The Currency War: Macro vs. Micro

When a trader enters any market they need to decide what role they will play within that market. I have been teaching traders to trade currency for over six years and what I have learned is this: a trader with no clear identity is a losing trader. This lack of identity is most detrimental when trying to analyze the market when conditions are similar to what they have been over the past few weeks.

If you are a short term trader, let me give you some advice—stop trading now! With the volatility and lack of clear trends that we are seeing on the 5-15 minute time frames, your technical analysis has probably been failing you more than it has been helping you. And, due to the lack of precision with most robots and systems these have also been failing miserably. If you are seeking more guidance on trading this market under the current conditions, I will try to make this easy for you to understand. Continue to sell the EURO, NZD, and CHF against the USD. Do your best to not let the short-term waves disrupt your trading strategy and accept the fact that if you are going to try to capture these larger moves, you will need to decrease your lot size so you can increase your stops to survive the volatility.

Here’s what’s been working for me:

  1. Pay attention to the larger time frames (the small ones are full of Bull and Bear traps) and use them to place entry’s.
  2. Look for at least three correlating technical reasons to enter a trade (I mean it, at least THREE).
  3. Set your stops based on this larger time frame just above previous highs (if selling) and just below previous lows (if buying).
  4. Plot the most current Fibonacci on the larger time frame and take into account the possible retracement, or extension, and make sure that your stops reflect this also.
  5. Take your larger time frame and divide it by four (this is just a rule of thumb) and look for relevant areas of support and resistance, or even the short-term trend lines, and use this to determine the limits for your trades.
  6. Finally, realize that when you capture PIPs, you take them to live and fight another day.

Some issues to watch for would be…, you will find that where a normal risk-to-reward of 1:2 (or even 1:3) is standard, in this market you should be happy getting 1:1.5 (and in extreme cases even 1:1). That means that the only way to make money in this market for the next couple weeks is if you are right more than you are wrong. And, if you are not confident, then stay out for a couple of weeks at least.

As an experienced trader and educator, I strongly recommend using this time to learn. So that when the market is once again ready for you, you will be ready for the market.

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