that would be good for our readers to know about trading Forex?
Yes, the recent price action in the Forex markets will have an impact over the next year or longer for nearly every trader in every country. It is important that everyone ask themselves two questions while thinking through their answers — whether or not they trade currencies.
1. Are you prepared to hedge against a major increase in USD value? If so, how? and
2. Are you prepared to benefit from major changes coming in the values of various currencies?
As Van likes to state: Crisis implies opportunity! (See Move on to More Profitable Games)
Prepare and act accordingly…
Thank you for your time, Gabriel
Trading Futures: Speedboat vs. Cruise Ship – Q&As
Die Busted-Breakout-Strategie ist hochprofitabel! – Fragen & Antworten
Forex Trading Approach, Techniques And Habits Leading To Success In The Markets – Q&As
Handelsstil im Forex Trading – Fragen & Antworten