FX Street Chat · 2018-07-02 · Kathy Lien Chief Strategist. Disclaimer Leveraged foreign exchange...

FX Street ChatFX Street Chat

Kathy Lien Kathy Lien Chief StrategistChief Strategist

DisclaimerDisclaimerLeveraged foreign exchange and options trading carries a significant level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You should be aware of all the risks associated with foreign exchange and option trading, and seek advice from an independent financial advisor if you have any doubts.The contents provided in this seminar are subject to change at any time without notice.

There is no guarantee that the systems, trading techniques, FX PowerCourse, trading methods, indicators or other information presented at this seminar will result in profits or not result in losses. The content is provided for informational purposes only and is not intended as a trading recommendation.

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FundamentalsFundamentals101101

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Fundamentals Fundamentals –– Data and Numbers Data and Numbers to Watchto Watch

#1

Economic Growth DataGDP (Gross Domestic Product)

NFP (Non-Farm Payrolls)

ISM (Institute Of Supply Management)

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Fundamentals Fundamentals –– Data and Numbers Data and Numbers to Watchto Watch

#2

Monetary Policy MeetingsFOMC (Federal Open Market Committee)

CPI (Consumer Price Index)

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Fundamentals Fundamentals –– Data and Numbers Data and Numbers to Watchto Watch

UK/Fed Funds Spread and the Impact on GBP/USD Pair

1.6

1.65

1.7

1.75

1.8

1.85

1.9

1.95

12/31

/2004

1/31/2

0052/2

8/2005

3/31/2

0054/2

9/2005

5/31/2

0056/3

0/2005

7/29/2

0058/3

1/2005

9/30/2

00510

/31/200

511

/30/200

512

/30/200

5

Inte

rest

Rat

e S

prea

d

0.00

1.00

2.00

3.00

GBP

/USD

GBP/USD UK/Fed Funds Spread

Japan/Fed Funds Spread and the Impact on USD/JPY Pair

90

95

100

105

110

115

120

125

12/31/2004

1/31/20

052/28

/2005

3/31/20

054/2

9/2005

5/31/2

0056/3

0/2005

7/29/2

0058/3

1/2005

9/30/20

0510

/31/200

511

/30/200

512

/30/200

5

USD

/JP

Y

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Fed

Fund

s/JP

Y S

prea

d

USDJPY Fed Funds - Japan Rate Spread

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Fundamentals Fundamentals –– Data and Numbers Data and Numbers to Watchto Watch

#3

Trade FlowsCA (Current Account)

TIC (Treasury International Capital) System

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Fundamentals Fundamentals –– Data and Numbers Data and Numbers to Watchto Watch

#4

Political EventsMarkets Hate Destabilization

Politics Always Trumps Economics Because Future Risks Become Impossible To Handicap

EZ Constitutional Crisis

CAD No Confidence VoteB

Fundamentals Fundamentals –– Data and Numbers Data and Numbers to Watchto Watch

#5

Central Bank Comments

3 Most Powerful Policymakers In The World:

Ben Bernake

Jean Paul Trichet

Toshihiko Fukui

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Fundamentals 101 Fundamentals 101 ––All You Ever Need To Know To Trade FXAll You Ever Need To Know To Trade FX

In Summary:

If Economic Growth Is Strong => Interest Rates Will Rise And That Should Attract Capital Which Will Be POSITIVE For The Currency.

BUT Watch Out For Large UNFUNDED Trade Balance Deficits And Any Signs Of Political Turmoil Which Will Lead To A Drop In Investor Confidence And Will Be NEGATIVE For The Currency.

Finally Always Monitor Central Bank Speak And Consider Carefully What Monetary Authorities Say. They Move Markets. B

Fusing Technical With Fundamentals

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Setups, Setups, Setups!Setups, Setups, Setups!

Seven Day Extension Fade – Statistical Significance

Trading Rules

• Look for 7 consecutive bars of weakness (where each bar’s close is below the prior)

• Buy at the open of the next bar• Place stop at the low of the seventh bar minus 10 pips• First target is amount risked, move stop on remaining half to

breakeven • Second target is three times the amount risked

**Reverse for ShortB

Seven Day Extension Fade Seven Day Extension Fade –– NZD/USDNZD/USD

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Seven Day Extension Fade Seven Day Extension Fade –– EUR/USDEUR/USD

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Seven Day Extension Fade Seven Day Extension Fade –– USD/CHFUSD/CHF

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Seven Day Extension Fade Seven Day Extension Fade ––GBP/USD HourlyGBP/USD Hourly

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Seven Day Extension Fade Seven Day Extension Fade –– Failed TradeFailed Trade

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Trading in Action = Anatomy of a TradeTrading in Action = Anatomy of a TradeShort AUD/USD Recommendation on 11/01/06

Fundamental Reasons• Looking for a strong October non-farm payrolls – Recent Jobless claims, ADP and Hudson Employment Reports were very strong

Technical Reasons• Statistical Significance – Over Past 10 Yrs, AUD/USD saw a 7 day move 14 times, with only 3 of those 14 lasting for longer than 7 days

Went short AUD/USD at 0.7735, 0.7765 stop, exited ½ at 0.7712, ½ at 0.7687 = 58 pips in 24 hours.

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AUD/USD ChartAUD/USD Chart

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Setups, Setups, Setups!Setups, Setups, Setups!Moving Average MACD Combo Rules:

1. Wait for the currency to trade above both the 50 SMA and 100 SMA

2. Once the price has broken above the closest SMA by 10 pips or more, enter long if MACD crosses to positive within last 5 bars,otherwise wait for next MACD signal

3. Initial stop set at 5 bar low from entry 4. Exit half of the position at 2 times risk, move stop to breakeven5. Exit second half when price breaks below 50-SMA by 10 pips.

Reverse For A Short

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Moving Average MACD (Hourly Chart)Moving Average MACD (Hourly Chart)

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Moving Average MACD (Daily Chart)Moving Average MACD (Daily Chart)

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Moving Average MACD (Hourly Chart)Moving Average MACD (Hourly Chart)

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Moving Average MACD (Daily Chart)Moving Average MACD (Daily Chart)

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Moving Average MACD (Hourly Chart)Moving Average MACD (Hourly Chart)

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Trading in Action = Anatomy of a TradeTrading in Action = Anatomy of a TradeShort USD/CAD Recommendation on 10/19/06

Fundamental Reasons• Saudi Arabia Announced Plans to Back OPEC’s Production Cuts by 1 million barrels a day – to take effect Nov 1 With more a announcements possible in Dec• US Philly Fed on Deck > Could be Weak

Technical Reasons• Moving Average MACD Formation

Went short USD/CAD at 1.1347 , 1.1372 stop, exited ½ at 1.1310, ½ at 1.1320 = 69 pips in 4 hours.

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Fusing Fundamentals With TechnicalsFusing Fundamentals With Technicals

**The Key to Trading Is:

Look For an Attractive Technical Setup

And

Trader Either in Anticipation of an Economic Release

Or

On the Back Of OneB

Trading in Action = Anatomy of a TradeTrading in Action = Anatomy of a TradeShort USD/JPY Recommendation on 11/14/06

Fundamental Reasons• Surprisingly Strong Japanese GDP (2.0% vs 1.0%)• We Anticipate Weak US PPI and Retail Sales

Technical Reasons• Selling Retracement to a Key Daily Fibo Level

Went short USD/JPY at 117.82 , 118.15 stop, exited ½ at 117.62, ½ at 117.23 = 67 pips in 5 hours.

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Our MottoOur Motto

It is Us Against the Market - Trade Defensively!

Steal Pips as Often as Possible

Always TWO Targets > One Conservative, One Aggressive

Never Let a Winner Turn Into a Loser

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30 Minute Break!

DailyFX Tools to Help You TradeDailyFX Tools to Help You Trade

Speculative Sentiment IndexSpeculative Sentiment IndexTick IndicatorTick Indicator•• To Determine Support & ResistanceTo Determine Support & Resistance

Real Time Market Sentiment (SSI)FXCM Speculative Sentiment IndexFXCM Speculative Sentiment Index

•• RealReal--Time Snapshot of Speculative Sentiment Time Snapshot of Speculative Sentiment -- ““Throw out Throw out the COT Report!the COT Report!””

•• SSI Captures Global Market Sentiment, Not Just USSSI Captures Global Market Sentiment, Not Just US(Includes Positions From North America, Asia and Europe)(Includes Positions From North America, Asia and Europe)

•• Much more Information than the COTMuch more Information than the COT

•• Gives Contrarian SignalsGives Contrarian Signals

•• Accurately Predicts Market Turns and Profiles the Trading Accurately Predicts Market Turns and Profiles the Trading EnvironmentEnvironment

Ways to Interpret the SSI

-- Ratio of Longs to Shorts Positive > Bearish for the CurrencyRatio of Longs to Shorts Positive > Bearish for the Currency-- Ratio of Longs to Shorts Negative > Bullish for the CurrencyRatio of Longs to Shorts Negative > Bullish for the Currency

**Key is the FLIP and the SLOPE**Key is the FLIP and the SLOPE

-- Watch Out for Extreme Positioning and Early Sign of a Watch Out for Extreme Positioning and Early Sign of a Possible TurnPossible Turn

-- Consistent Flip Flopping > Characteristic of Range Bound Consistent Flip Flopping > Characteristic of Range Bound EnvironmentEnvironment

FXCM Speculative Sentiment Index

FXCM Speculative Sentiment Index

Tick IndicatorTick Indicator

GBP/USD

“The pair currently trades within a large cluster zone between 1.8820/70. This offers good opportunities for short range trading or playing breaks of the range, in either direction. A break below does not encounter cluster support until 1.8760. Cluster support is closer on a break above, at 1.8910/20.”

Tick IndicatorTick Indicator

Tick IndicatorTick Indicator

Report Published

Profit Opportunities

Tick IndicatorTick IndicatorComments Made on 11/16

USD/JPY

“USDJPY currently rests between two cluster areas, 117.18 and 118.09. At the moment, the tick clusters are potential support and resistance with a break above resistance providing a bullish bias and a break below support a bearish one.”

Tick IndicatorTick Indicator

Why is This Important?Why is This Important?

Volatilities Were at Record LowsVolatilities Were at Record Lows3 Month ATM EUR/USD Implied Volatilities

Volatilities Volatilities –– Why Does it Matter?Why Does it Matter?EUR/USD and ATM Vol

1.15

1.17

1.19

1.21

1.23

1.25

1.27

1.29

1.31

1.33

1.35

1.37

1.39

11/1/

2004

11/29

/2004

12/27

/2004

1/24/2

0052/2

5/2005

3/29/2

0054/2

6/2005

5/27/2

0056/2

4/2005

7/22/2

0058/1

9/2005

9/16/2

00510

/14/200

511

/11/200

512

/9/20

051/6

/2006

2/8/20

063/9

/2006

4/6/20

065/5

/2006

6/7/20

067/6

/2006

8/4/20

069/4

/2006

10/2/

2006

10/30

/2006

5.00

5.50

6.00

6.50

7.00

7.50

8.00

8.50

9.00

9.50

10.00

10.50

11.00

EUR/USD 3M Vol

Scalping News ReleasesScalping News Releases

Scalping News Releases Scalping News Releases –– What Does it What Does it Mean?Mean?

• Taking Quick Profits 20-30 pips

• Low Risk 15 pips

• The Market Trades on Expectations and You Need to Know When Expectations are Misaligned

• Ride the Momentum

No One Ever Went Broke Taking Profits

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- Always Trade 2 Units

- Take Profit on 1 Unit at 50% of Risk

- Move Stop to B/E or Scratch

- Trail 2nd Unit for at Least 2X Risk

- In Trading What is Mathematically Optimal is Not Necessarily Psychologically Possible

How Can I Learn More?

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How Can I Learn More?

The Markets Change and So Should You!The Markets Change and So Should You!Resources:Resources:

Research Research -- Daily FXDaily FXEducation Education -- FX Power CourseFX Power CourseStrategies Strategies -- Euro CourseEuro Course

Thank You,Thank You,Good Luck And Good TradingGood Luck And Good Trading