Ransquawk

One Currency? One Asset Class?

When I was trading full time, I found it easier (or maybe less difficult) to make money concentrating on one currency pair.

Those who read a lot of my commentary will see that I continue to say most about Sterling since it is a currency I have been involved in for many years and am very comfortable with its drivers and influences. A trader starting out will often try to formulate a trading strategy which works across a broad range of currency pairs or indeed across several asset classes. After all, if you are a technically driven trader, does it really matter if you are looking at a chart of GBP/USD or silver or Coffee? The principals are the same.

Well, as traders become more experienced it is my view that specialization becomes a natural phenomenon. That may be counter-intuitive since it would seem obvious that a more experienced trader would be comfortable in many environments and able to understand the nuances of many assets.

There is little doubt that specializing can mean that a trader can miss an opportunity to make money short term but overall it will at least even out since he will be able to make more money in his chosen “specialization” being able to leverage both in depth knowledge of various scenarios and being able to squeeze every pip out of a trade by having in-depth understanding of various support and resistance levels almost telepathically.

Don’t be afraid to experiment

Brokers hate demo accounts. Open a demo account with most brokers and you will be assailed by calls from the firm asking when you intend to start trading. Don’t be rushed, there is no time limit on how long it will take to feel comfortable. No broker will guarantee to make up your losses so take time to understand your strategy and test it in as many scenarios as possible.

Each currency pair has different characteristics and suit a variety of trading styles.

Time-zone is important. I remember when I worked the Asia shift, the USD/JPY rate was all that drove markets and liquidity was sky high even in the 1990’s. So, if the way the Yen trades suits you, be prepared for some late nights and early mornings!

Liquidity remains high always for the common currency, but it is still a currency that money can be made trading. It is becoming a proxy for other market events which is a natural step as it becomes a reserve currency to rival the dollar.

There has been a shift in the influence exerted by the dollar under Trump’s presidency. It is still the pre-eminent currency used in global trade, but it has seen a variety of influences grow which is typical of its reaction under a Republican President. If you look back, the dollar is far more active under a Republican than Democrat President as they tend to be more involved in global affairs.

Social Media and FX

When I first started working in the retail FX sector, I could never understand the popularity of social trading and the whole idea of sharing ideas and trading positions. However, over the years I have developed a strong appreciation of the idea of sharing information ideas and strategy. It is still very important to sort the “wheat from the chaff”, past performance is not guide to future success and it is important to understand the motives of the people you are talking to or following.

I will never be a fan of slavishly copying the trades of another trader if you want to do that the use a professional firm as they have the tools that are tried and tested, and you will be part of a major PAAM programme. Anyone can produce a trade log showing trades that have been successful in the past, but it is the “why” how they have made money rather than the fact of profitability that should be understood and form the basis of a relationship.

Twitter has a several very good commentators who evoke thought which is a useful tool to employ since it helps develop an understanding.

Overall read all you can, think about what you are reading and don’t always believe the consensus, remember the recent Sterling rally!

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Ransquawk