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How to be a professional trader Print
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How to be a professional trader

The world we inhabit is dominated by the 80-20 principle.

Vilfredo Pareto changed the way we looked at many things, specifically micro-economics which he linked to social factors which went on to become popularised in recent years. Pareto observed the "law of the vital few". Approximately 80% of the effects come from 20% of the causes.

Nowhere is this more apparent than a glance at the small print at the bottom of every spreading betting website. They are now required to publish how many clients lose - you guessed it, around 80% of their customers lose money.

So, what of the remaining 20% or so?

There are is no shortage of horror stories from the 80%. Many have been there. This article describes the spiral into despair which results from marketing hype and personal hubris, the Superman effect, following modest successes. 

Reality? A recent research report from Psyquation indicated that fewer than 20% become profitable after two years and only 1.2% are successful enough to make trading their career. Sobering stuff for those new to the game, but is it gambling? Thanks go to long term investor Gary Scott for the article below:

Trading and Investing is gambling.

Until we admit this, we cannot invest like the pros. However, once we recognize that every investment is a bet, can we become a professional investor instead of a stock and bond gambler?
The fact is professional gamblers are not really gamblers. They are investing pros who cash in on the imbalances of gamblers. They invest in bets instead of stocks and bonds.

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Why do we do it.... Print
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Why do we do it,

letting small losses become big ones?

Warren Buffet was known to answer the question: What are the most important trading rules?

His standard answer was: Rule one - don't lose money. Rule two: Never forget rule one.

It's all in the interpretation. Did he mean 'Don't lose money on trades' which some may translate as

(A); 'I may have a losing trade on but I'll hold it because it may bounce back into profit and then I've followed rule one'.

Or, (B) perhaps it was just an off the cuff quip, meaning that to survive as a trader or investor we need to make more overall then we lose?

Letting winners run and cut losses short

This is the self evident rule we need to achieve to ensure we can make profits overall. The only problem is that the

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ESMA 1st August!!!!!! Print
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At long last ESMA has set the day.

From 1st August 2018, retail traders will have to pony up more margin. Gone are the days when brokers were falling over themselves to give the 'Best', lowest, margin rates that allowed almost anyone to control a big slice of the pie with a miniscule account.

I rember the story of the guy who opened an account on a Thursday with £8,000. By close of play on Friday night, he had run it up to £100,000 plus, on the Dow. Margins were crazy low and he was able to use the open trade profit as more margin! By close of play Monday the day put in a modest correction. Result, he was wiped and owed the broker money which they enforced. A great introduction to spread betting.

All that is no longer possible, illegal within ESMA. The new regs take us back and beyond how it was when I started trading Forex, 50:1 margin was the maximum anyone offered, in line with US regulations. Now Forex is 30:1.

This is the gist:

For major FX pairs, leverage is adjusted to 30:1 (3.33%).

Suppose GBPUSD is trading at 1.3200, £1 per pip will be 13200 * 3.33% * 1 = £ 440. At £10 per pip it's £4,440

For indicies, leverage will be adjusted to 20:1 (5%).

Suppose WS30 is trading at 24000, £1 per pip will be 24000 * 5% * 1 = £ 1200. At £10 per pip you will need a minimum of £12,000.

Unrealised gains can no longer be used as margin and the broker has to close out your position if the market runs against you and your margin funds drop by 50%.

One of the spread betting companies admit that the old system encouraged over trading (punters lost money has corrections took them out and so spraed bet companies made huge profits). They now admit that clients who trade well within their account size are more succesful.

So what to do now??

Under trade under trade!

 
Mario lobs a grenade into the FX market! Print
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Friday, 15 June 2018 08:42

Mario had some fun with the markets yesterday.

I had several members asking for my take on the Euro/Dollar reversal
yesterday as a result of the ECB grenade thrown into the markets.

That was all down to Mario Draghi, not following on from Powell on
Wednesday and tightening or at least accelerating tapering. The market was
convinced he would, then the bombshell was saying no rate rises until 2019
caught the market on the wrong side of trades.

The positives are that that created several Key Reversals in the EUR pairs,
CHF and Cable. The Euro hovered at the point of reversing giving some time
to get re-positioned.

From here, the dollar weakness has been reset to strength following through
on Powell's Wednesday words that they are convinced the US economy is
strong. Mario's actions confirm he believes Europe's to be weak. The
consequence of this is that we could well get some decent trends in the
likes of EURJPY and AUDUSD that was already the weak currency, etc.

That's for the next week or so. Today, Friday 15th, is profit taking day so far with
modest rallies across the board, so now is the time to look for rallies that might
give much better short entries.

 
Next Wednesday, up they go again... Print
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Thursday, 07 June 2018 20:01

The consensus is the Federal Reserve, at it's June FOMC meeting Wednesday 13th, will confirm the next US interest rate increase, from 1.75 to 2%:

fomcjune18

The consensus, 'dot' plot and forward guidance is as plain as day. But, today, the bond market just had a hissy fit...

30yrbondjune18

The standard 30 year US T Bond has been tumbling down this year. Interest rates do the opposite of course, moving on up as bonds slide. But just look at the chart. The chart bottomed on May 18th, rallied then tumbled again, until today, June 7th.

The 4 hour chart shows a major key revesal day, lower early in the day then higher than yesterday. Key reversals (or the candle version, Bullish Engulfing) are one of the strongest one day signals in the market.

What does this mean?

Maybe nothing more than traders liquidating their previous short position profits, just in case something unexpected comes out of the Fed minutes.

Or - the market just got the idea the Fed will change it's mind and delay the increase. The dollar will tank and stock markets will soar even higher. Stranger things have happened, just when everyone least expect it.

 

 
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Hawk or Dove to replace Janet?

Is Janet Yellen a Hawk or a Dove?

We never really found out what she truly belived. She was both at times and while she was a Hawk telling us she was "minded to tighten rates", Donald Trump was a Dove, saying he wanted a weak dollar so interest rates would have to remain low.

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