Today, it is a pleasure to bring you a new forex interview with long-time forex trader and analyst Sean Hyman. A financial career spanning over 17 years in currencies, stocks and commodities, Sean’s background includes working as a stock broker at Charles Schwab and for the large forex brokerage, FXCM. Sean has also written for numerous financial websites and currently provides forex insight for the Money Matrix Insider and World Currency Watch, where he is the resident “Professor FX”. I’d like to thank Sean for taking the time to answer our questions.
How did you become involved in the forex world? Was there something particularly attractive to you about the forex market?
A long time ago, I read about a trader in the book “Market Wizards” that traded currencies. It was way back then that I learned that they traded 24 hours a day without commissions and generally with less slippage.
That was an awesome change from the stock market that traded 6 ½ hours a day and had both buy and sell commissions and you could count on a decent amount of slippage on many of the trades. So went I saw all of the advantages of currencies over stocks, I was hooked!
How would you say you got your “forex” education? Did you learn by demo trading, did you have a mentor? etc.
At first I read things like Currency Trader magazine, etc. but then later on I went study an online forex course at www.fxcm.com . That’s where I got my “well rounded” forex education.
Aside from that, I’d learned how to use technical indicators in the stock market and so I was able to transfer those technical analysis skills into the currency market.
It’s funny that you mention about demos…I only used them to learn how to execute currency orders, etc. After that, I started a small live account because I knew that the psychological level was never engaged in demo trading and that’s why people will be successful in demos and not in their live account sometimes.
How often do you trade, are you a full-time trader? Do you trade longer or shorter times?
I’m the Dailyfx.com Forum Moderator and I also run two forex newsletter services (the Currency Cross Trader at www.worldcurrencywatch.com & the Money Matrix Insider at www.moneymatrixinsider.com ). So all of that keeps me trading in the midst of “talking shop” with traders on the dailyfx.com forums and researching for my next trades.
I tend to put on 1-2 trades every couple of weeks. Most of these trades are swing trades that last at least “days to weeks”. I usually only have 1-2 trades on in the market at any one given time. I tend to use the daily chart’s trend as my “directional gauge” to trade in…and the 1 hour or 4 hour chart to trade off of (to enter the trade in).
Do you have any preference on the currency pairs you trade?
Honestly, I will trade most any of the 40+ pairs that FXCM.com offers on their trading platform. I scan through all of the daily charts. My goal is to find the prettiest trend…one that can be seen from across the room.
Once I’ve narrowed those pairs down to the best couple of charts out there, I look for opportune entry points on the 1 or 4 hour charts. If there’s not a high probability set-up then…I sit on my hands until there is one. Pros don’t feel the need to trade at just any time. It’s taken me a while to get to that point (years actually).
Do you use more technical analysis or fundamental analysis, both?
I have four main parts to my analysis: Sentiment …what is the mood of the market. Are traders in more of a “risk seeking” mode or more of a defensive “risk aversion mode”. If they are in “risk seeking” mode, then I know that the pairs will respond to fundamentals. If the market is in a defensive mode, then I know that I can only rely on technicals.
In a stable market, I technically trade the best fundamental currencies. It would be like a stock trader ONLY choosing to trade the companies with the best earnings outlook.
Once I’ve found my pair and the trade set up, my final piece of the analysis is the “risk analysis” which some call “money management”. Its how many lots to trade and how wide my stops need to be. I never risk more than 5% of my account balance on any trade if I were to be stopped out.
So just to recap those 4 points: Sentiment…then Fundamentals, then Technicals, then Risk Analysis.
Do you have any favorite economic or favorite technical indicators that you feel are most reliable?
With fundamentals I watch the CPI year over year data, interest rate announcements, GDP and the employment reports. I look for this info at www.tradingeconomics.com and at www.dailyfx.com.
On the technical side of things, I look to the 50 or 200 day Simple Moving Average and the Slow Stochastics 14,3,3 settings mainly. Sometimes I’ll use the Elliott Wave Oscillator as well. I also love to see what the DailyFX SSI (Speculative Sentiment Index) reading is too. I love to enter trades where there is a strong trend and the SSI reading gives an extreme reading that shows the retail traders are trying to “fight the trend” by attempting to pick a top or a bottom. This is the dumbest thing a trader can do. However, it gives me a very high probability trade as I stick with the trend and they get stopped out, margin called out or scared out. Either way, it’s the “fuel to the fire” for my trade.
Pros know to stick with the trend. The novice says, “Its gone too far and has to turn around.” Therefore they try to be a “bottom picker” or a “top picker”. Once someone has been in the markets for over 17 years as I have…you learn who lasts and who doesn’t. The trend traders stand the best chance of lasting because trends are more likely to continue on than they are to reverse. Bottom and top pickers are always executing low probability trades and rarely last over the “long haul”.
You have also been a stock trader and a commodities trader. Are there specific stock indexes or commodities markets that you feel that forex traders should always keep an eye on?
Yes, I was and still am also a stock trader. I trade stocks and commodity ETFs for my longer term retirement accounts and use forex for my near term to medium term trading account. I watch the Dow, S&P 500 and NASDAQ. I also watch gold, oil, copper a lot too.
Depending on how these commodities are doing will weigh heavily on how the “commodity dollars” like the Australian dollar, New Zealand dollar and the Canadian dollar do. Since those countries are all major commodity exporters, they generally trend in the same direction as the commodities themselves. Also, commodities & stocks tend to have a fairly strong inverse correlation to the U.S. dollar. The euro (generally) tracks along with stocks fairly well too. Now with all of the Greece problems creeping in, the euro has tanked before stocks have.
On the forex market and particularly on the US Dollar, we have seen the dollar stage a rally since the end of 2009, do you think we will see continued Dollar strength through 2010?
Yes, I do think that the dollar rally is likely to continue because interest rate hikes are closer than they were in 2009 AND also because I believe that stocks will tank again later on this year and that money will run to the defensive side…into the world’s reserve currency…the U.S. dollar.
With banks not lending as they should…sustained high unemployment…higher taxes coming from the Obama administration and higher interest rates coming…I don’t see how corporations are going to expand their profit margins and businesses in that type of environment. Therefore, I’d imagine a double dip recession is going to unfold and stocks will head back towards their lows. This would all be supportive of the dollar.
NOW, with that said…if that doesn’t pan out and the dollar breaks its uptrend, I’m just as willing to short. Ultimately, I always want to stay on the side of the trend. I’d always rather be wrong in my opinion of where things are headed and have to change directions to stay on the side of the trend and still make money.
On the global forex stage, are there any particular currencies out there that you feel may be undervalued and/or may be poised to outperform? Or vice versa, currencies that may be ready to decline?
The euro is still overvalued in my opinion. It will likely fall much further (even more than it has already). I think both the dollar and the yen will continue to rise in this shaky, volatile type of environment.
In conclusion, do you have any advice to anyone starting out in forex trading? Is there anything in particular that you wish you had learned when you started out?
Don’t wing it. Get an education. Heck, you can take a course online at fxcm.com for $20. If you’re an active poster on dailyfx.com, you can sometimes even get it for free. Tap into the mentors aka instructors there. They are some of the best I know.
Start with a well capitalized account. Let me be more specific. Trade a MAX of 1 mini lot per $5,000 in a mini account OR trade a MAX of 1 micro lot per $500 in your account. Use wide stops and few lots. Trade over days or weeks and not intraday.
Risk no more than 5% of your capital on any one trade if you were to be stopped out. Trade with the trend. Don’t know the trend direction? Slap a 50 or 200 day SMA on the daily chart and trade in the direction that it points to. Take only entry signals in the direction of that trend. NEVER trade counter to the trend. Trade trends, not news events.
Buy the best technical uptrends on the currencies with the strongest fundamentals. Sell short the best looking downtrends with the currencies that have the absolute worst fundamentals. Don’t put a ton of indicators on your chart. If you have more than 2-3 on there, you have too many on your chart. What the price is doing is more important. Indicators show you what the price is likely to do. The price action on the chart shows you what the pair is doing.
Identify the trend FIRST, then look to the indicators below your chart. Many traders focus on the indicator first (which is a mistake) and they forget about the most important thing…the trend’s direction.
Remember that the risk management on the trade is just as important as picking the right direction on the trade. Pros are prudent risk managers. Novices are sloppy risk managers. Pros trade trends. Novices trade counter to the trend. Pros plan a trade before they enter it and place stops and limits from the start of the trade. Novices are emotional and are quick to click the buy or sell button without “thinking the trade through” first. They “wing it” once they are in the trade.
Never “double down” on a loser. Never back your stop up and widen it. DO remove the risk to the trade once a trade has moved sufficiently away from your entry point. Pros trail their stop based off of what the pair has done up until now while novices try to predict the future and “hope for the best”. Pros “follow” trends…novices feel a need to “predict” and be right. Pros would rather respond to the market.
Thank you to Sean for participating in this forex interview with us.
Learn more about Sean Hyman at: