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Desmond Leong is familiar with volatility. Having traded the foreign exchange (Forex) market since university, Desmond is used to seeing currency pairs move up and down and looking at intraday forex chart patterns.
Due to the global COVID-19 pandemic, there has been a heightened sense of uncertainty in the world, which translated into higher volatility in the financial markets. However, with higher volatility comes the opportunity to earn higher potential returns within a short period of time. Unsurprisingly, this has led to many people opening trading accounts and some existing traders trading with greater frequency. The work-from-home trend also meant that people had more time and freedom to trade as well.
In this edition of #MyFirstLoss, we spoke to Desmond Leong on his observations of what traders are doing in the financial markets today and possible mistakes that both new and experienced traders should avoid during this period.
Desmond is the founder of The Forex Army, a trading community that provides free tools and guides. He is also the founder of Everest Fortune Group, a research firm that produces original research and analysis to institutional investors and traders.
Timothy Ho (Timothy): We always start this column with the same question. Do you remember the first time you made a loss in your trades? #MyFirstLoss
Desmond Leong (Desmond): I can’t specifically remember my first loss, but I can remember my first significant loss. I was in university when I started reading up about forex. I came across the concept of forex robots – letting a robot trade for me through an EA (Expert Advisor). The logic appealed to me and I liked the idea of sitting back, letting a robot trade on my behalf, while the money rolls in. I tried out a few, including one that specialised in trading gold.
Now, this robot performed amazingly just buying gold on dips, and at that young age, I was making almost $8,000 per month! Within four months, I was entertaining the thought of dropping out of school and enjoying the good life. I invested all my savings into this, and it wasn’t long before gold prices started to turn, and for the first time, I understood what a margin call sounded like. Yes, literally a call from my broker telling me that I’m running out of margin!
Long story short, I had a much tougher time servicing my student loan by the time I graduated.
There were three major lessons that stuck with me.
Firstly, don’t trust something you don’t understand. I didn’t understand the “complex algorithm” (or trading strategy) behind this robot but I somehow ended up trusting that it will turn things around, even when everything in me was questioning the logic of buying when gold prices were starting to plummet.
Secondly, don’t invest more than you can afford. You should not be throwing your life savings into high-risk investments. It’s easy to imagine the riches (and for my case, yachts and mansions – yes mansions!) when things are going well, but in trading, the potential for a big upside usually comes with the risk of an equally big downside.
Lastly, leverage is a double-edged sword. Sure, it provides you the potential to earn higher returns, but at the same time, you risk taking on much larger losses.
Timothy: The last time we spoke to you, 2020 was starting off as well as most other years. We even followed you for an entire day to film a video. Since then, the world has changed (for the worse). How have things been for both the Forex Army and Everest Fortune Group?
Desmond: What has been a real bummer is that we moved into our new office at Raffles Place this year and got a larger office to accommodate more gatherings. We haven’t been able to utilise that at all and many of our grand plans for 2020 have been thrown out the window.
However, we’re still doing quite all right. A combination of people choosing to trade more amidst all this economic uncertainty along with our fintech business that helps brokers connect with High Net Worth clients has resulted in us doing particularly well – which I am very thankful for, especially in these troubling times.
Timothy: There has been an increase in people opening brokerage accounts in Singapore to start investing in the stock market. Have you observed a similar spike in people getting interested in forex trading as well?
Desmond: Yes, many of the brokerages we work with have reported record volumes of trades during this period. I believe it’s down to a combination of the ease to begin forex trading (even with relatively low capital) and the massive speculation that is going on in the world.
Watching how various countries’ governments manage the COVID-19 chaos can give you deep insights into how their economy and currency will perform in the future. Throw in the ongoing trade wars and sprinkle a dose of Donald Trump’s tweets and you have one of the most volatile and exciting times for trading.
Timothy: In your previous interview, you shared that the reason you started The Forex Army was because you realized many traders were not learning trading in a structured manner, and that some were losing large sums of money trading, even after spending thousands of dollars on courses. Is this still a problem that you are worried about during a period when many new traders are getting started without necessarily have the right knowledge?
Desmond: Yes, it sometimes gives me nightmares. I have seen an explosive increase in the number of ads for trading-related stuff during this COVID-19 period. Some promise a ridiculous return and utilises FOMO (fear of missing out) tactics to trick people. Even my dad almost fell for one of these scams while doing some research on gold for me.
I have nothing against people spending a bit of money to learn how to trade the markets properly. But before you buy your next “Financial Freedom 3000+++” course, go Google “ [name of educator/guru/course] + scam” and read through all the reviews there, especially the bad ones. Exercise discretion and put on your super skeptical glasses as you do your due diligence.
Actually, to get a good grasp of the fundaments, there are plenty of tremendously useful resources out there from reputable providers. My personal favourites are Investopedia, BabyPips and IG Academy (very structured).
Timothy: What are some useful materials on The Forex Army that you will recommend to both new and experienced traders?
Desmond: I don’t have many because I prefer to dig deep into one particular topic as opposed to covering a broad range of topics. But here are a handful of resources that I would recommend to new and experienced traders.
Trade Management: I touch a whole lot on the concept of trade management here (especially using MT4) and include my own custom-built MT4 Trade Manager. It helps traders realise that there’s way more to trade management than just having just setting an entry, stop loss and take profit threshold. You need to have a breakeven target, levels for partial profits, idea invalidation levels, trailing stop levels and even levels to cancel pending orders. If you fail to plan (your trade), you plan to fail.
Support & Resistance: This article covers the concept of using another custom-built MT4 indicator to scan for higher timeframes and multiple timeframes to improve your trading. It drills down into the psychology of why some support/resistance patterns work better (instead of taking everything at face value).
How To Draw A Fibonacci Retracement Correctly: One of my favourite topics and the most utilised tool when it comes to doing technical analysis. This in-depth article teaches you how to draw Fibonacci Retracements correctly, utilising not only the retracements from 0-100%, but those that go beyond 100% and those that go into the negative region.
Timothy: What are some adjustments that you may have made to your trading strategies during this period?
Desmond: I have started to hold much shorter positions, along with getting out of positions before the end of each day. There’s a right amount of volatility and chaos happening, which means my scalping strategy is working decently well. However, I need to be careful about the “known-unknowns” throughout the days (e.g. If I know a news event is coming, but there are an unknown outcome and impact that has on the market, it tends to mess with my trading strategy’s edge).
Timothy: The Forex Army is meant for retail traders, while Everest Fortune Group provides research and analysis for institutional traders, such as portfolio managers and hedge funds. Do you observe any differences in the approach from both these groups of traders?
Desmond: There are vast differences. The institutional traders tend to focus more on the entire structure of the market, while retail traders tend to zoom in on just a few currency pairs they particularly like.
For example, institutional traders factor in correlations a lot more – they don’t only want to know where EUR/USD is going, they’ll also want to know where USD/CHF (which is strongly negatively correlated) is going, US Dollar Index (DXY) and even gold. They try to put together more pieces of the puzzle to form a clearer picture. This leads them to making higher quality trades.
On top of that, they don’t see trades as binary, basically 1 = trade, 0 = don’t trade. They consider and weigh multiple factors to see how good it is on a scale of 0-5 and hence alter the risk allocation.
Trades are also better managed. They don’t just look at a single currency pair and see what it’s telling them. On top of correlated currency pairs, they also look at custom-built currency indices (e.g. EUR basket, AUD basket) to break things down one level further and give themselves a closer look into the movements of each currency within the pair.
To top all of that, they consider correlations across multiple asset classes (e.g. Forex and commodities where the movement of USD/CAD is also greatly affected by the prices of oil) and if that’s not enough, they take top-down approach where they break things into the strategic level (yearly and quarterly forecast) and then on a tactical level (monthly, weekly, daily forecast), mapping the big levels and directional bias with each other.
Learning How To Trade Well Takes Time, Discipline And Lots Of Experience
Getting started on your trading journey can be easy, and so is making short-term profits, which may give new traders a false sense of confidence. This is dangerous because it may lead them to incorrectly think that they are proficient traders, even when they are not. As shared by Desmond, this could lead to losses that far exceed the early profits that were generated.
What is difficult is learning how to trade, alter your strategies along the way and generating profits from your trades over the long-term.
For a start, traders need to focus on risk management instead of profits. They need to learn how to protect themselves and their capital during trades they make, rather than simply being fixated in chasing to make high profits from their trades.
Learning also takes time. While there is no shortage of resources on the internet, we need to learn how to identify quality content that can help us become better traders. Platforms such as The Forex Army and IG Academy are good places to get started on your learning journey as they provide a wealth of free information, research, courses, guides and webinars that you can learn from.
In particular, IG offers online trading courses that you can browse based on your current proficiency level, whether you are a beginner, intermediate or advanced trader. This allows you to learn at your own pace. There are also daily webinars and live sessions to help you stay in touch with the market during this volatile period.
Perhaps, what is most important for new traders during this period is to avoid being enticed by the potential returns of trading the financial markets, and to instead focus on building the discipline and experience needed to be a successful trader in the long-term, rather than just being lucky in the short run.
If you are looking to open a trading account, you can create one with IG or consider starting a demo account first – as it would give you the time you need to get used to trading the financial markets and explore trading strategies that you may wish to try, before actually committing real money into your trades. You can open a demo account with IG that gives you $200,000 in virtual funds to practice on your strategies and access to education content on IG Academy.
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