Practical Tips For Newbie

After 15 years trading what are some of the best pieces of advice I could give to new and struggling traders.

I’ve realized that over time when you find success in trading no matter how long it took you to get things right. All the hours upon hours of studying/learning trading start to become bigger distant memories. You get into your routine of what you do.

I wanted to create a post that is straight forward in it’s thinking and most of all helpful.

So how can I sum up truly what makes the biggest difference in trading. I’m going to break it down into two categories. Psychological and Technical.

Psychological

You will hear it all day every day. If you can’t get your head right you simply won’t find success. Humans are great at self-sabatoge. Trading brings out all the ego qualities that want to sabatoge long term success. Why if we want something so bad do we self sabatoge? The answer to me is simple. We can’t see the forest for the trees. In other words we constantly lose sight of the bigger picture and our reactions end up being for short term satisfactions. That could be our greed, our fear, our inability to be patient, and the list can go on and on. I’ve always worked very hard at my ego in relationship to my trading. I’ve done simple things over the years to counter act with what my impulses are screaming. What you will find is over time those impulses will not go away but you will be able to recognize and then rationally react to them. You will never be able to get rid of the ego, but you know when it is rearing its ugly head and then how to prevent it from taking you down.

Here are a few simple ways I have found to deal with this.

1. Admit what your issues are. Oh yea sounds so simple and obvious. You can’t fix a problem till you admit your problem! But seriously identifying some key problems are pretty easy if you are honest with yourself. Are you over trading? Are you risking too much? Are you fearful? Are you greedy? Again this can be a long list. As you gain more experience usually it will boil down to a few of these instead of a laundry list. Stop hiding from the issue and expecting it to be solved on its own. That won’t ever happen.

2. CHALLENGE THE EGO. Figure out a plan to tackle this issue. Again go with the obvious. I won’t list every problem and a solution here but if you can’t figure out a logical solution. Post a comment i’ll help you out. For example is your problem over trading? Are you taking 50 trades a month? A week? A day? If you can’t be profitable taking a handful of great trades a month you sure won’t find long term success taking 50. Attack your problem with rules that challenge your ego. Instead of 50 trades a month , give yourself 3-5. Yes that’s right 3-5. You can build an account just fine with a couple great trades. But the real reason to do this is challenging the ego. Your ego creeps up and tells you for whatever reason you need to be over trading. By putting constraints on it you will have to really battle this psychological issue. You may in the long run go back to taking 50 trades a month but in the short term you are going to have a fierce match with your mind. Say you take all 5 trades the first day of the month. Well guess what no matter what trade you see, no matter how much you want to be in the market you now have to challenge yourself to sit and wait 30 more days for another trade. Think that’s easy? Think you can do that? If you are an over trader this will be one of the hardest things you do. But guess what if you are able to do this for a period of time you will have conquered many of your issues and taught yourself discipline, and how to silence those voices that will destroy your trading.

This is just one example, I recommend you come up with your own list have issues and ways to deal with those issues.

Technical

I know what a lot of people are thinking. If I only knew how to read a chart I’d be fine. If I only knew how to manage my trades i’d be fine. That’s just not true! Trading is not about one single concept or ability. It’s about bringing together a plethora of skills, stringing them together in a logical manner time and time again. Being consistent with that approach through the ups and downs. Understanding and trusting your edge. But like the psychological side explained above their is a lot that you can do to build and hone your skills from a technical aspect. Below is a small list of examples you can start working on today.

1. Get great at one thing. Too many people try to do too much. You don’t have to know how to trade every situation, every moment like a pro. You are much better of becoming great at just a handful of things and then working to expand your toolbox. Trying to learn breakout trades? Make that your focus. Learn how to pick the best patterns, the best triggers, the best ways to manage them. Make breakouts your one and only focus until you are confident in your abilities in them. Want to learn just pinbars? Then do that. Learn all the nuances of trading them. What makes a good one, what makes a bad one. Again sounds so simple but yet you will see very few break down their trading and learn to get great at just a few things. In trading being ‘OK’ at many things won’t fly. Become a master at one thing at a time.

2. Practice your capital preservation on every trade. All too often you will hear the cliche cut your losses and let your winners run. Now like most things in trading that can be done many ways, and different strokes for different folks. But one of the biggest changes to my trading and that have helped hundreds of struggling traders is being diligent and proactive in managing your trades. Understand a few key concepts here.

– Always think about your stop loss as being the point in which the LOGIC of the trade no longer makes sense. Too many traders don’t think about the impact of a stop loss. They simply use one because they are told too. That’s a good first step but when you start thinking about the logic that makes up your trade you can use your stop loss with more power. Think about where the market should NOT go if your trade idea is to remain valid. This is the point at which your stop loss should be. For me this often changes as a trade evolves and the goal is to begin to cut my losses by using stop losses in this logical manner.

– Your entry is not independent of your exit. All too often people think of ‘exits’ as existing on their own. That you learn an exit strategy and you are done. Entries are the “easy” part. Not true in my book. A good trade flows all together. Where you enter your trade ties DIRECTLY into how you manage your trade and end up being able to cut your losses and let your winners run. The key here is to enter at the most significant area on that trade. You want to be nearest the area where the trade should work. Because if that area doesn’t hold you are able to cut out of the trade. Too many folks enter without thinking about this and by not entering in an optimal place exposes you to take larger drawdowns in order to let the trade potentially work. A practical example would be as follows. You see a bearish outside bar that engulfs a previous consolidation and closes under the previous support area. Instead of entering on the close or a break down of that bar place your entry nearest to that previous support. That is the pivotal area in the market. If it doesn’t hold you can get out with a smaller loss and move on. By doing this you will increase your overall R:R on most trades which in the long run is going to pay off big.

These are just a few examples from the technical and psychological areas of trading that I have found to be tremendously helpful. Like all things in trading it takes time and practice. That’s just part of this business.

Source: Click Here

Impact of U.S Interest Rate Hike

Federal Reserve raises interest rates for the first time in nearly a decade

The US central bank has raised interest rates by a quarter percentage point and pledged a gradual pace of increases
This marks the end to the near-zero borrowing costs that have prevailed since the US was struck by the worst financial crash in modern times.

How fast will rates rise?

There are different ways to guess. One of these is by looking at the Fed Fund futures markets, where investors essentially bet on what level the interest rate will be in upcoming months.

What do economists think?

The Financial Times polled 51 top economists on how fast they think Janet Yellen would raise rates in the next two years. The projection is for the Fed to lift rates by 75 basis points in 2016 and a further 100 in 2017.

What is at stake when the Fed raises rates?

A lot. The effects of a Fed rate rise is transmitted not just through to banks and businesses in the US, but also has an impacct on the global economy.

Why is the Fed raising interest rates now?

America has seen its longest private sector hiring spurt on record, and unemployment has halved since its peak. The Fed thinks the hot jobs market could spur a pickup in inflation and wages. Given it is tasked with keeping inflation low, it is considering raising the cost of borrowing to keep the economy on an even keel.

Why have rates in the US been held so low for so long?

The US was hit by the crash in its housing market and banking sector between 2007-09. The Fed felt it needed to pull out all of the stops to prevent the economy from collapsing into a new Great Depression. One way of keeping things afloat was by cutting the cost of borrowing to rock-bottom levels.

How does a rise in central bank interest rates get transmitted to the wider economy?

Adjusting the federal funds rate - the rate banks charge each other for short-term loans - affects other short term rates paid by firms and households. These movements also have knock-on effects on long-term rates, including mortgages and corporate bonds. Changes in long-term rates will have an influence on asset prices, including the equity market. During the crisis the Fed also purchased longer-term mortgage backed securities and Treasury bonds to lower the level of long-term rates.

How fast are rates likely to rise?

Not fast at all - if the Fed is to be believed. One of the mantras adopted by Chair Janet Yellen this year has been that rate rises will be gradual. The pace of increases is expected to be less than half the tempo of the Fed’s last round of rate rises, which started in 2004. And the ultimate rate they stop at is likely to be very low too, at less than 4 per cent.

Are businesses ready for an increase in borrowing costs?

Many corporations have taken advantage of the low rate environment to borrow money via the bond markets. Most companies say they are relaxed about the impact of a small rate hike, believing the market has already priced their bonds or such an event.

What will a rate rise mean for my personal finances?

An upward move in short-term interest rates will be positive for savers who have been missing out on interest on their deposits. But the change could also be transmitted to a range of other interest rates, including car loans, credit cards and mortgages, which would make them more costly.

 

Are US consumers in general prepared for rates to rise?

The burden of household debt has fallen since the crisis, reaching 114 per cent of net disposable income last year, according to OECD statistics, suggesting consumers are better prepared for higher borrowing costs. In addition, a quarter-point hike would still leave rates at historically low levels.

How are investors reacting to higher US interest rates?

Investors' immediate reaction to the first rate rise in nearly a decade was generally one of relief that it is finally happening. The end of the Fed’s “zero interest rate policy” has been anxiously anticipated by investors for more than a year, but policymakers have worked hard to stress that the coming monetary tightening cycle will be exceptionally gentle, to avoid a repeat of the market “taper tantrum” that erupted when they announced the end of quantitative easing. From the intial market movements after the rate rise decision was announced, it seems they have succeeded.

How are currency traders positioning themselves?

Currency markets are fickle, but differences in interest rates tend to drive movements in the longer-run. For example, if a European investor can borrow cheaply in Berlin and buy a higher-yielding US bond, then all else being equal the dollar will rise versus the euro. As a result, the dollar started the year in rip-roaring fashion, with an index measuring the US currency against a basket of its peers rocketing to a 12-year high, as investors bet on the Fed tightening monetary policy and bond yield differences widened.

Since then it has continued to beat up emerging market currencies but the broad rally has fizzled out as the euro and the Japanese yen have regained their footing. However, many analysts and fund managers expect the greenback to continue to climb higher in the coming years, as the Fed raises interest rates further.

What investments are most sensitive to interest rate rises?

Almost every asset class on the planet exhibits some evidence of frothiness these days, but some seem more vulnerable to higher interest rates. Although stocks look expensive, higher interest rates indicates that economic growth is firm, and that is good for listed companies. Gold typically loses its shine when interest rates climb, as the metal doesn’t pay any interest like a bank account will, but has already been beaten up heavily recently. The bond market looks more exposed. Highly rated debt is trading with very low yields, which means they are vulnerable to even a modest rise in Fed interest rates, while bonds issued by companies rated “junk” could suffer if more expensive borrowing tips some weaker groups into bankruptcy.

Will the UK automatically follow the US in raising rates?

There is no automatic or formal link between US and UK interest rates but the widespread expectation is that the Bank of England will be the next central bank after the US to raise rates. The UK’s economic recovery is well on track, with solid growth and a strong labour market.

What are we expecting from UK interest rate rises?

Bank of England governor Mark Carney has stressed that while the next move in rates is likely to be upwards, the path of increases will be “limited and gradual”.
While refusing to be drawn on precise timing, Mr Carney said the decision of whether to start lifting rates was likely to come into “sharper relief” around the turn of the year. Analysts are not predicting the first rise until February at the earliest, with many pushing the timing back into the late spring.

Are all major central banks around the world thinking of raising interest rates?

No. The Bank of England is widely expected to follow the Fed and raise rates, most likely some time in the new year. But as the prolonged weakness in oil prices continues to keep inflation low, many central banks in the rich world are expected to loosen monetary policy further, for example expanding their programmes of quantitative easing. Mario Draghi, president of the European Central Bank, paved the way for an extension of QE and the Bank of Japan may well decide to go the same way to bring inflation back to target. In China, the central bank may also cut rates further to stimulate growth. The outlook for emerging markets is harder to gauge: were a Fed hike to trigger turmoil across Africa, Asia and Latin America, countries there may choose to cut rates to help the economy, or increase them in order to dissuade investors from taking their money abroad.

Why would a rate rise in the US impact the emerging market countries?

We have already seen one of the main impacts: a stronger US dollar, backed by higher US interest rates, tends to depress the values of emerging market currencies at a time when many EM economies are already weakening and their currencies have already slumped against the greenback. The Fed’s rate rise could exacerbate the EM currency turmoil, and even help precipitate a full-blown crisis.

What is tightening and loosening?

When a central bank “loosens” or “eases” policy it essentially increases the supply of money in the economy and pushes down the cost of borrowing. This could be by lowering interest rates, or buying more assets with the aim of putting more money into circulation and encouraging greater economic activity.
“Tightening” is the opposite. If policymakers worry that an economy is begin to overheat, potentially generating too much inflation, they can tighten policy – such as raising the interest rate they charge banks to borrow from them, to make the cost of credit more expensive.
Changes to interest rates can take-up to 18 months to feed through into the real economy.

What is monetary policy?

Central bankers control more than just interest rates. “Monetary policy” is a broad brush term for a whole range of actions, including things like selling or buying assets such as government bonds, raising or reducing the amount of capital banks need to hold against liabilities, and raising or lowering interest rates.
All of these actions impact the cost and supply of money in an economy which are the main levers central banks use to try and keep inflation at its target level and the economy growing at a sustainable speed.
Changes in monetary policy can take-up to 18 months to feed through into the real economy.

 Source: Click Here

What a Fed rate hike means for you...

America, higher rates are here.

The Federal Reserve raised its key interest rate by 0.25%. It was the first rate hike in nearly a decade.

Millions of Americans will be affected as U.S. rates start rising. If you have a credit card or savings account, invest in a 401(k) or in the markets, or want to buy a home or car, now's the time to pay attention. 

The Fed slashed interest rates to zero in December 2008 to stimulate the economy and boost the housing market during the depths of the Great Recession. 

The central bank now believes the U.S. economy is strong now and no longer needs crutches.

Still, it won't be a game changer overnight. Rates are expected to go up at a slow, gradual pace.

Here's what you need to know about how the Fed's action will affect you. 

1. Big ticket buyers: don't rush, rates are still low

 

If you're in the market for a home or a car, you don't need to rush and get it done tomorrow. But it's a good time to pay attention and start preparing to take the big decisions. 

Interest rates are still low but are slowly expected to start climbing next year.

The Fed determines the target rate for very short-term debt. But it also influences interest rates on credit cards, car loans and even long-term debt like mortgages. 

None of the impact will happen overnight, experts say. 

"Rates are pretty low and they're not going to change much," in the short term, says Dean Croushore, a University of Richmond professor and former Fed economist. 

The average interest rate on a typical 30-year fixed rate mortgage is 3.9% right now and is expected to gradually increase. 

Ten years ago mortgage rates were near 6.3% and 20 years ago 7.2%, according to the St. Louis Fed. So yes, rates will likely be higher in a year but still low when compared to historical averages. 

2. Savers see light at the end of the tunnel

Savers may not get to rejoice right away. America's largest banks announcing that they will start charging more interest for loans. But they also made it clear that they would be pocketing the money themselves and that savers won't get higher interest on their deposits immediately. 

If you put money in your savings account or have certificates of deposit, you earned almost zero interest in the last seven years. That will begin to change over the next couple years, even if it's slow.

The Fed's first rate hike will be a step in the right direction. It means there will likely be more increases in the near future (the next 1-2 years), and that eventually will mean higher interest income on your deposits. Bottom line for savers: it's good news, but you need to be patient. 

3. Stock markets roller coaster could get more bumpy

 

If you invest at all in stocks and bonds -- even if you just have a 401(k) -- a Fed rate hike will be important to you and your portfolio. 

It could trigger volatility in stock and bond markets, which are already on a roller coaster ride. Just last week, U.S. stocks had their worst week in months. 

And there's plenty of other factors that are already concerning investors: falling oil prices, China's continued economic slowdown and actions from other central banks around the world. 

Most other banks, like the European Central Bank, are moving in the opposite direction and cutting interest rates. China's central bank cut rates in October too. 

4. Dollar could gain versus global currencies

 

The divergence between interest rates in America versus other countries is expected to cause the U.S. dollar to become stronger. 

That's great news for world travelers, but it would hurt all types of U.S. companies that sell products abroad. 

Also some investors are pulling their money out of global investments parking it in the U.S. -- higher rates make assets priced in dollars more attractive. 

Others are getting out of emerging markets like Turkey and Brazil. Those countries sometimes borrow loans that have to be paid in U.S. dollars. 

Once the dollar's value rises, those loans get more expensive and difficult to pay back. It creates financial stress and can lead to default and ultimately hurt the broader economy. 

It's already been a bad year for many developing nations. The MSCI Emerging Market Index, which captures stock market performance, is down nearly 20% so far this year. 

So just be ready for a bumpy ride in the global markets. 

5. Can the global economy get back on track?

 

The Fed's actions have huge implications for the global economy. 

The Unites States is linked more than ever before to major players around the world. China's slowdown has hurt other emerging markets. Japan is barely growing. Europe is struggling with low economic growth too. It's been a rough year for emerging markets across the board. 

To varying degrees, all that weighs on the U.S. economy and the Fed. 

The concern is that the Fed's rate hike can cause a boomerang effect: (1) the Fed raises rates, (2) that hurts other economies even more, and then (3) economic woes in developing countries eventually hurt U.S. trade and economic growth. 

The U.S. manufacturing sector has already shrunk as a result of the weak global economy and strong U.S. dollar. 

The U.S. economy has made lots of progress since the recession, but it's still not at the finish line, some say. 

"We've come a long way from the depths of the recession, but we're still not quite back to where we'd like to be," says Croushore, the former Fed economist.

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How do changes in national interest rates affect a currency's value and exchange rate?

All other factors being equal, higher interest rates in a country increase the value of that country's currency relative to nations offering lower interest rates. However, such simple straight-line calculations rarely, if ever, exist in foreign exchange. Although interest rates can be a major factor influencing currency value and exchange rates, the final determination of a currency's exchange rate with other currencies is the result of a number of interrelated elements that reflect and impact the overall financial condition of a country in respect to that of other nations.

Generally, higher interest rates increase the value of a given country's currency. The higher interest rates that can be earned tend to attract foreign investment, increasing the demand for and value of the home country's currency. Conversely, lower interest rates tend to be unattractive for foreign investment and decrease the currency's relative value.

However, this simple equation is complicated by a host of other factors that impact currency value and exchange rates. One of the primary complicating factors is the interrelationship that exists between higher interest rates and inflation. The rise of interest rates in a country often spurs inflation, and higher inflation tends to decrease the value of a currency. If a country can manage to achieve a successful balance of increased interest rates without an accompanying increase in inflation, then the value and exchange rate for its currency is more likely to rise.

Interest rates alone do not determine the value of a currency. Two other factors that are often of greater importance are political and economic stability and the demand for a country's goods and services. Factors such as a country's balance of trade between imports and exports can be a much more crucial determining factor for currency value. Greater demand for a country's products means greater demand for the country's currency as well. Favorable gross domestic product (GDP) and balance of trade numbers are key figures that analysts and investors consider in assessing the desirability of owning a given currency.

Another important factor is a country's level of debt. While they can be managed for some period of time, high levels of debt eventually lead to higher inflation rates and may ultimately trigger an official devaluation of a country's currency.

The recent history of the United States clearly illustrates the critical importance of a country's overall perceived political and economic stability. In recent years, U.S. government and consumer debt has exploded to new high levels. In an attempt to stimulate the U.S. economy, the Federal Reserve has maintained interest rates near zero. Despite these facts, the U.S. dollar has enjoyed favorable exchange rates in relation to the currencies of most other nations. This is partially due to the fact that the U.S. retains, at least to some extent, the position of being the reserve currency for much of the world. Also, the U.S. dollar is still perceived as a safe haven in an economically uncertain world. This fact, more so than interest rates, inflation or other considerations, has proven to be the overriding and determining factor for the relative value of the U.S. dollar.

Source: Investopedia

Understand Australia Interest Rate - Reserve Bank of Australia

Reserve Bank of Australia

 

The Reserve Bank of Australia (RBA) is the Australian central bank. The RBA’s most important task is to set the monetary policy for Australia. The aim of this policy is to achieve low and stable inflation in the medium term. Other important responsibilities of the RBA are:

• to maintain financial stability and the stability of the Australian dollar;
• to maintain full employment;
• to contribute to the economic development and wealth of the inhabitants of Australia;
• to act as banker for the Australian government;
• to issue Australian currency;
• to manage Australia’s foreign currency reserves.

Cash rate target

 

When reference is made to the Australian interest rate this often refers to the cash rate target, also called the official cash rate (OCR) or cash rate. This is the Australian base rate. Banks pay this interest rate when they take out a loan with a maturity of 1 day from another bank. By buying or selling bonds and other securities issued by the government the RBA can influence the money supply and thus the cash rate target. A rise or fall in the cash rate often also leads to a change in the interest rates for mortgages, loans and savings.