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March 2016

Demo Trading is Worthless

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Ok, not quite worthless.  Demo Trading can be useful to learn the ins and outs of your trading platform, There’s No sense losing real money putting in a trade or an order incorrectly before you know what every single button does when you press it. But beyond that, DEMO TRADING IS WORTHLESS.

The fact is demo trading ignores the hardest part of trading – putting YOUR money at risk; what that feels like; how much it can sway your judgement; how often it can cause you to “chicken out”. You simply cannot experience that with fake money, even if you try your hardest to take it as seriously as real money. 2016-03-24_5-23-54No amount of war games prepares you to be in the trenches with bullets whizzing by your head and bombs exploding nearby. (Not sure about that last line; but I think some sort of non-trading example is a good idea)

I have experienced the unpleasantness of having to fire a potentially great trader. His trading strategy was great; he had an edge; didn’t take too much risk; and he could have been very successful. However, the fear of losing overwhelmed his thoughts and he could not “pull the trigger” to execute his plan and achieve his trading budget.

You see the point? It’s not an issue of having a viable strategy; it’s having the confidence to execute the strategy. And you don’t get that kind of confidence (real trading confidence) racking up demo pips. You only get it from putting on real trades and risking real money.

How I learned to trade
I started out in 1981 manually keeping track of the open position and P&L for the GBPUSD trader at European American bank (now a part of Citigroup). I learned a lot about trading the GBPUSD watching this seasoned pro work for 8 hours a day. When I finally got my chance to be  a trader at European American (the guy I was assisting left to become Chief Dealer of  another bank) I made a classic mistake my first week on the job..

I walked over to the Chief Dealer (my boss) and told him the GBPUSD pair was about to tumble. After I explained my reasoning He looked at me and said, “Well, Make sure you sell it”.

At the end of the day the GBPUSD pair was 300 pips lower. It could have been the best trade of my career (or something like that) but I had only a tiny position and made tiny money. It’s been 35 years since that day but I can still see the look on the Chief Dealer’s face when I told him my P&L for the day. He did not say a single word; he just looked at me blankly and walked away. I understood completely.

Since that day my policy has always been “no position, no opinion”. Many traders worry about finding the “holy grail” trading system. Believe it or not that’s the easy part. There are many good trading systems. The hard part is actually using one and putting on the trades.

Everyone takes losses in trading, especially the pros. You can’t play the game without getting hurt once in a while. But quit playing around with demo trading, set aside some money – call it tuition – and practice the real skill you need to develop: facing the fear of losing money in a trade and getting back up to trade again. It’s not actually that bad, you’ll see.

Happy trading,

Jimmy Young

edited by Ben Young

US Core CPI Annual the key to US FOMC

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Volatility (possibly two spikes) but not sustained directional price action.

 US inflation a toss up with today’s core CPI annual the tiebreaker.
Expect markets to react to anything different than the 2.2%

A higher number (2.3 or more) would drive the USD higher and DOW lower for sure (I think)
Would indicate the interest rate hikes sooner

So higher than expected core CPI annual sell AUD and NZD

US economy looks OK from jobs perspective but GDP, retail sales, others don’t tell the
bullish story; think most players assume the US employment numbers are not telling

an accurate story of the state of the US economy.

So I think inflation is key here.

If CPI does tick up then by the time we get to FOMC statement , economic projections,
and Yellen we are dealing with a different technical setup and that requires knowing
what that is to speak accurately about a view…
If CPI surprises to the downside 2.1 or less the USD will go down and the DOW will increase
on decreased interest rate hike expectation for sure (I think). That should result in a
higher AUD and NZD. Same story in  terms of the FOMC later in the day

By the way the view for CAD is the same as AUD and NZD, adjusted for oil price (could
enhance or contract from the view…)

2.2 core US core CPI annual (as expected)
Then nothing changes leading into the FOMC

If that is the case then I think the 60 minutes following the FOMC statement (and most of
Yellen’s press conference) will be mean reverting. Meaning if there is a significant move
(or two) it (they) will retrace or reverse because overall the FOMC will be vague and not
trade direction conclusive.