Trading Basics
- Thread starter schizo
- Start date
For our noob brethren (as well as some of our resident old farts) who are getting their toes wet.
The Six Majors of Forex
These are the most liquid and widely traded currencies in the world. Trades involving majors make up about 90% of total Forex trading. They are USD/JPY, EUR/USD, USD/CHF, AUD/USD, USD/CAN, and GBP/USD.
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Understanding Currency Values
The following example shows how fluctuations affect currency prices:
- USD/JPY 110.08 means that 1 U.S. dollar equals 110.08 Japanese yen.
- If the price moves to USD/JPY 111.08, it means that the dollar has gotten stronger, as one could buy more yen per dollar.
- Conversely, if the price moves to USD/JPY 109.08, the dollar has gotten weaker, as it buys fewer yen per dollar.
- Prices for the JPY are given to two decimal places, but prices for all other currencies are given to four decimal places.
The spread is expressed in units called ticks, points, or pips (an acronym for “price interest point”). A pip is the smallest unit a currency is traded in. It is represented by the last number on the right side of the price. For example, the Japanese yen is calculated to 2 percentage points. A bid/ask quote for the Japanese yen against the U.S. dollar might look like 109.23/28. In this case, the smallest unit is 0.01, which equals one pip. Therefore, the difference between the two figures—0.05—is expressed as five pips. The euro and the pound are both calculated to four decimal points. One pip therefore equals 0.0001 of the currency. If the Japanese yen climbs from 105.05 to 105.08 against the U.S. dollar, for example, it has gained three pips. If the euro jumps from 1.0032 to 1.0072, it has gained 40 pips. To calculate how much each pip is actually worth, divide the currency’s smallest tradeable unit by the currency exchange rate. Let’s take the EUR/USD as an example. The euro’s smallest tradeable unit is 0.0001, and the currency exchange rate with the U.S. dollar is 0.88. To determine each pip’s value, calculate 0.0001/0.88, which equals 0.000113.
Lot Sizes
A standard currency contract is referred to as a lot. Initially, lot sizes were very large because currencies were traded only by large financial institutions. With the advent of retail trading, the forex market came up with smaller units called mini lots and micro lots (and even nano lots, which aren't as of yet offered by that many brokers).
Hey Schizo,
I remember you saying recently that youve been smashing the USD/JPY and of course I've followed your BTC trading etc.
In a scenario where you had to pick only one instrument to trade day in,day out would it be the USD/JPY?
My bread and butter for more than 20 years has been ES. That's what I traded day in and day out. Unless volatility falls off the cliff, I ain't sure if that will change any time soon.
That said, I've been slowly transitioning myself to swing trading since earlier this year and USD/JPY has served me well. It's also a very good instrument to day trade too IMO.
%%
Good \
except rule #3.777\a temp loser, figured in your plan [or mine LOL];
add a planned amoUt to it, maybe NOT 7777.
IF you or i got in UPRO @ $50 + its $25;
go read Big Trends book\ Price Headly writer \ oops we missed the ''elephant trunk sell signal ''
.[#6.666] IF mom or sis screams/ tone to big or volume to loud, most likely LOL
Time Compression
Time compression is all around us and is a direct result of how we see the world and how we see our place inside of it. Part of what you have to do is refocus your mind away from seeing the markets as a place where something happens into a process that is happening. The markets are not a place in the regular sense that they are “in” Chicago, for example, but a process that is happening in Chicago. If we pick just one market to explain, most traders don’t really understand that when the price of corn changes in Chicago, it changes the entire world’s view of what grain might cost moving forward, which affects the entire worldview of the price of food moving forward, which in turn changes the entire worldview on something else moving forward until all our heads are spinning trying to answer the questions, What does this mean, and what do I do to profit?
Time compression is created based on the perceptions held by the people participating in that particular market event. It is that which happens when everyone wants to do the same thing at about the same time for roughly the same reasons. It doesn’t matter if the event is market related or not; when groups of people are stimulated a certain way by events around them, they will behave in a predictable way: either to gain pleasure or to avoid pain.
When attempting to define a time-compressed market, it is critical that you always remember that someone somewhere is placing an order into the market with the intention of receiving pleasure (profit) or avoiding pain (loss). This exact same process is going on inside every individual market participant; therefore, the appearance of the market is identical to any one person. This is why crowds behave in the same predictable way. This is why all losers behave in the same way and express similar responses to how their equity changes. Once we know this to be the case, it is vastly easier to see where a change in underlying market structure is likely to happen, providing a place to buy low or sell high.
In order for time compression to develop, there needs to be four things:
In this case, corn traders will have their greed stimulated because it is a good bet the price will rise, the time is short for the opportunity, the individual trader will likely have a sense of certainty about a potential profit but has to act fast. All traders out there are thinking the exact same thing if they have a bullish bias to begin with, and most likely there will be a rush to buy the market. Sellers probably wouldn’t want to sell the market because they know that a higher price is coming and they want to sell into that higher price anyway. So now we have an order-flow imbalance heavily favored to the buy side, creating a tremendous surge higher in price. The market trades limit up quickly and stays there for three or four days. That means a lot of buyers are out there, and they all want to buy corn “before it’s too late.” Again, time is the issue, not price. The perception of potential price is what is motivating the buyers.
This is time compression driving price higher. Now, the interesting thing about this scenario is that it happens all the time in the markets. Only when the event is in the public eye quite dramatically do you get a sharper and more consistent rise—a front-page drought, for example. But in any case, the market is becoming time compressed, as everybody who has an urge to action is on the buy side of the order flow. What happens when all those potential buyers finally have had their order filled and there is no one left to buy corn? Well, that becomes the top in price. Now you get an equal and dramatic move lower, right back to where the market started from. In the final analysis, the four-month average price for the corn in the bins is about the same before the time-compressed rise resulted in a time compressed sell opportunity.
The perception of the entire event happened inside the mind of the traders. When everyone wanted to buy corn at the same time, no one wanted to sell; the price rallied until it found sellers who, because the market is a zero-sum game, are the late buyers who believed they had a sure thing (sense of certainty). They now must exit the market and can’t get out of a buy trade unless they use a sell order. The market then falls back to the non-time-compressed price area (where it started from) as those sell orders can’t find buyers. The whole thing is over in a short time, and the net result is a transfer of wealth from the loser to the winner while corn itself remains at a fairly close average in price over time.
In most markets, time compression happens more subtly and usually creates solid highs and lows that can be exploited quite regularly. The purpose of the corn market illustration is to show you the basic concept and what is needed for time compression to develop. Again, those basics started with individuals’ underlying belief structure. This belief structure often is based on fear, greed, or hope. There also must be a tangible benefit to an individual that is readily apparent to him or her—in other words, a sense of certainty about something
Time compression is all around us and is a direct result of how we see the world and how we see our place inside of it. Part of what you have to do is refocus your mind away from seeing the markets as a place where something happens into a process that is happening. The markets are not a place in the regular sense that they are “in” Chicago, for example, but a process that is happening in Chicago. If we pick just one market to explain, most traders don’t really understand that when the price of corn changes in Chicago, it changes the entire world’s view of what grain might cost moving forward, which affects the entire worldview of the price of food moving forward, which in turn changes the entire worldview on something else moving forward until all our heads are spinning trying to answer the questions, What does this mean, and what do I do to profit?
The market is alive and functioning as a process that involves a very complex set of group dynamics. What happens here in Chicago is not the market “in Chicago”; it is the process of thought/actions playing out in the mind of everyone participating everywhere else in the world. What creates time compression is the process itself playing out while all the participants watch Chicago.
Time compression is created based on the perceptions held by the people participating in that particular market event. It is that which happens when everyone wants to do the same thing at about the same time for roughly the same reasons. It doesn’t matter if the event is market related or not; when groups of people are stimulated a certain way by events around them, they will behave in a predictable way: either to gain pleasure or to avoid pain.
When attempting to define a time-compressed market, it is critical that you always remember that someone somewhere is placing an order into the market with the intention of receiving pleasure (profit) or avoiding pain (loss). This exact same process is going on inside every individual market participant; therefore, the appearance of the market is identical to any one person. This is why crowds behave in the same predictable way. This is why all losers behave in the same way and express similar responses to how their equity changes. Once we know this to be the case, it is vastly easier to see where a change in underlying market structure is likely to happen, providing a place to buy low or sell high.
In order for time compression to develop, there needs to be four things:
- A precipitating event
- Stimulation of greed, fear, or hope
- A timeline that requires something be done quickly
- A sense of certainty by the individual
In this case, corn traders will have their greed stimulated because it is a good bet the price will rise, the time is short for the opportunity, the individual trader will likely have a sense of certainty about a potential profit but has to act fast. All traders out there are thinking the exact same thing if they have a bullish bias to begin with, and most likely there will be a rush to buy the market. Sellers probably wouldn’t want to sell the market because they know that a higher price is coming and they want to sell into that higher price anyway. So now we have an order-flow imbalance heavily favored to the buy side, creating a tremendous surge higher in price. The market trades limit up quickly and stays there for three or four days. That means a lot of buyers are out there, and they all want to buy corn “before it’s too late.” Again, time is the issue, not price. The perception of potential price is what is motivating the buyers.
This is time compression driving price higher. Now, the interesting thing about this scenario is that it happens all the time in the markets. Only when the event is in the public eye quite dramatically do you get a sharper and more consistent rise—a front-page drought, for example. But in any case, the market is becoming time compressed, as everybody who has an urge to action is on the buy side of the order flow. What happens when all those potential buyers finally have had their order filled and there is no one left to buy corn? Well, that becomes the top in price. Now you get an equal and dramatic move lower, right back to where the market started from. In the final analysis, the four-month average price for the corn in the bins is about the same before the time-compressed rise resulted in a time compressed sell opportunity.
The perception of the entire event happened inside the mind of the traders. When everyone wanted to buy corn at the same time, no one wanted to sell; the price rallied until it found sellers who, because the market is a zero-sum game, are the late buyers who believed they had a sure thing (sense of certainty). They now must exit the market and can’t get out of a buy trade unless they use a sell order. The market then falls back to the non-time-compressed price area (where it started from) as those sell orders can’t find buyers. The whole thing is over in a short time, and the net result is a transfer of wealth from the loser to the winner while corn itself remains at a fairly close average in price over time.
In most markets, time compression happens more subtly and usually creates solid highs and lows that can be exploited quite regularly. The purpose of the corn market illustration is to show you the basic concept and what is needed for time compression to develop. Again, those basics started with individuals’ underlying belief structure. This belief structure often is based on fear, greed, or hope. There also must be a tangible benefit to an individual that is readily apparent to him or her—in other words, a sense of certainty about something
Well, for one, you're not bound to all those silly rules, like PDT and uptick rules. Another plus is that you're not bombarded with 50,000 different stocks to choose from. Personally speaking, I like to specialize and focus all my attention on one instrument. I've always hated screening stocks and that was the single biggest factor in migrating to futures trading. Also the futures market like ES is very liquid with tight spread. If you're good, you can make a sick amount of money in short amount of time without much seed money (yeah, easier said than done). One obvious disadvantage to trading futures is that they all expire. So you must roll over every x months (eg. 3 months for index and bond futures, 1 month for energy and commodities). Another particular caveat is that futures comes with a steeper learning curve. Not to denigrate stock traders, but futures traders are a bit more savvy IMO. That's because they need to process more info, like economic data, intermarket analysis, etc. So, as with everything else, you need to remain humble and learn from your mistakes.
Can anyone recommend any good books on trading?
Thank you.
Depends on your skill level. How much do you know about trading? What do you trade? Stocks, options, forex/crypto or futures? What's your timeframe, day trading or swing trading? What's your method of trading? Charts, ladder, Level2?
When a trade goes badly, you're left with basically only four choices:
Note: By the same token, every time you take home a winner, there is someone who is admitting that you were right and he or she was wrong. Hence, use that analogy to your advantage.
- Let the market continue to move and hope and pray for a reversal.
- Kill the trade immediately and take the loss.
- Hedge the trade (eg. enter another one in the opposite direction).
- Move/widen the stop.
Note: By the same token, every time you take home a winner, there is someone who is admitting that you were right and he or she was wrong. Hence, use that analogy to your advantage.