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In previous articles we have discussed in detail the merits of a trading journal in offering evidence for both: a. How well you are following a trading plan? b. How well your trading system is serving you? (assuming you are already following a trading plan) We have also outlined the importance of “closing the circle” and making sure you review journal data and action plan to make any amendments that would be of benefit.

If you are in the position that you have “jumped in” and made a trading a journal a reality in your trading, next level journaling aims to increase the quality of information, where you can optimise those things you are doing well and work on those things that need improvement. This, in essence, is all to do with asking the right questions of the information you have, so you can continue to make evidence-based judgements as to what type of trading suits you best. The reality is that no two traders are the same (even if using a similar system).

Your challenge is to find YOUR best approach that works for YOU. And subsequently, mirror this on an ongoing basis. Here are THREE potentially “game-changing” questions you could ask of your journal data which may give clues about “best fit” behaviour for you as an individual. #1 Which trading direction works for me?

There is no doubt that some traders have results that seem to be better going “long” and others trading “short”. The other possible outcome, of course, is that it doesn’t matter, and you perform equally as well irrespective of direction. Measuring the results of long versus short trades will give you this answer.

Let’s assume there is a noticeable difference. After obtaining this evidence your choices are twofold. The root cause of this may either be: a.

You have a simple aptitude for trading in a specific direction and so can mirror this with all future trading. b. It may be that your system works well for going in one direction and needs adjustment with the other. In this case, provided you are not comfortable sticking to (a) above then of course you have the evidence to refine that part of your system that appears to require adjustment. #2 Which timeframe works for me?

Similarly, we can look at whether specific timeframes work better for you as an individual trader. Questions about optimum timeframes are some of the most frequent that we receive on both ‘Inner Circle’ and the ‘First Steps courses. We have written about this topic before, the conclusion being that it is your individual circumstances that are most likely to dictate which timeframe works best for you.

Again, the power of a journal is that you can easily come to an answer, and so mirror that going forward (of course, this is dependent on you recording this as part of your journal process). #3 Which trading vehicle suits my trading style? Many of you reading this may be trading multiple vehicles e.g. Forex, Index CFDs, Share CFDs, commodities, options.

There are obvious differences not only in how these various instruments are priced but also influencing factors on how they move. Using a similar approach to the above, you can easily identify which vehicles are working for you. As with exploring trading direction the reason for this could be your characteristics as a trade or the robustness of your system in trading different vehicles.

So, the choices are the same - you can allocate a larger proportion (or even all) of your capital into trading the vehicle that produces better results or of course review and tweak the system for those vehicles with less desirable results. OK, so these are your three starting questions, that may help you find a trading style that is best fit for you. However, before we finish, it is worth offering a couple of additional pieces of guidance when doing an exercise such as this. a.

You need a critical mass of trades to make the data meaningful. (there is little evidence that can be gained from a couple of trades in any category). There is no definitive number to what this may be but logically perhaps 15-20 will suffice in the first instance. b. Compare like with like.

To make things meaningful you need to reduce the number of actors that may skew your results. As a start point it would make sense to: i. remove any trades where you clearly didn’t follow your plan, ii. Unless analysing #3 above it would seem logical to compare within one trading vehicle e.g. just your forex trades.

Finally, we would love to hear your feedback on journaling and how it has/has not worked for you (or even problems) you have had getting started. Drop a line a [email protected] with any feedback you would like to share.

In a previous article we addressed the concept of cognitive trading biases as a barrier to potential successful implementation of a trading plan in the heat of the action you “press the button” on entry or exit action. This article discussed these biases - “loss aversion” which you can read here ( click to read ). In this article we examine another common cognitive trading bias, termed minimalisation bias.

Trading biases revisited People have inbuilt set of belief and value developed outside the trading context but when the trader interacts with the market, these individual natural ways of thinking and feeling become part of decision-making. Some of these natural in-built responses may not serve you well and are termed ‘cognitive biases’ which may take over from your written and planned ‘trading system’ and become the major influence on your market behaviour. Recognising that these exist and developing awareness of whether one or some of them are part of your trading psychology is the first stage in addressing any bias.

The aim of this series is to help explain what they are, and you are able to make the judgement on your market interaction. What is a minimalization bias? Logically, good decisions in any context (including trading of course) are based on having complete and accurate information, to enable us to process this, and subsequently take appropriate action.

In a trading context, we have access to not only information relating to market sentiment, and tools (indicators) that can help us make sense of this, but also resources that may indicate terms of increased risk e.g. economic data release dates and times. Ideally, the way we use this information both for entry and exit should be specifically articulated within a trading plan which acts as a guiding light for action. In simple terms, many plans will have a set of criteria, or checklist, that if all can be ticked off as present, then act e.g. trade entry can be taken.

With a minimalization bias, the trader basis their decisions on small amounts of usually incomplete information, or in other words, act when all of the criteria have NOT been met. What happens with a minimalisation bias? This bias often leads to premature entry and exit before a full set of signals are confirmed.

Common examples of this may include low trading volumes, not keeping an eye an eye on the economic data release, attempting to predict the next price move often seen when acting on immature candles or bars, or before there is confirmation of a breakthrough a key price point. Commonly, such errors originate from time pressures, poor charting techniques, a lack of specificity in trading instructions within a plan or a lack of, or skipping looking at, appropriate resources to help inform decisions. When in an open trade we may see action (e.g. exit) without substantial evidence of a weakening price, retracements often used as exits rather than clear reversal signs.

The impact of this is limiting the profit potential of a specific trade. Trying to ‘bottom pick’ at the market (if looking for a long trade) may also be a problem in more severe cases, where the investor believes the price had stopped going down on a slow down on the drop rather than waiting for a clear reversal signal. Remember, an exit signal is not necessarily a reason to trade in the opposite direction.

Overtrading due to poor entries, followed by rapid exits may also be a symptom. What you can do if you think you may have a minimalisation bias? If this resonates with you, then the purpose of this article is fulfilled, as recognising and “owing” that there is something that needs to be addressed.

It is the VITAL first step in making a change. Obviously, there are steps you can take to address this (and you MUST). Here are some suggestions: a.

You have a complete trading plan that articulates trading actions both for entry and exit. The more specific these are, the less likely you are to stray. Make sure EVERY one of your criteria is crystal clear. b.

Record and review in your journal how you are feeling as you trade and the market circumstances during your decision-making. It would be rare that this bias is present in every trade. Through recording this information, you may be able to see common thread as to when this bias raises its ugly head.

Armed with this information you will then be able to either avoid trading in certain circumstances, or simply “checking yourself” a little more rigorously. Sometimes the very process of formally recording what you are doing helps in doing the right thing more consistently. c. Re-align with your trading plan prior to every trading session, remind yourself prior to looking at the market what your key criteria for action are. e.

Take regular breaks from the market during any session, particularly when trading shorter timeframes, to re-align with purpose and plan and avoid over-emotional trading. f. If you are in a position where you are finding information difficult to access, then simply ASK. There are many out there with those resources not only at hand but also how to get that information efficiently.

Finally, as we finished when we discussed “loss aversion” as you work on this please be gentle on yourself in terms of your development. Biases by nature are usually deeply ingrained and will take some work to address.

Warning: Turn your sensitivity meter down a little. This is a no sugar-coating, tell-it-how-it-is article (but rest assured it comes from a nurturing place). All over the globe, trading gurus attempt to sell their wares (software, the ‘holy grail’ of trade set ups etc) using retrospective charting examples.

Such powerful visual “evidence” is often used to persuade prospective FX clients that this vehicle is ‘easy’ to make profit with. With little work, little time, or whatever marketing buttons they are using to press to get a response. So, hours of energy invested, often cash is exchanged and yet more often than not, with an off the shelf system in place (often just an entry system which we know is never going to offer a complete trading solution) traders are left feeling more than a little disappointed that such “guaranteed, easy riches” are not showing up in their trading account.

On an individual level we see similar. Much airplay is given to the merits of back-testing and yet as with the aforementioned guru approach, you can just about find examples, if you look hard enough, of chart examples that mean this “next new indicator thing” is now the answer to replenish your now depleted finds. So, what happens, we have a system change, and yet results still often fall short of expectations.

There are 3 common dangers of the retrospective approach to creating (if you haven’t a trading plan already) or altering an existing plan that are worth highlighting. #1 – Overstating the function of back-testing. Let us be completely blunt. The purpose of back-testing is NOT, nor should ever be viewed as evidence that a trading plan, based on what ever system you are exploring, will work for you in the reality of live trading.

Back-testing does not generally consider: a. The impact of economic data releases and revisions, b. The political and general climate both globally and specifically in the countries that currency pairs relate to, c.

Individual investor behaviour re. timeframes, time of day that they trade, nor their ability (or otherwise) to act or inaction on a change of sentiment, d. Unplanned events such as escalating conflict (or the threat of such), e. The relationship and impact of other financial instruments of FX pairs e.g. equity and bond markets, commodities So, why back-test at all if the evidence could be so flawed?

The answer is simple, back-testing creates evidence, not that a system will definitely work for you as a trader, but ONLY as evidence that a forward (or prospective) test may be worthwhile. So, the bottom line is the function of back-testing is to justify the time and effort to prospectively test. It is after such a prospective test that system changes can be made/developed. #2 – Failure to gather a critical mass of evidence There are two issues here. a.

What constitutes enough evidence to move to the next stage of system testing. Quite often traders will make decisions on a limited amount of data e.g. one timeframe and one currency pair, over the last couple of months on which to make system decisions. Now you have read this it may seem obvious and may not need pointing out (but we will anyway) why this is insufficient information on which to base a “cross the board’ entry and exit system. b.

The second issue here is one of selective evidence gathering. A natural human response when excited by an idea is search for evidence to back up that idea. The potential danger with this is that we often tend in this search, to ignore information that refutes our idea. #3 – The reason behind doing this may not be that your system is failing rather it could be a YOU issue.

System skipping is common amongst many traders and is invariably motivated by results that are not as desired. Here is the danger. As much of what goes into creating trader results (some would suggest up to 80%) is due to behavioural issues (we have waxed lyrical about trading discipline previously) unless you: a.

Have a trading plan that is specific, measurable and comprehensive AND b. Follow it religiously ‘to the letter” then you are not really in a position to make a judgement on whether system could serve you well or is likely not to produce desired results. AND to add to this, as such behavioural issues have not been either acknowledged or addressed whatever system (based or retrospective charts or not) is more likely to produce equally disappointing results.

So, before you start on the journey of altering a system you should logically make every effort to have, follow and measure the impact of any system before you even consider changing it (or looking into what you may change it to). This MUST be your #1 priority before going down any path of system alterations. So there you have it.

You have a choice to take action of course on what you have read, If so, your missions going forward are: a. Make sure you have a comprehensive plan that you follow. Then, and only then, should you begin to explore further development including the use of retrospective charts (or back-testing) b.

Recognise the SOLE PURPOSE of back-testing is to create evidence that a forward (or prospective) live test is justified. c. Make sure you are basing any potential system change on a enough “balanced” data.

The EUR has been on a run since it bottomed in September 2022. From that time, the price is up almost 15% and is currently trading at 1.0863. However, with important economic data to come out of the USA and the next interest rate decision from both the ECB and the Federal Reserve coming out in the next few days the market may find some more direction for the EUR.

A Hawkish Federal Reserve may be detrimental for a move to the upside of the EUR, whilst a Dovish response may support more growth in the EUR. In addition, with employment data to come out of the USA softer data may support a more dovish Federal reserve. In the past few days and weeks, the EUR has seen some strong momentum on the back of growth data that has seen the region avoid a recession.

Crucially, the GDP of the Eurozone grew by 0.1% which beat an expected 0.1% retraction for the quarter. A general weakening of the USD has also supported a bounce of the EUR as money has moved away from the safety of the greenback and into other assets. Technical Analysis In terms of the long-term analysis, the price has mostly ranged between 1.04 and 1.25 except when the price bottomed last year.

The price is currently showing some weakness and has so far been unable to break through 1.09 and has sold down on candlesticks that are testing the 1.09 level. Therefore, it would not be surprising to see the price retrace to the previous support level at 1.06 before another move to the upside. On the daily price chart, the price is showing a strong upward channel/trend.

This channel shows how the bottom of the channel fall along an important area of market structure. This zone acts as the 50-day moving average, the recent support level and the bottom of the channel. This bolsters this region as a zone for ana entry should the price retrace.

With a target of 1.12 this represents a risk reward of 2.5. Ultimately the trend of the EUR will most likely be dictated by the movements of the Federal reserve and the ECB. However, should the macroeconomic factors permit, the EUR could very well continue its run.

US Dollar Fundamental Analysis Recent data indicated that the U.S. economy grew strongly in the fourth quarter which has boosted the Dollar against the Euro. This has supported the Federal Reserve's hawkish stance in spite of reports that US consumer spending has fallen, and inflation has cooled. According to the Commerce Department, the Consumer Price Index (CPI), the Federal Reserve's preferred inflation measure, increased 0.1% in November after a similar gain the month before.

With traders eagerly awaiting the Federal Reserve's guidance for interest rate rises, the Dollar firmed on Monday and distanced itself from an eight-month trough. Despite last week's eight-month low of 101.50, the U.S. dollar index rose 0.03% to 101.92. US Dollar Index Technical Analysis The Dollar Index is currently testing a major support area taken from the weekly time frame, around $101.55.

It has been consolidating and testing the area for almost 10 days, strongly suggesting that bulls are starting to take back control of the market after a steady decline of roughly -4% in the last 4 weeks. In alignment with the weekly analysis, on the daily timeframe, a trend line from the lower lows can be drawn, and from the chart below, the price has recently reached the bottom of the trend line. The price has consolidated for a number of days at the weekly support level mentioned earlier.

The Dollar may potentially climb towards the resistance level at $104, if it remains above and respects the bottom of the channel.

Bitcoin has rallied extremely hard to start the year as risk on sentiment returned to begin the year with the price of the leading cryptocurrency at its highest level since August of 2022. Risk assets have been the play in early 2023 with hopes for a settling of interest rate hikes by major central banks. As the technology sector and other growth areas have continued to rise up the price of Bitcoin has followed.

The price is almost 50% up from its lows in the middle of December 2022. With the macroeconomic factors still largely the main drivers of the risk sentiment and the upcoming Federal Reserve Funds to be announced on Thursday, the rate announcement could play a large role in the short term price action. The Fed is expected to increase the official rate by 25 bps.

However, all eyes will be on the accompanying commentary that will provide important direction on the Fed’s future plans in the upcoming months. Moreover, a hawkish commentary will likely lead to a selloff in risk assets and dovish commentary the opposite. In terms of the long term perspective the price of Bitcoin has had its best month since October 2021.

The price has made a significant bounce off the 15,000-20,000 support zone and looks to have reclaimed the 50 month moving average. This indicates a potential reversal or at least shift in sentiment. The next region of resistance is the original neckline of the long-term double top, between $30,000 and $40,000.

It may be difficult for the price to break above this resistance in the short term without a catalyst. The other thing to remember is that there is a lot of supply that still needs to be worked through before any significant move upward can occur, although, the monthly candle is looking very encouraging. This next zone of resistance looks to be the primary target in the short to medium term for a long trade on Bitcoin.

Looking at the shorter term charts, they price actions tells a similar story. Specifically, on the daily chart, the price has seemingly paused as it awaits confirmation of a breakout at 25,000. If this breakout can be supported by some significant volume it may confirm the reversal.

The other element that must be considered with Bitcoin is the potential for a short squeeze. With the asset so beaten down, it is possible that shorts will become squeezed leading to aggressive moves to the upside if momentum can begin to build. Ultimately, the price action of Bitcoin will most likely be led by the overall risk sentiment in the market and as such traders should be weary of the overall market sentiment.