Look: If you haven't got edge, the best psychology and money management won't prevent losing money. Making edge the most important. Yet: Edge seems surrounded by confusion and misunderstanding, right? So, how do you get edge?
First start with a thesis for a catalyst
What's going to move price? Which direction will it move? And by how much? Take AUD/USD: It's a Thursday Asian trading session. Price has risen massively last 24 hours. But there's so much aggressive selling below current level? It's obvious to everyone a short covering rally is coming right?
Think: Do markets move in obvious ways? A little unknown is relative value for the Asian session is lower than current prices. But higher than what most think "a discount" represents. (relative value is where large buyers will enter) End-of-month is when dealers and commercials in AUD/USD rebalance inventory. The aggressive selling was inventory rebalancing. But most will think it's new short traders who are currently offside and the target of a short squeeze.
First thesis: Long traders exit their trades at a loss fuelling a move in price to relative value levels. First catalyst: Market makers manufacture a price increase enticing new traders to buy. The new buyers are the fuel for a move down. As they exit their losing trades, prices falls to relative value levels.
What does trading it look like? 1st: attempted short scalp = paper cut loss. 2nd: U̶n̶d̶e̶r̶ ̶N̶D̶A̶ playbook trade which includes scaling-up. Plus… 3rd: repeat of last playbook trade 4th: failed attempt to add another leg to above trade 5th: Premium U̶n̶d̶e̶r̶ ̶N̶D̶A̶ playbook trade:
Plus:
Notice one idea milked for all it's worth when you have a catalogue of strategies with edge (a playbook)? And this isn't even the most exciting development... The market didn't move as low as the relative value level. Appetite for the long side is so strong buyers are willing to "pay up" for it. When this happens - look at the steep price increase!
Which brings you to your Second thesis and catalylst. The market aligned with playbook trades on the longside. Developing a thesis and recognising catalysts is vital to your success. You develop these skills trading at a professional firm. Or you can work with a mentor to replicate their skills and subsequent edge.
That's everything. For a 1 minute recap in a live trading setting, see the video below:
Forex and derivatives trading is a highly competitive and often extremely fast-paced environment. It only rewards individuals who attain the required level of skill and expertise to compete. Past performance is not indicative of future results. There is a substantial risk of loss to unskilled and inexperienced players. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent
Editors’ Picks
EUR/USD trims gains, back below 1.1800
EUR/USD now loses some upside momentum, returning to the area below the 1.1800 support as the Greenback manages to regain some composure following the SCOTUS-led pullback earlier in the session.
GBP/USD off highs, recedes to the sub-1.3500 area
Following earlier highs north of 1.3500 the figure, GBP/USD now faces some renewed downside pressure, revisiting the 1.3490 zone as the US Dollar manages to regain some upside impulse in the latter part of the NA session on Friday.
USD/JPY sticks to gains above 155.00, over one-week top ahead of US data
The USD/JPY pair gains positive traction for the third straight day and climbs to over a one-week top, around the 155.35-155.40 region. Data released early today showed that Japan’s key inflation gauge eased to the slowest pace in two years, tempering expectations for an immediate policy tightening by the Bank of Japan.
Editors’ Picks
EUR/USD: US Dollar comeback in the makes? Premium
The US Dollar (USD) stands victorious at the end of another week, with the EUR/USD pair trading near a four-week low of 1.1742, while the USD retains its strength despite some discouraging American data released at the end of the week.
Gold: Escalating geopolitical tensions help limit losses Premium
Gold (XAU/USD) struggled to make a decisive move in either direction this week as it quickly recovered above $5,000 after posting losses on Monday and Tuesday.
GBP/USD: Pound Sterling braces for more pain, as 200-day SMA tested Premium
The Pound Sterling (GBP) crashed to its lowest level in a month against the US Dollar (USD), as critical support levels were breached in a data-packed week.
Bitcoin: No recovery in sight
Bitcoin (BTC) price continues to trade within a range-bound zone, hovering around $67,000 at the time of writing on Friday, and falling slightly so far this week, with no signs of recovery.
US Dollar: Tariffed. Now What? Premium
The US Dollar (USD) reversed its previous week’s decline, managing to stage a meaningful rebound and retesting the area just above the 98.00 barrier when tracked by the US Dollar Index (DXY).
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