Conversations with Top Traders About How To Make Money Trading Stocks, Options, Futures and Currency. Visit Now to Listen and Learn! http://www.TraderInterviews.com Wayne McDonell specializes in online currency trading and recently authored a book on the subject called The FX Bootcamp Guide to Strategic and Tactical Forex Trading. Here we discuss which currency pairs he watches when trading around big economic announcements such as the Non‐Farm Payrolls report. He also discusses futures trading and how he trades the 10‐year T‐Notes and stock indices using the futures market. We then talk about how a trader can prepare to trade for a living, and how he manages his risk by increasing or decreasing his position size based on the total dollar amount in his trading account. Finally, we talk about why traders should create a three year business plan for their trading and how it helps traders of all experience levels to remain disciplined even in highly volatile markets. Listen to the original interview. TraderInterviews.com: Hello everybody. Welcome to TraderInterviews.com. Thanks for joining us for another show this week. As usual, the idea of all of these interviews is to give you traders something to think about and maybe a strategy or two to add to your own trading arsenal. And each week, we talk to traders about their individual trading style and ask them how they approach the markets to find profitable opportunities every day. Out interviewee today is Wayne McDonell of FxBootcamp.com. We've spoken to Wayne in the past. He's got a new book coming out. So we're going to talk to him about some general Forex strategies, a little about the book, and then about him in general and his way of approaching the markets. So, Wayne, thanks very much for joining us on the show. Wayne McDonell: Thanks a lot Tim. Glad to be here. TraderInterviews.com: Well we'll link to your book and give the listeners the URL to buy it at the end of the interview here but I want to ask you too because we got this opportunity the night before the non‐ farm payroll comes out and by this time this interview comes out, it will be over. But I want to ask you, are you approaching this in any special way? How do you trade around these announcements? Wayne McDonell: Well, I trade all economic news releases differently. Now, I look at the numbers fundamentally to develop a long‐term bias and clearly, the United states economy is in shambles. And so, whether the number comes out, you know, 522,000 or 588,000 jobs lost, you know, the bottom line, it doesn't matter. It's so bad. Even good news is going news is going to be bad news on the long term but the way that I treat these events is to trade the emotional response to whatever the headline number really is. So I'm not making long‐term investments tomorrow at 8:30 when NFP comes out. So what I'll do is I'll let the market react to the headline numbers. I'll watch, one‐minute candles for example, and let the market spike up or drop down and identify the key levels of support and resistance. When it hits those levels and pulls back, now I have identified the line in the sand and I'll enter a trade. This is purely a news scalp trade in response to what happens when the number comes out. So let's say price spikes up tomorrow, hits a line, and then for a couple of minutes, pulls back, I'm going to look to enter into
Conversations with Top Traders About How To Make Money Trading Stocks, Options, Futures and Currency. Visit Now to Listen and Learn! http://www.TraderInterviews.com those trades using Fibonacci studies, maybe a .382 retracement, maybe a .618 retracement, and then get in on the long‐term trend. It's a very particular type of trade that only works after news announcement comes out and there is volatility but I get a couple of minutes to let spreads come down and let risk come down and I enter in the same direction of the initial response at a reasonable price. But most importantly, very close to a stop, so if things go wrong, if things reverse, then I lose a little. But quite often, I do okay or even pretty good. TraderInterviews.com: Now, one of the things I always find interesting is that everybody I talk to these days is always trading the overreaction of the announcement. I'm always wondering so who is it that is driving the price immediately after the announcement? Wayne McDonell: Well, you know, the longer term traders like sophisticated hedge funds and such, they ventured in their investments based on what they believed non‐farm payrolls is going to be. But they do that days and even weeks in advance. So, they're not trading one minute after. So, really if there is a surprise, people jump in, okay? So, if they have to adjust their positions very quickly because something outrageous happen. What if the number comes out and it's 630,000 jobs lost and we're only expecting 530. I think it is the market consensus. Then wow! Everyone's way off and they might have to adjust their positions. But also Tim, never underestimate the power of dumb money. There's tons of traders, particularly amateur traders, that are just sitting around waiting for non‐farm payrolls to come out and they just pull the trigger blindly and they are going to pay the price because that's probably the riskiest thing you can possibly do in Forex and probably the best way to lose money is just trade blindly. I don't believe in that. So, again, what I do is I have very, very, very specific rules of engagement for that one particular type of trade. And if things go together according to my plan exactly, in that case my example was you can kind of, let's say, three or four green candles and then maybe two or three red and then I enter in, fine. I'll do that. But if the market behaves any different, I don't trade whatsoever but there's lots of people just trading blindly, jumping in just because and boy, I can't think of any better way to lose money than that. TraderInterviews.com: How many of these last announcements, maybe the past few quarters, have you traded? Wayne McDonell: Oh, economic releases? Well let me see. This week had ISM manufacturing. That worked fine. ISM services just the other day. I think I was in the trade for 17 or 18 minutes and it wasn't a huge amount of money but I made sales. I think it was about 30 pips. I think New Zealand just, was it Thursday of last week, just lowered interest rates by 150 basis points in the news and methodology. I shorted the Kiwi dollar and the Kiwi Yen and they each yielded about 100 pips. The unemployment numbers that came out this morning in fact, the same sort of thing. There was a spike, a little bit of a pull back and then a continuation pattern. Once again, it yielding not a huge whopping amount of money but a nice conservative or repeatable trade that is just a small part of my methodology and of
Conversations with Top Traders About How To Make Money Trading Stocks, Options, Futures and Currency. Visit Now to Listen and Learn! http://www.TraderInterviews.com course every single non‐farm payrolls, that's what I do. Look, sometimes I lose a little bit of money. Quite often, I break even but every so often, it pays off handsomely and that fits well into as a very sophisticated portfolio of different traits. I don't make my living just doing that but it's nice money when you added into spot trading and swing trading and carry trading scalping. They all sort of fit together in one big whole. TraderInterviews.com: Now with the big announcements like non‐farm payrolls, even the currency crosses (non US Dollar‐based pairs) seem to react to a certain extent because somehow, they're going to be related to be the US economy or the dollar. What do you trade? Specifically, which currency pairs are you watching when you are trading around non‐farm payrolls? Wayne McDonell: Okay, well the first thing that I'll watch is the Euro and USD and it's very cheap and it's the most liquid currency in the world by far. So I'll just watch that. However, I have a few minutes. Let's say the first five or six minutes to really interpret what the headline number did mean fundamentally. Was it good for the economy or bad for the economy? Was it good for the dollar or bad for the dollar? Is it good for the stock market? Is it bad for the stock market? Now I have a few minutes to digest it but once I decide, let's say tomorrow the number comes out and I believe the stock market is going to look at that number as a pretty positive number. Let's say it comes out negative 518,000. I think the general consensus is minus 534,000. Some people are freaked out. You're probably going to see on TV that some experts expect minus 600,000. So if it comes out minus 518,000 well look that's bad but it's a lot better than people have thought and it's certainly not terrible. So the stock market could rally. This is the mentality that will change the currency pairs and even direction of what I'll trade. So for example, the number tomorrow is better than what people expect in the stock market rallies, and guess what? I'm going to dump the US dollar; I'm going to dump the Japanese Yen. The stock markets are going to rally. The 10‐year T‐notes are going to fall. So I can have a whole bunch of different trades that I can have going on. If I thought the Yen was going to lose value based on the non‐farm payrolls number because the stock markets rally, then for example one thing I can do is I could then pull up the Euro Pound and see which one happens to be stronger. Is the Euro stronger than the pound in that particular moment? If it is, then you'll see me go along on the Euro‐Yen based on what the stock market is doing, based on the non‐farm payrolls positive surprise. TraderInterviews.com: Talking about more in the macroeconomic numbers area, what do you think the results of the stimulus bill are going to be on, the effect of the dollar? Is that something you're considering when you're trading these days? Wayne McDonell: Not on the short term Tim, but on the long term, there is always a consequence. We're bailing out all the American consumers. We're bailing out the real estate industry. We're bailing out the auto industry. We're bailing out the banking industry and all of these cost money, and we're printing dollars like there's no tomorrow. Right now, the dollar is very, very strong based on safe haven
Conversations with Top Traders About How To Make Money Trading Stocks, Options, Futures and Currency. Visit Now to Listen and Learn! http://www.TraderInterviews.com flows. But once the US economy finds some support and the stock markets to rally and there's key indicators that you could watch to identify when that happens but when it does, once we've hit bottom and we're starting to improve, the price to pay for what we're doing today is inflation. We're going to have skyrocketing inflation and that means the value of the US dollar is going to go back to what it's been doing for the last many years and that is it's going to weaken. So for the last six, seven, or eight months, we have had a strong US dollar. As soon as we start to recover in the market, that dollar's going to weaken again and fairly quickly, I believe. TraderInterviews.com: All right. Let's talk about what you do first thing in the morning. I know Forex trade is 24 or five and a half but when you get up in the morning, you turn your computers on, can you talk about a typical trading day? What are the things you pull up on your screen? What are the news items you're looking for? Just kind of talk us through that. Wayne McDonell: Sure. Well, the coaching session that I do as FXBootcamp.com is from nine in the morning till noon. So what I do is I take over from the previous coach, coach Curt Wehrley, who is our quantitative analyst and he coaches the three hours before me. So I get a little review from him and at nine o'clock when I take the mic and charts, it's when the commodity market start opening and Golden Oil starts to move. So I watch those commodities and I watch the value of the Canadian dollar and the Australian dollar. But mostly what I'm doing is I'm getting warmed up by doing analysis and looking at my longer‐term charts and stuff waiting for the US stock market to open, okay? So that's going to dictate a direction. Like I said, in the NFP example, if the stock markets around the world are rallying, I watch the Nikkei, the DAX, the FTSE, the Dow, if they're all rallying, it's going to make me have a general bias for the dollar to be weak and the Japanese Yen to be weak in the next few hours. So, I'll start setting up my trades based on that analysis and then of course at 9:30, the stock market opens. At 10 o'clock, quite often there is news so maybe if I'm not in the spot trade already, then I'll get ready for a new scalp and we'll do that for a while. And then by about 10:30, 10:45 in the morning, whatever is going to happen in the market throughout the day is usually sort of set itself. We have a direction established by then. All the news is gone and we have already identified who is winning today. Is it the bulls or the bears? If the bulls are winning, then we're trying to go along on something and by noon, that's usually, when the London boys start cashing out for the end of the day because noon in New York is 5 o'clock at night in London. And so, we usually get some offsetting and that's usually a nice time to take some profit and then sit back and wait until 2 in the afternoon when commodity market starts to close. You usually get volatility, again in oil and gold and you watch the commodity currencies move up and down based on that. And then of course, at four, US markets close and quite often you can get some new volatility in currency markets as well because of that. So that's my typical day. TraderInterviews.com: Do you trade just the spot market or do you find yourself trading any futures or options on Forex as well?
Conversations with Top Traders About How To Make Money Trading Stocks, Options, Futures and Currency. Visit Now to Listen and Learn! http://www.TraderInterviews.com Wayne McDonell: I only trade spot Forex but I do a lot of future Futures Trading. I do oil and gold, the 10‐year T‐notes, all the stock indices and the USD index. But most importantly, what I'm doing is I'm looking for a relationship, amongst all these intermarkets. And quite often, based on one certain thing, let's say , I'd day dollar strength today, all those markets are all moving based on that one piece of analysis. You'd be surprised how often all the markets work together in sync. TraderInterviews.com: Getting unto another topic of general trading and making money with the markets either as a full time trader or as a part time trader. Is it possible, do you think, to make your living in the Forex markets with say, a $20,000 account right now? Wayne McDonell: Well, you know, to make a living from that, boy I guess it all depends on how much money you need to live. If you live in Malaysia, maybe you don't need as much. But it seems to me that the most successful traders and Forex are those who reduce the amount of leverage they have, reduce the amount of risk they're taking on every given trade. So it seems to me, 20 grand is a nice place to start but I don't know. If you need to make a $150,000 a year, starting with 20 grand might not be enough but it's enough to get started and learn how the markets work and develop positive trading habits or maybe down the road once you've grown your trading account and reduce your risk and reduce your leverage, then those positive trading habits will lead into a very lucrative career. I wouldn't look to get rich quick off of any or sum of money whether it's two grand or two million. Forex is a long‐ term career, and you should look at your trading as just a long‐term career. TraderInterviews.com: In Futures obviously, you've got set amounts of leverage that you can use and Forex just seems to be you'll still find places with 400:1 and what kind of leverage are you using when you're trading spot market? Wayne McDonell: Well I would not recommend going to 400:1. That is for sure. So what you want to do is get going so you're making and growing your trade account and keep lowering it. If you can get your risk level, let's say, if we're using leverage as an example, if you start at 200:1, that's actually seems like to be the industry standard now. 200:1, it's unbelievable. But if you start there, hopefully, you can reduce that down to 100 and then reduce that down to 50:1 and maybe one day get it down as much as 10:1. So imagine if you grew your trade account large enough, so that you could still make a thousand dollars a day but you only had 10:1 leverage. That's the idea. What you don't want to do is try to make 158 million dollars a day by compounding your returns and keeping that leverage. Every time you grow your account, reduce your risk. Reduce your risk. If you need to make, let's say a thousand dollars a day, that's your goal. Once you can do that consistently with a lot of leverage, lower your leverage and grow your trade account until you can make that thousand dollars a day again with a lower leverage because of the larger sum in your account. And then once you get that, lower your leverage again and grow your trade account. So you're never really breaking a thousand dollar a day mark but the thing is you're doing it with less and less and less leverage and then growing, and growing your trade account.
Conversations with Top Traders About How To Make Money Trading Stocks, Options, Futures and Currency. Visit Now to Listen and Learn! http://www.TraderInterviews.com TraderInterviews.com: See that's just the thing too. How do you survive those days when you're using 50:1 or even 100:1? Obviously that's where most traders start to blow up. So what advice do you have to kind of get through that period to grow so that you can get out of doing that much leverage? Wayne McDonell: Tim, every single trade you take should be almost meaningless to your overall career. Imagine if you were looking back three years from now, today, tomorrow, yesterday should be meaningless. Today shouldn't be a big day. You should never have a day when you make a killing because if you can make a killing, that means you can take a bloodbath as well. You want to make every single day just another day where you sit down, you win more often than you lose. It's not a huge amount of money. But because each trade is small and insignificant, you're not sweating bullets every second, every candle. Just stay small, stay humble and keep yourself in the game for as long as possible and I think you'll do all right. TraderInterviews.com: Does that mean necessarily that if I have a daily goal for myself, if I do that sort of thing and I say, "I want to make $500 today," should I then quit at 500 bucks just as I would quit if I lost 500 bucks? Wayne McDonell: No absolutely not, because if you have a conservative and disciplined methodology and have the ability to carry that out, then all you're doing is sitting there doing what you're supposed to do when you do it. Now I do believe, if you're having a bad day and you can't time anything right because you're off to sink from the rest of the world. If you hit that magic, minus $500 mark, look, go take a walk, go tie your shoes, back in your office. I don't know. Do something, right? Well walk an old lady across the street and carry her groceries home. But if you're having a fantastic day, no don't stop just because you have a $500 profit. Just sit there and keep doing what you're doing, carry out your plan, do your analysis, your next trade up and just keep doing it because you're supposed to win. That's your job. You're supposed to win. So don't quit because you're having a good day and you've made too much. But the thing is don't get greedy, don't get overconfident. Remember, if you've lowered your leverage and you don't want to have a whole lot of money on any given trade, then you know every given trade is just fairly basic. You're sitting there, you're waiting for your trade plan to come to fruition and you're doing what you're supposed to do and most of the time you win. It shouldn't be a whole lot of money. It shouldn't. So therefore, you're just doing what you're supposed to do. And that's what your Forex career should be like: wake up in the morning, go to your computer, start your chart, sit down with a cup of coffee, and make trades based on sound fundamental and technical analysis and just do what you're supposed to do. But if you got too much money on the line on a trade, then you're going to react emotionally, not logically. You're not going to get out when you're supposed to because it's too much money. You couldn't possibly take a loss and you're starting to think like Wall Street, right? Or, you get out too quickly because, "Oh my gosh. I'm up 28 pips. It's so much money," you know. Forget it because if you act emotionally, you're certainly not acting logically and what you need is logic. And
Conversations with Top Traders About How To Make Money Trading Stocks, Options, Futures and Currency. Visit Now to Listen and Learn! http://www.TraderInterviews.com therefore, reduce the amount of risk, reduce the amount of money you got in every trade and just sit down, be small, be humble and do what you're supposed to do. And remember, you're supposed to be successful on the long term. So don't go for a million dollars today. Just slowly grow your trade account bit by bit, trade by trade, day by day, week by week, month by month, year by year. And as you become more and more successful, grow your trade account, keep lowering your leverage so that really, your trading is nice and relaxed and it's just what you do naturally. TraderInterviews.com: Do you pay yourself a salary based on earnings for the month or do you have a set amount that you kind of pay yourself, or how do you decide what you take out of your account? Wayne McDonell: Me, personally, no. I don't do that. But you could, I mean you could. And in fact when every FxBootcamper goes through the process, one of the things they do, as I mentioned before, is create a three‐year business plan. And so, what they do is they calculate how much they want to pay themselves and how much risk they are going to take and how much money they're going to start with. It helps them plan and adjust their trading career three years in advance, actually day by day by day. And one of the interesting things, Tim, is there is a paradox if you do this and you look at how the numbers work based on compound interest. In fact, the less you pay yourself, the more money you'll actually make. It's really bizarre because your trading account, therefore, then grows more quickly and then you actually make more money at the end of the year if you pay yourself less every month. It's quite a paradox but you're not going to see that unless you sit down and crunch the numbers and stuff. But what's most important is it shows people that if you lower your risk and this is the most important thing. I mean you can adjust how much money you start with. You can adjust how much risk you can take and how much you're going to pay yourself at the end of the month and stuff but what's most important is if you give yourself lots of time and you lower your risk, you will do fantastic in year three, year four, year five, and year six. The problem is, most amateur traders fail and crash and burn within the first six months when they know nothing and they're most likely to fail. That's when people are going big. They pop in ten grand into their account and see if they're going to become a millionaire. Yet, when they first started trading, they're most likely to lose. What they don't understand is if you learn how to trade Forex, what you want to do, what you should be focused on is getting to year three and year four and year five. That's where you make your money, not in the first six months because that's when you know nothing and you have no experience and you're going to blow through your trade account. So that's why I focus on giving every bootcamper a long‐term perspective of their trading, the secret of staying small and staying humble and staying in this Forex game as long as you possibly can because you're going to make the best money when you have the skills and the discipline to just sit down and trade logically day after day after day. TraderInterviews.com: Let's mention the book first because it's coming out soon and I'm curious to know what it's all about. So can you talk about that for a minute?
Conversations with Top Traders About How To Make Money Trading Stocks, Options, Futures and Currency. Visit Now to Listen and Learn! http://www.TraderInterviews.com Wayne McDonell: Sure. The name of the book is FX Bootcamp Guide to Strategic and Tactical Forex Trading. The fact is that it came out a few months ago so it is available. The whole idea behind the book is to teach people the basics of trading Forex from the beginning so that we have a common language talking about technical indicators for example right off the bat. I think page five, we're already talking about technical indicators and leading and lagging indicators and such. And then we go on to the bigger things in Forex and that's really fundamentals, what drives the markets long term. We talk about interest rates being money magnets for the currency trading market and central banking policy and why inflation and deflation is important. So, right up at about halfway through, you become an expert in technical and fundamental analysis. But, you know, quite honestly, I haven't invented anything new. There isn't a magic system or a magic indicator. It's just sound technical and fundamental analysis but what is unique about the book is the second half of the book is really sort of my story of how I became a patient and disciplined trader. I tell you all the good and the bad things that happened as I learned how to trade Forex and then give a step‐by‐step guide on how you can understand your own trading and how you can become a better trader, things like understanding risk and reward by also doing very unique things like creating a business plan for your trading three years in advance. So, that's exactly what I did when I started out and I share that with everyone, the good, the bad, and the ugly of trading Forex and becoming a professional doing it. TraderInterviews.com: All right. Finally, where can listeners get the book? Wayne McDonell: The book, you can get on amazon.com and a million other places. It's also going to be available at the Traders Expo in New York coming up in a couple of weeks and I'll be there to sign copies and stuff like that and that will be available at the trader's press booth. TraderInterviews.com: Good. All right, Wayne, well listeners will link to the book as well as Wayne's web site, FxBootcamp.com. Wayne thanks very much and we will see you soon in New York. Wayne McDonell: All right. Thanks a lot Tim. Cheers.