Non-Farm payroll measures the change in the number of employed people during the previous month in USA, excluding the farming industry. It is release every month, usually on the first Friday after the month ends, by the Bureau of Labor Statistics. This data is analyzed closely because of its importance in identifying the rate of economic growth and inflation.
If the non-farm payroll is expanding, this is a good indication that the economy is growing, and vice versa.
If the actual data comes in lower than economists’ estimates, forex traders will usually sell U.S. dollars in anticipation of a weakening currency. The opposite is true when the data is higher than economists’ expectations.
Some examples of the Non-Farm Payroll change on EURUSD (15 min chart)
On 3 Jun 2016, Expected 159k, Actual 38k
Employers in May added the fewest number of workers in almost six years, reflecting broad cutbacks that may raise concern about U.S. growth and prompt Federal Reserve policy makers to put off an increase in interest rates. (Source : Bloomberg)
On 1 Apr 2016, Expected 206k, Actual 215k
On 5 Feb 2016, Expected 189k, Actual 151k
The dollar rebounded from a three-month low against the euro after a U.S. employment report showed wage growth that exceeded estimates, bolstering the case for the Federal Reserve to continue raising interest rates this year. (Source : Bloomberg)
What his wife thinks about his career choice : “Even before he was busy with currency trading, he was always busy with something, so now he is just busy with this, all the time, 24/7. I think in order to be successful in life, people who are very successful, they eat, sleep and breath what they do!”
As a trend follower, we don’t generate trends nor we predict trends. We merely follow trends. However it is a waiting game and it takes lots of patience and time.
You first plan your trades which include the point at which you enter the market and the point at which you exit from the market. After you enter, the market may go against you and you see your floating loss becoming bigger and bigger. Or it may start to trend and you see your floating profit go up and up. At this point, what would you do? If you are making losses, would you be worried and keep watching the charts with a fear that the drawdown would get bigger and bigger? Would you close your trade or would you hold on to your trades and pray that the market will go in your favour soon? If the market start to trend, would you close the trades prematurely with a fear that your profits will be gone if you leave it open?
This is a characteristic of most traders. Fear and greed make them cut their profits and let their losses run. To be a successful trend trader, you have to plan your trades and trade according to your plan. You should instead cut your losses and let your profits run. Obviously it is easier said than done. Therefore the focus of a good trader, whether a trend trader or a day trader, should be on the mindset when trading rather than on the technical aspects.
How do you maintain peace of mind when you suffer a temporary drawdown when trading?
Don’t predict your returns. When you don’t predict, you have zero expectations. When you have zero expectations, you have no emotions and when you have no emotions you will have peace of mind.
Just leave it to the market to dictate the trends and your Return on Investments (ROI) and take whatever that comes along.
Quotes by some of the greatest trend traders, which are relevant to the way trend followers trade.
“When you have a position, you put it on for a reason, and you’ve got to keep it until the reason no longer exists. Don’t take profits just for the sake of taking profits, you have to have a strategy, know how it works and follow through on it.”
~Richard Dennis, mentor of the turtle traders
“I never predict price movements, i just follow them”
Richard Donchian, the Father of Trend Following
“We know that we know almost nothing. but the “almost nothing” we know isn’t completely nothing, and we only bet on that.”
~David Harding, founder of Winton Capital
“We don’t make market predictions. We just ride the bucking bronco.”
~Bill Dunn, founder of Dunn Capital Management Inc
“Trend following isn’t supposed to be fun, it’s supposed to be about winning profits!”
“I don’t believe that I am the only person who cannot predict future prices. No one consistently can predict anything, especially investors. Prices, not investors, predict the future. Despite this, investors hope or believe that they can predict the future, or someone else can. A lot of them look to you to predict what the next macroeconomic cycle will be. We rely on the fact that other investors are convinced that they can predict the future, and I believe that’s where our profits come from. I believe it’s that simple.”
~John W. Henry, founder of John W. Henry & Company, Inc
“The market is never wrong”
~Jerry Parker, founder of Chesapeake Capital Management
“Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical.”
“If you diversify, control your risk, and go with the trend, it just has to work.”
Richard J. Dennis, a commodities speculator once known as the “Prince of the Pit’, was born in Chicago, in January, 1949. In the early 1970s, he borrowed $1,600 and reportedly made $200 million in about ten years
In contrast to the vast majority of floor traders, who quickly scalped trades throughout a trading day, Dennis held positions for longer periods—riding out short-term fluctuations and holding over the intermediate term.
Dennis believed that successful trading could be taught, he made a bet with his friend and fellow trader, William Eckhardt and ran a classified ad in the Wall Street Journal looking for novices to train. Dennis recruited and trained 21 men and 2 women, in two groups, one from December 1983, and the other from December 1984. His recruits had anything but traditional Wall Street background, they included a professional blackjack player, a pianist, and a fantasy game designer.
Dennis trained this group, known as Turtles, for only two weeks about a simple trend-following system, trading a range of commodities, currencies, and bond markets, buying when prices increased above their recent range, and selling when they fell below their recent range. They were taught to cut position size during losing periods and to pyramid aggressively—up to a third or a half of total exposure, although only 24% of total capital would be exposed at any one time. This type of trading system will generate losses in periods when the market is rangebound, often for months at a time, and profits during large market moves.
In January of 1984, after the two-week training period was ended, Dennis gave each of the Turtles a trading account and had them trade the systems they had been taught . During this one-month trading period, they were allowed to trade a maximum of 12 contracts per market. After the trial-period ended, he gave the few of them who had successfully traded the system during the one-month trial, accounts ranging from $250,000 to $2 million of his own money to manage.
When his experiment ended five years later, his Turtles reportedly had earned an aggregate profit of $175 million
Some of the turtles are still trading today and managing respectable funds, eg :
Jerry Parker – the most successful turtle, founded Chesapeake Capital Corporation
Elizabeth Cheval – runs her trading firm EMC Capital
Why were they called Turtles? It was simply a nickname that Dennis had given his students when he said to his class “We are going to grow traders just like they grow turtles in Singapore” (after he had came back from visiting a Singapore turtle farm).
The forex market hours stretch from Monday morning in Sydney, Australia to Friday afternoon in New York. During that time the market is open somewhere around the globe at all hours of the day or night.
However it is not a 24/7 market because it does shut down on weekends. 24/5 would be more accurate.
If you need to know the exact times that the markets open and close, you have to take time zones into consideration. It is very simple when expressed in UTC. This is Universal Coordinated Time, formerly known as Greenwich Mean Time. This is the standard (winter) time in Greenwich, London which is the point of zero longitude on the globe.
So, the normal forex market hours are 22.00 Sunday UTC to 22.00 Friday UTC. This is 10 pm in the UK in winter time.
New York is 5 hours behind the UK so the global forex market opens and closes at 5 pm Sunday/Friday in New York, 2 pm on the US west coast, 11 pm in Germany, 8 am Monday/Saturday in Sydney.
Things get a little complicated when you start to try to take summer time daylight saving into account. This makes one hour difference in countries that observe it. But daylight saving operates in a different way in the southern hemisphere countries such as Australia which have summer time from September to March instead of March to September.
The hours of the different major national markets are as follows:
Sydney: 10 pm to 7 am UTC
Tokyo: 12 midnight to 9 am UTC
London: 8 am to 5 pm UTC
New York: 1 pm to 10 pm UTC
Or we can express that in EST (Eastern US time):
Sydney: 5 pm to 2 am EST
Tokyo: 7 pm to 4 am EST
London: 3 am to 12 noon EST
New York: 8 am to 5 pm EST
You can see that these correspond to 24 hour cover.
However, this does not necessarily mean that trading will be good at all of these times. Just after a major market opens, the prices can be very volatile and unpredictable. Many traders will stay out of the forex market for up to an hour four times a day when the financial markets are waking up in these major cities.
The US dollar is the most traded currency by a long way, involved in 2.5 times as many trades as its nearest rival the euro. This means that events in the USA have a greater impact on the financial markets than events in other countries. The New York market tends to slow down around 3 pm local time (8 pm UTC) and if you are involved in a US dollar pair, this can be a good time to stop trading for the day.
So theoretically you can trade 24 hours a day from Sunday night to Friday night. Automated software in the form of a forex robot can even make this physically possible. However, a cautious trader will choose his times and will not be active during all of the forex market hours.
Investopedia.com definition of trend trading is it is a trading strategy that attempts to capture gains through the analysis of an asset’s momentum in a particular direction. The trend trader enters into a long position when a stock is trending upward (successively higher highs). Conversely, a short position is taken when the stock is in a down trend (successively lower highs). Regardless of their chosen time frame, traders will remain in their position until they believe the trend has reversed.
Characteristics of the trend followers :
The trend traders use different techniques and calculations to determine the general direction of the market to generate a trade signal
Once they identify the general direction, they simply jump on the trend and ride it. They do not aim to forecast or predict specific price levels, instead they rely on their calculations to determine a reversal and thus the exit point
Trend followers take what the market offers in the moment, they don’t predict the future
Money management is very important to the trend follower due to the long term view of the trades
Playing the Forex market is something which more and more people are doing today, yet for those of us who have not yet begun our adventure in the Forex world, it can be a somewhat cloudy topic. Beginning to invest in the foreign exchange market is not something that just happens. That is to say that you cannot just walk into an office and buy some money in a foreign currency and become a Forex trader by doing so. It requires a process to be put into action, and the first step towards this is to choose a Forex broker.
Your brokerage company will provide software so that you can control your trades online. They will also give you leverage so that you can trade on margins and control much larger sums that you have yourself.
Picking the right broker is not something that can be done without a good deal of prior research, as the quality and practices of brokers differ greatly from those who work with large banks (and therefore themselves have greater borrowing power and leverage) to those which are more independent but may suit a prospective trader with specific needs.
There are several things to take into account when choosing a forex broker. Here are some of the most important points to consider.
Finding a broker that you can trust is not as straightforward as you might think. The forex market operates worldwide and there is no global regulatory body, so some brokers are unregulated. Check where their business is based and what registrations and memberships they have. American brokers should be registered with the Commodity Futures Trading Commission (CTFC) and/or the National Futures Association (NFA). Other countries have other associations.
You can usually see if a broker has a big problem by checking forex forums for user feedback. However, be sure to get several views. Do not accept one person’s point of view as fact. That person may have personal or financial reasons for praising or criticizing a broker.
2. Services provided
The forex is a 24 hour market, five days a week. You will want your broker’s trading software to be live online all of this time (most are). You may also want to check if they have 24 hour customer support Monday through Friday.
Check that they cover all of the major currency pairs, that is USD against EUR, JPY, GBP, CHF, CAD, AUD. They should also offer at least some cross pairs of the major currencies, that is two of the other currencies not including the US dollar.
All brokers will offer charts and technical analysis. Check that these meet your needs. You will also want to check whether they offer instant execution of orders at the displayed price without slippage.
Forex trading brokers generally do not charge a fee or commission. Instead they make money from the spread, which is the difference between the bid and ask prices of a currency pair. Spread is usually in the range of 1-3 pips, depending on the broker and the currency pair, but it can vary at times of volatility.
The size of the spread can make a big difference to whether you make profits in the long term. If you know which pairs you are likely to trade most often, the spread on those pairs will be more important to you than others.
4. Minimum account and lot size
The minimum investment will be an important factor. Some brokers only offer standard accounts where the minimum investment could be $10,000 or more. Mini forex trading accounts have a much lower minimum account balance, often$250-$1,000. These are better for almost all beginners.
Leverage is the factor that determines how much you can control with the money that is in your account. You can often control a lot that is up to 100 times the money that you actually put in, with your broker covering the rest. Some brokers offer even higher leverage but be aware that the higher the leverage, the more you are risking on each trade.
You can also look at a prospective broker’s rollover percentages and other policies. However, the above 5 points are the main factors to take into account when selecting a forex trading broker.
Once you have chosen a broker, you will need to open an account. Opening a Forex account involves proving your competence to deal with large sums of money – you will be playing with borrowed money if you get seriously involved, and brokers are not likely to lend to just anyone. It is also advisable to play with a virtual, paper-based account initially, until you are fully confident of your abilities to make a real profit.