The US Dollar decided that enough is enough!!!

It caught a lot of people by surprise but the US dollar finally decided that it was not going to stay it. Over the last 18 months the dollar had been hitting new lows against most major currencies. The state of the US economy has not helped and the continuous rise in the prices of gold and petrol have added to the demise of the dollar. However, after consolidating for a while, the dollar found it’s feet and staged a fight back. The US dollar rally took a lot of people by surprise, but if you had followed the charts, you would have noticed that dollar had it a bottom in April and had been consolidating since then, a good signal for a potential breakout.

Going forward, the US dollar looks oversold on the daily chart, but on the monthly charts it looks like the rally is just about to commence. That means there might be a short term pull back, but the dollar still has more upside potential.

The charts show the movement of the US Dollar index which gives an indication of the strength of the US Dollar against some other major currencies. I'll talk about the US Dollar index in a future post.

Don't be a master of none

If you have a harem of 40 women, you never get to know any of them very well. – Warren Buffet

To be a successful stock trader/investor you have to limit the number of shares or instruments that you trade. You cannot seize opportunities if you are trying to trade everything that is available across all markets. This might be difficult to grasp if you are a private trader, especially when you want to take advantage of every move across the markets. In investment banks and asset management companies, traders and analyst specialise in particular sectors. This is because the professionals recognise the fact that you cannot be an expert in all sectors. It takes too much energy to focus on too much and the rewards are either little or non-existent. There’s a proverb that says “a jack of all trades, master of none”. You become a master of none when you fail to limit the shares or instruments you want to trade.

Limiting the number of instruments that you trade is very important for beginners. In most cases a beginner wants to be up and running, placing trades and making profit. However, to make and keep your profits you have to be selective in what you trade or invest in. Decide on what you want to focus on, study past patterns, try and identify patterns that repeat themselves, identify the trend, identify the next move etc.

If you’ve struggled to make a profit in the last month or struggle to hold onto your profits, why
don’t you give this a try? Create a watchlist of about 20 – 30 instruments. If you want to trade shares on the UK and US markets, select about 10 – 15 shares (including the major indices) from each market, add them into a spreadsheet and study the charts of each of them, making comments where appropriate. This exercise might take a while the first time you do it’ but subsequently should not take more than a hour per day. The best time to do this exercise is when the markets are closed.

I’ll cover more about how to place your orders in a later post.

All the best.

My top 5 favourite quotes on trading

I’d like to share my top 5 trading quotes. A lot of them relate to trading psychology as I am a big fan of psychology and believe that it’s a very important aspect of trading and if you don’t get it right, the odds are against you from the start. Here’s the list.

“Yet, I can see now that my main trouble was my failure to grasp the vital difference between stock gambling and stock speculation”. – Jesse Livermore

“I never buy anything unless I can fill out on a piece of paper my reasons. I may be wrong, but I would know the answer to that. “I’m paying $32 billion today for the Coca Cola Company because ...” If you can’t answer that question, you shouldn’t buy it. If you can answer that question, and you do it a few times, you’ll make a lot of money.” – Warren Buffet

“Any time you think you have the game conquered, the game will turn around and punch you right in the nose.” – Mike Schmidt

“Be patient, Be deliberate. Wait for the perfect setup. When you see it don’t hesitate. If it’s not happening, don’t take action”. - Entries & Exits

“A trader, in addition to studying basic conditions, remembering market precedents and keeping in mind the psychology of the outside public as well as the limitations of his brokers, must also know himself and provide against his own weaknesses.” – Jesse Livermore

As you read the quotes, I'd like you to meditate on them and see if they are relevant to your trading/investing.

Happy trading