March 8, 2017

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8th March: Post Budget Heads-Up: FTSE

Traders,

Just a quick note. Its been UK budget day and the FTSE chart is now showing a bullish flag forming on both 4 hour and Daily charts. Enjoy.

20170308 UK100Mar17H4 flag building

March 3, 2017

6 Comments

3rd March 2017: The plight of George Best and the value of Success Structures

george-best

Hello Traders,

Something a little different for a Friday evening / weekend read. I was fortunate enough to be taken to see the movie Best – George Best: All By Himself earlier this week in Dublin.

Those of you who know me will know that I am a north-west lad who grew up on the religion that is Manchester United (long before they were the mega-club of today). Furthermore, growing up my dad regaled me with tales of going every other Saturday to watch George Best play at Old Trafford (along with Charlton and Law: the holy trinity).

best-busby-law-charlton

For those of you who don’t know Georgie Best was a young lad from Belfast, Northern Ireland who went to play for Manchester United in the early 1960’s and became one of the best (perhaps the best) player of his time. He was an especially gifted player.

However having hit the heights of success at the mere age of 22 the rest of his life became a Hamlet-esque style tragedy. He was the first real sports superstar and as such there was no manual he could turn to for help and guidance on how to deal with all the money, fame, girls and adulation. We take it for granted these days but back then it was a completely new phenomena. He was trying to manage it all on his own – and failing. His life slid downhill rapidly as he descended into a world of partying, bad biz deals, terrible choices, and drink. Mostly drink.

Whilst I am admittedly biased in this case, I have always loved seeing talent operating at its best. I find it fascinating and inspiring, regardless of the environment or discipline.

What does this mean to traders? Well as I watched the movie what became clear to me was that George had no support or success structures around him whatsoever. He was a quiet young boy who was suddenly the centre of attention for the media and the adoring world  He was engaged in a lonesome endeavour to look after himself when the whole world was trying to take a piece of him.

We all make the mistake of thinking we can do it alone, that we need no-one. Trading encourages us to think that we can take on the markets on our own. And whilst we have to take responsibility for our trades, and the outcomes of our decisions, we are fooling ourselves if we think we can do it all alone.

The question to ask yourself is: who is on your team? What success structures do you have in place to help you handle the pressure of trading life, and ensure you perform at your best?

Maybe your take-away from this is to start to put a success structure in place to help you achieve and then maintain increased levels of trading performance?

These days we take it for granted that sports stars will have an entourage of support around them, but that wasn’t always the case. They have learned to have all manner of support around them to help them achieve success. Traders need to be the same – to have a support system that allows them to operate at their best level and be consistently successful.

In later life (when I was a kid) Best cut an increasingly sad, forlorn figure, who was in and out of the news for all the wrong reasons. By the end of his days he’d lost a lot of sympathy and support due to his behaviour. Though for some of us (admittedly biased and sentimental) supporters he’ll always be remembered for that night at Wembley in 1968 where he helped Sir Matt Busby finally win the European Cup 10 years after the Munich Air Disaster.

bestgeorge

 

February 21, 2017

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NZDUSD Update – the power of the 73 handle

20170221-nzdusdweekly-73-level

Yes, I know I haven’t been as prolific recently with my posts, so here’s a quick one on NZDUSD.

I was bullish on NZDUSD for 2016 – up until the weekly head and shoulders pattern set-up. The 0.73 level provided significant resistance as part of that H&S pattern, and price fell away from 73 down to the 0.6850 – 0.6900 zone. (Part of this move being aided by the Trump election Dollar strength trade).

Interestingly since the start of 2017 we’ve had NZD strength re-emerge into the markets and we had a price move into STAM2 territory from 11th January and then STAM1B from the 16th Jan. From here price moved nicely north…….until it ran into the 0.73 level again!

As always I like to see what the Price Action is like. How does the market react at a significant level of support or resistance? Well the hourly and 4 hourly chart didn’t really give too much away – price was quite choppy at the 73 handle. It was only on the daily where we ended up with a nice bearish engulfing pin-bar (that some would also call a fakeout) that let us know that a) the uptrend was over and b) the 73 handle was likely to hold. Next day provided a domino candle and you could tell the shorts were on-board. See chart below.

20170221-nzdusddaily-73-rolloverWhen that week finished we had another nice bearish engulfing candle – and much like the similar patterns from 10th July and 6th November the ended the up-trend at the 73 level. People have commented that price can never rally above 73 due to the NZD Government interventions / fears of appreciation. I am as always sceptical when someone says that price can never break a level. At some point it always will!

So price fell nicely to the 200 DMA and my next target is in the region of the 71 handle – which would also be around the 50% move down of the trend from the 23/12 low to the 07/02 high. Then, as always, I will wait to see how price reacts – could it launch itself back at the 73 handle? If so could it form a nice ABCD pattern (and finally break 73). Or will it fall away to the 69 handle thereby providing us with a nice range?  As always, price will lead the way.

Trade well.

Paul

January 23, 2017

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FX Trading Buddies

Here’s a wonderful piece by George about the merits of building your own network of Trader buddies, something I fully endorse.

One of the reasons I started the London Traders Network was to allow the chance for private traders to mix with like-minded souls and build strong buddy-buddy networks. The military works on the ‘buddy-buddy’ networks system to make sure the entire team works well. Now admittedly in private trading you’re on your own, but it still helps to have a good buddy to help ensure you don’t make/repeat silly mistakes and to cover your blind spots.

Furthermore private trading is a lonesome endeavour so its good to get out from behind the screens and mix with your fellow traders. We are after all social animals, and even the most committed shy introvert needs to speak to someone now and then. Also no one really understands your journey quite like another trader does. They understand the bad days and the good days far better than anyone else.

I thoroughly enjoyed meeting my trader buddies and getting the chance to socialise and learn from each other. We used to meet every two weeks for a session of trader chat, sharing tales and experiences and helping develop each other. They were immensely useful and enjoyable sessions.

Trick or Trade

A couple of weeks I wrote about the benefits of working in a trading office alongside other traders.  Though I realise not everyone is able to get into this type of arrangement – whether it’s a case of being able to find an office venue, traders to mov16231086_10154110624656218_696712100_oe in together with, or simply living in remoter areas where no others traders abound (or anywhere in Belgium apparently!).

The next best thing to being in a trading office is something along the lines of a “Trader Buddy”.  I decided to write about this today because I got into a trading buddy relationship just recently and it is already paying dividends for both of us involved.  And I think many aspiring traders could benefit from this type of arrangement.

Even though I am now working nearby some other professional traders (see photo for my view from my desk on Friday morning!), I…

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January 13, 2017

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13th/1/2017 The affair between Peso, Trump and Loonie

Happy New Year Traders,

Well its fair to say that we’ve started 2017 in the same vein as we left 2016 – fake news, childish behaviour, global rumpus and market volatility…..and that’s just from the supposed adults.

There are plenty of great tales to talk about at the moment but lets start with a simple, yet intriguing one. The adulterous relationship between the Mexican Peso, Donald Trump and the Canadian Dollar.

The Mexican Peso is the put-upon abused wife, Donald is the drunk redneck husband and the Canadian Dollar is the pretty new Mistress. Before you start thinking that I’ve lost the plot and consumed too much Port over the festive period, please bear with me  (furthermore you can never have too much Port and  I didn’t even get one glass of it at Christmas – the horror, the horror!)

I talked last year about the Mexican Peso being used as a proxy for the US election and now we’ve moved onto phase 2. Namely the effect that President-elect Trump is having on the Peso after his series of damaging tweets about Mexico. If we look at the chart below we can take a closer look.

20170113-usdmxndaily

You can see the huge move post the election back in November, hammering the rate through 20. However what we’ve seen in 2017 is that every time we see Trump take to twitter in some post-pub drunk twitter-rage incident where he lashes out at individuals, organisations and countries we are seeing an almost immediate response in the financial markets. As one of my colleagues said the other day – it’s now possible to move a global market in 140 characters or less – which is kind of intriguing, weird and worrisome all at the same time.

So Trumps negative comments on Twitter have been bad for the Peso. So much so that a tongue-in-cheek story was doing the rounds about Mexican traders advising the Mexican government to just buy twitter and shut it down!  (Thanks to follower @drumhowan sending me the link, a few hours after we’d discussed these currencies.)

Interestingly though there’s another angle to this story – namely the response of the Canadian Dollar. Lets look at the back drop.

20170113-usdcaddaily-post-trump20170113-usdindmar17daily

If you look at the second chart it shows the DXY US Dollar Index which was on a tear against all the major currencies – apart from the Canadian Dollar which held up well against the USD.

In fact if you look at the US Dollar Index it almost looks like its ready to roll over – especially after Trumps news announcement the other day. Lets keep an eye on that.

Furthermore what we’ve seen is as Trumps Twitter comments have hurt the Mexican Peso, they have helped the Loonie. Now admittedly there has been some help for CAD from a stable Oil price. And yet its almost as if the more negative tweets he makes – the more money gets shifted from Peso and USD into Canada – perhaps Meryl Streep and all her luvvie liberal elite friends truly are leaving the country and heading north of the border? What do you think readers?

November 23, 2016

2 Comments

22/11/2016 – The Yen Party is well and truly over

20161122-yen-party-is-over

Hello traders,

As most of you will know, when it comes to long-term trading I like to by strength and sell weakness. Therefore about a year ago I stated that I thought that 2016 would be the ‘year of the Yen’ as I felt that it would a) be a volatile year and b) the market didn’t believe that Abe & Kuroda could achieve their financial goals. This would all point towards Yen Strength for 2016

Well certainly for the first 9 months of the year it was a great trade to be long Yen (and short GBP, one of my other core positions for 2016.)

However all good things come to an end and, for the time being, so has the Yen strength trades.

You can see in the weekly charts above that the trend has come to an abrupt end in the last few weeks.  Interestingly I was telling clients back in September that I believed the Yen Strength trade had run its course, and I thought I would share that with you now.

20161122-usdjpyweekly-moveWhat we have here is the weekly chart of the USDJPY for this year and part of 2015. You can see that it was a strong downtrend (but not without its hard rallies). All year we had a series of lower lows and lower highs, good solid price structure that confirmed the down trend.

We also had a significant psychological number in 100 ahead of us and on 3 occasions price bounced off this level – it was clearly the line in the sand that the BoJ had hinted at.

The STAM was starting to hint that the Yen was weakening, and the rhetoric coming out of Japan was that the BoJ were prepared to do whatever it took to weaken the Yen. So when price closed above the 20MA that was my first sign that the trend was changing (its first close above the 20 MA for 9 months btw). We then had the 20MA turn from acting as resistance to turning as support, followed by price closing above the last lower high – a change has happened.

After that we were just waiting to see how the price responded to the US election vote and its been a fantastic move. After dipping down to re-test 101 we’ve traded all the way up to 111 (everyone knew that 110 would be too much of a magnet).

I’ve mentioned in the past that watching how price responds around the weekly and daily 20MA is an important indicator of the potential of a trend to change or to run out of momentum.

So we’ve had two sides of the story recently we’re we’ve had a weakening Yen, and a resurgent strengthening USD – that’s why we had such a quick and strong move of approx. 1000 pips. As you can see from the Daily chart below.

20161122-usdjpydaily-yen-party-over

We’re too from now? Well I expect continuing Yen weakness – (lets see if there’s a reaction post the recent earthquake). I also think we’ll have continued dollar strength until the end of the year at least.

So what will be my core positions for 2017? Well I shall update you on those over the next few weeks.

Trade well.

 

 

November 2, 2016

1 Comment

2nd November USD/MXN: Nature Abhors A Vacuum

20161102-usdmxndaily-gap-filling

Hello traders,

Well this US election is starting to get a bit tasty isn’t it? Up until a week ago it looked like a complete white-wash (I use that word lightly) for the Clinton Campaign.

However after last Fridays revelation that the FBI were re-opening their investigation into her improper use of a personal email server it seems to have taken the wind right our of her sails. (And if you don’t really understand why it’s so important then let this ex-CIA officer explain why in this zerohedge article.)

In the military air-warfare business they normally talk about “he who holds the initiative usually wins the fight….” at the moment I’d say Clinton has lost the initiative – that’s not to say she couldn’t get it back in time, but it’s a setback. Has she just had her Neil Kinnock stumble on the beach moment?

My view is that if she won by a landslide then that was a vote by the American people for more of the same. If she lost then that was a vote by the American people for a change (somewhat like the Brexit vote).  The question is: do the American people want more of the same?

Even if she wins – I’m not convinced that it will be by a great majority. Think about that for a moment. She’d have struggled to beat Donald Trump (you can probably tell I am no real fan of either of them) – she’d be the second most negatively polled delegate (after DT) and the most unpopular person to enter office as president. That’s hardly a great start is it?

Personally I think that whoever wins that they’ll be inheriting a poisoned chalice – I believe markets are on a knife-edge. They could explode north…..or collapse. The older I become the more of a bear I become…so I have to constantly fight that bias and be prepared to just trade what I see. (But yeah, I have this nasty feeling of it all going ‘Pete Tong’!)

Which leads us onto the charts and the markets.  I have posted regularly about using the USDMXN rate as a proxy for the swings in the election. I mentioned in my last post a few areas of concern.

One area I mentioned was the weekend of the 7th October were price gapped down from the Friday close to the Sunday open. This was because that Friday we had the release of the Trump tapes and then we ran into the second debate. Remember price going down is an indication of a likely Clinton win – price reversing is more likely to show a Trump win.

The one thing I mentioned (and many times before) is that ‘Nature Abhors A Vacuum’ and markets are exactly the same. When there is a gap in the market it will always eventually fill it. It may take, hours, days, weeks, months or years….but it will fill it.

I have drawn a blue box on the chart above to show that gap and how over the last two days we’ve moved to fill that gap. Price is now trading about 19.40.  I said that if price closes above 19.50 on a weekly basis then I’d be worried if I was a Clinton Supporter.

So we have the NFP data this Friday. The last Friday before the election. What surprises will be pulled out of the hat by a) Janet and the FOMC, and b) the respective campaigns to try to wrest the initiative going into the last few days?  What would have to come out to create a swing in momentum for either sides?  All thoughts gladly welcome.  Hold onto your seats. Its going to be an interesting week ahead!

Trade well,

Paul

 

 

October 17, 2016

3 Comments

17/10/2016 – The relevance of USDMXN to US elections for a complete beginner

20161016-usdmxn-reflection-of-us-election

Hey there,

I wrote a piece a few weeks back on using the USDMXN rate as a proxy for the US elections. Someone asked for more insight so here’s a piece aimed at the beginner trader to give some further detail about why we’re watching it.

So here’s a view of the US election via the medium of the US Dollar vs Mexican Peso foreign exchange rate. 

A brief insight into charts: 

The chart is made-up of Japanese Candlesticks. Each candle is one day in the stock market. We use these Japanese Candlesticks to represent price action because they give us psychological insight into how the markets is working and feeling. A green candle is bullish (the buyers won the day) and a red candle is bearish (the sellers won the day). Think of it like notes on a sheet of music. Individually they don’t mean too much, but once you learn all the notes it starts to sing to you. 

In an FX rate when the primary currency is gaining in strength (demand) then the chart goes up (when price goes up US Dollar is gaining in strength vs Mexican Peso weakening). 

When Trump is doing well the USD goes up and the Mexican Peso get sold off heavily (because investors fear of what Trump will do to the Mexican economy if he goes ahead and tries to build a wall). 

Relevant chart points: 

1.      USDMXN rate starts going up at start the start of September when Trump starts to overhaul Hillary in polls and then her poor health becomes known to the American public (the networks had been hiding it from the domestic audience)

2.      The big bearish red candle at the top is what happened during the first US presidential debate – Trump did poorly, Hillary was deemed to have won and the USD sold off and the Mexican peso gained in strength when it looked like Hillary was going to win.

3.      Price continues to slide down as the media orgs release bad news about Trump. When the Trumpgate video comes out on the Friday night post the market close then when the market re-opens in the Pacific on Sunday night price gaps down as the USD selling is underway and Mexican Peso buying is so heavy. The thing about gaps is that nature abhors a vacuum and price always comes back to fill a gap in the market. Always.

4.      That night also ran into the 2nd Debate and markets deemed a Hillary win – but now where near as strongly as her performance in the first debate. 

The interesting element is that despite Trump having a terrible last 7 days the price has just gone sideways – it’s in a consolidation pattern. I have told clients that if price breaks lower and holds below the 18.70 level then Clinton has it in the bag.  However if price started getting back above 19.50 then I’d be getting worried as a Clinton supporter. 

The reason this is so important is that it carries much more value than media pieces. Why? Because a media piece is just all talk. Here someone is actually putting their money where their mouth is – they tend to only do that when they have high confidence of a result. Or they have insider knowledge. That’s why markets people are watching the USDMXN rate so closely.  

Here endeth the lesson.

 

P

 

October 12, 2016

2 Comments

Part 1 – On building capacity as a trader

Hello traders,

You only have to google ‘Trading Psychology’ these days to find thousands of articles talking about the importance of Trading psychology to the make-up of a successful trader.

For new traders reading this I always talk about viewing traders through the prism of the 4M’s of Trading:

  • (understanding) Markets
  • (your trading) Method
  • Money (management)
  • (leading and managing) Myself

When I speak to traders I am always assessing them against those four areas. Invariably complete newbie amateur traders are focused on the first 2, whereas professional traders are always focused on the latter 2. The longer your trading career, the more you realise managing Money and Myself becomes the priority.

When it comes to managing self there are lots of variables that go into building a robust trading mentality.  For the purpose of this piece Id like to talk about three variables that have been a recurring theme for me recently in conversations and experiences with traders and non-traders alike. I thought I would share them with you all.

In particular I am interested in capacity, resilience and grit. For this part I will just focus on the first element.

Capacity:

capacity

Those are interesting definitions for capacity – all of which can be levied against traders (or anyone dealing in challenging stressful situations).

1 – The maximum amount that something can contain – could that be you? What is the maximum amount that you can cope with? Do you know? If so, how do you know? Is that a fixed element or something that flex’s based on your situation? Can you grow ‘capacity’?

2. The amount that something can produce – can you define your productivity in terms of capacity? Do you have periods where you have limitless capacity to produce? Do you have periods where you have diminished capacity to produce? If so, then why?

3. The ability or power to do or understand something – do you have days where you understand the market and your life? Are there days when you have not got a clue about what’s going on around you? Do you have periods when you have the capacity to influence situations? Or do you have periods where your capacity is reduced and life/markets shunt you around?

4. A specified role or position – do you have the capacity to fulfil all the roles and position in your life? To be a trader, business-man, mother, daughter, friend, sister, leader, follower etc?  Are there some that build capacity? Are there some that drain your capacity?

Those points are raised more as questions, or food-for-thought, for yourselves dear reader. Perhaps you already have an idea what capacity means to you. Perhaps you’ve never given it any consideration.

Personally I believe that our capacity is something that is in a constant state of flux. Not surprisingly when other areas of our lives are going well then we have additional capacity to deal with whatever life or the markets throw at us. And vice-versa.

I believe capacity is also something that can be built, whether we’re speaking of physical, mental, emotional or financial capacity.

“The mind, once expanded to the dimensions of bigger ideas, never returns to its original size.” – Oliver Wendell Holmes was talking about the mind – but I’d say it also covers our own capacity.

So how do we go about building capacity?

Part of building capacity is about doing it slowly in a controlled manner. If you’ve ever followed a physical training program you know that as you follow the program your fitness improves and therefore your capacity to do more increases. Or the ability to recover faster (that’s the resilience we’ll talk about in part 2)

Building mental and emotional capacity is an interesting concept. Your physical ability to handle stress and overwhelm will help – but then I’ve also worked with many super-fit clients who still had poor mental capacity. So how can you build it? Personally I think that having a wide and varied set of interests outside of trading will help you build capacity. An ability to understand and enjoy the arts, (whatever your definition of them may be) a commitment to something bigger than yourself – that does not have to mean organised religion per-se, it could mean a worthy cause or charity that is important to you. (I wrote a piece earlier this year on my personal reminiscences of volunteering and its value to traders. Please feel free to read again.) I also believe building mental capacity can even be tested through such simple acts as mental quizzes and tests that push you and keep you alert.

Strangely with building emotional capacity I can give you two simple tactics I have used. The first is about gratitude and being grateful for all the good things in your life (of which there always more than we often realise.)  On the other side of the coin whatever emotional pain you’re running from, you have to turn and face it. Simple as that. The way past your pain, is through your pain. I am not advocating some masochistic search for additional pain – I am merely saying that your ability and willingness to embrace your pain will build your emotional capacity to deal with whatever life and the markets throw at you. I see lots of traders who will do anything to avoid the responsibility of losing trades (loss-aversion bias) and avoid having to feel the pain of a losing trade. This never ends well. Embrace it rather than run away from it, is my advice. Yes it will hurt – but in parts 2 & 3 we’ll talk about the resilience and grit required to achieve any great deed.

For those clients of mine, and members of the Veterans Trader Project (VTP), part of the process begins before we even switch on our screens in the morning. This we do through the ‘Psych-Fitness Exercise’ every morning whereby we determine our Psychological fitness to trade before we even commit to switching on our screens. Sometimes the most profitable thing you can do…is to stay away from the markets. Trading when you’re tired, overwhelmed, distracted, angry (insert any other destructive emotion/word you like) rarely ends well. In other words, trading when you have reduced capacity is usually a losing proposition..

Furthermore we usually know in hindsight that we probably weren’t in the right frame of mind to trade that day which merely adds to the pain. Remember every painful experience is worth 1.8 times every positive one you have. This plays into managing your self-belief and confidence. No only do you have financial capital on the line you also have emotional capital in play as well. Think of it like a bank account – you have to manage your deposits and withdrawals otherwise you’ll end up bankrupt. Another example of capacity.

I have learnt myself (the hard way, always the hard way) that I have capacity, I have resilience and I have grit. This has been a great personal strength……..and yet also a weakness of mine. It leads me to take on too many projects, too many commitments and too many burdens. Why? Because I know I have capacity and its good for me to be stretched (rather than bored – as The Smiths sang ‘The Devil makes work for idle hands’) I also know that I like to be challenged and kept learning and experiencing all that life has to offer.

With regards to managing capacity, for myself, I have found that by understanding the boundaries of the situation (a trade, a relationship, a meeting, a sports game, a battle, whatever situation you find yourself in) helps me to understand whether I have the capacity to deal with that particular situation.

In terms of tactics to use, what helps me in dealing with all situations is to think of ‘working with the C.I.A.’ Now don’t be alarmed what it actually means is:

  1. Control: What in this situation can I actually control? (Here’s a tip: it’s normally a lot less than you think.)
  2. Influence: What in this situation can I influence? (What can I do to influence a possible positive outcome?)
  3. Accept: What about this situation do I have to accept? (What do I just have to accept that I have no control over whatsoever, for whatever reason. Here’s another tip: it’s normally a lot more than you think.)

This simple acronym isn’t perfect but I have found over the years that it has helped me enormously to make sense of a situation (trading related or not). Once you start working with the C.I.A then you quickly learn to focus on the elements you can control and influence and find tactics to deal with the myriad of elements that you have to accept. Once your realise how little you can control, for me, it frees up my capacity to influence the situation. Because I become more focused on the things I can do – and by doing so I become more effective whilst also ensuring that I do not become overwhelmed by trying to control or manage everything.

headgasket_overheating

Dealing with overwhelm and burnout in traders is a constant battle – we’ve all done it (myself included) and you quickly realise that’s not a sustainable way to operate and live your life. By working with the C.I.A. I get to focus my endeavours on the elements that I can control. By doing so I am not using all my capacity, which in itself allows me to operate more effectively.  There have been periods in my own life where I have been running in the red-zone like an engine over-heating. Ideally we never want to get there – but occasionally stuff happens and we’re required to do so. It’s at that times that I’m grateful that I have the capacity to focus and deliver – and by merely focussing on elements I can control or influence I am more likely to make better choices and therefore return to normal operating levels sooner rather than later before I burn out or blow-up.

Readers Task: How would you define your own capacity? What could you do to build your own capacity? And what could you do to create an ‘early warning system’ that helps detect when you’re reaching the limits of your capacity and operatig in the red-zone?

Trade well

Paul

September 28, 2016

11 Comments

28th September – don’t trade on your birthday!

Today is my birthday. I never trade on my birthday. And I suggest you do the same.

What’s the point? You’re a trader and unless you’re working for an institution my suggestion is to take the day off. There’s nothing worse than waking up on your birthday in a good mood (which you should do regardless of your age) and then ruining it through some poor losing trades. Why ruin your day?

Instead, go and enjoy your day with the people who are important to you and be grateful that you work in a role that allows you to manage your own time like this. Take stock of what you’ve achieved this last year and set some goals for the next year of your life. Enjoy yourself – you’ve earned it!

Trade well….but not on your birthday!

Paul