The market has a language and many fail to interpret its language. In frustration, some say the market was random, or the market was impossible to beat. Some even resort to far flung theories such as believing that a powerful group of individuals is controlling the market. When traders do not understand price, market movements appear to be random. But they are not. There is an incredible degree of order. And when traders say that the market cannot be beaten, it is typically said in response to appease their own failure. Trading is not suited for everyone, just as being an attorney is not for everyone.
Some traders defy the typical learning curve and excel from day one. That is an excellent gift to have. Even though I’ve seen videos of such prodigies, unfortunately, for many, a rocky road is the price for learning this profession. Experience cannot be served on a hot platter. It must be earned.
I highly recommend you to take physical printouts of market activity in different time frames and study them well. Studying them on screen will not replace the pen and paper. I used the 1H time frame back then, but nowadays I would recommend to go with the 1H for equities with regular trading hours, and the 4H for markets trading around the clock (such as futures or currencies). You will easily see the trends I am talking about here and following with great success.
Try to feel and touch the market because there is a lot of psychology involved behind the price action. You do not need to know the exact economic data behind. That is nonsensical information overflow. The reason that many traders have a difficult time understanding markets is because they cannot understand the underlying reason why markets move. If greater attention was placed on understanding price, more traders would be having success. I’m sure you have heard that there is no better indicator than price. This is what many traders are attempting to decipher but cannot. The real pulse of the market remains elusive to them. If we don’t know why, the markets will tie us up in knots and will seem like a mystery that can never be solved.
What do most amateur traders use to address this problem? They use technical indicators. Indicators do not stimulate critical thinking skills. You rely on something to give you the answer because you don’t know the answer yourself. Imagine a familiar scenario for a moment: three indicators tell you it is now good to be long, while one indicator says you should not. Is this really having real insight on why markets move?
A successful trader’s mindset is very hard to put into words, hence I understand if this article appears abstract to you. What I strongly want to encourage is self-study and critical thinking with regards to what you see in your printouts. Feel free to contact me anytime, though.
Chances are smashingly slim that you will make it as a trader, however, do not believe those that tell you that the odds are stacked against you. This is a myth. If you develop a consistent method, the odds are not against you. Struggling traders always find excuses for why the market is bigger or stronger than me or you. The world is filled with those that say it cannot be done. An agenda to prove something to someone is always up their sleeve, so they can finally tell you, “I told you so.” Do not waste your precious time with these individuals.
Is the Japanese Yen still a safe haven?
The Japanese Yen has been arguably considered the safe haven for offering a steady appreciation despite the preceding years of crises. Such strength is commonly ascribed to the U.S. dollar, but the Dollar failed to offer the lasting performance you would expect during times of uncertainty.
Standard Chartered’s Global Head of FX Research, Callum Henderson, is still convinced that the Dollar and Yen are the only safe haven currencies at this moment. A frequently repeated argument in favor of the Yen is that their government was able to sell bonds to their own people instead of collecting money from investors abroad, thanks to the disciplined saving rates of the Japanese. A giant myth from the 90′s; their saving rate is already at 3.2% as of 2011. Considering this, Japan is not in such a strong position it is assumed to be. Other factors must have supported the Yen’s strength (I’m open to hear your arguments).
If you think more critically, you will realize that both currencies cannot be safe at the very same time. First of all, the Dollar is in a constant decline, interrupted by a few strong rallies in between, whereas the Yen had been in a stable uptrend so far. Trading the Dollar requires very accurate market timing while holding it for the long term has been a losing proposition. The Yen, on the other hand, is now breaking crucial support along with the 200 EMA. Not highly encouraging signs to stay long in this market. The result is that both currencies appear unattractive and the primary question is which one is going to depreciate faster.
At this moment it seems likely that the Yen will lose value faster than the Dollar, hence justifying a long position in the USD/JPY currency pair. It does not necessarily mean that the Dollar itself will appreciate, but it will gain relative strength as the Yen declines. Seeing paper currencies in relative, not absolute, strength is the striking characteristic of currency pairs.
We are just seeing the first signs of a crack and time will tell whether it will turn out to be a long-term play. As always, we will be protecting our capital with a properly set stop-loss order. In the case of USD/JPY, a sell stop near 77.30 makes perfect sense for the long position.