The Best and Worst Markets to Trade


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Video Transcription:

Hello, traders. Welcome to the Pro Trading course and the first module, Introduction to Trading Like a Pro. In this lesson, we are going to learn the best and worst markets to trade. This means that you are going to learn how to choose the best markets to put on a trade. This means that you are going to learn how to look for the markets that are going to yield the more profits on your position.

The Best and Worst Markets

Now, let’s talk about volatility. And the reason we are going to talk about volatility is because this is what professional traders look for. We look for volatility. Professional traders are not committed to one single market. We look for the best opportunities and hunt for volatility. We are not investors. And let me make this very clear. We are not investors. We will not invest for the long run. We look for opportunities to either the up side or the down side to trade for profit. The difference is that because we are traders, our trading system is recession proof. Let’s take the example of investors, and big investors that will invest in four to five stocks. Let’s say that the market tanks and a big, big bear market could see their profits erased completely, while traders can make profits either in a boom market or in a bear market. So again, we are not investors. We are volatility hunter. And this is very important because we are not committed to one single market. And where we find volatility, that’s where we are going to be trading. It really doesn’t matter if the market is going up or down. We trade booms, cycles, break outs, bounces, in whatever market can yield the best possible results.

The Best and Worst Markets1

So what markets are we going to be focusing on? That’s simple. If you are trading forex you focus on currencies. But you need to know which currency pair will be more volatile, AKA, will yield the more pips on your trade. Now, let’s move to the charts and I’m going to show you a very poor market. This is the South African rand versus the Japanese yen, as you can see on the bottom of the screen. Now, if you look closely at this range, this is actually a two pip range, all right. So let’s say that you wanna make a book play on the Japanese yen. You are not going to choose this currency pair to make it. And remember that if you wanna make a book play on the Japanese yen, you should be selling these currency pair, all right. But that really doesn’t matter because even if you wanted to make a book play at this level right here, this trade would have yield four pips along, all right. So basically you need to know which markets you are going to be choosing to make your plays.

The Best and Worst Markets2

And let’s take the GBP/USD and the GBP/yen, all right. Now the reason I’m showing you the Great Britain pound versus the Japanese yen, and the Great Britain pound versus the U.S. dollar is because I need you to focus on the moves and the market that yield more pips, all right. Let’s say that we wanted to make a bear play on this drop on the pound, all right. We are focusing on one currency. And then when we know what to do with one currency, we are going to choose the market we are going to be trading that currency in. Remember that we can make this bear play on the forex market where we have to choose the currency pair. But we can also make it on the futures market, by selling British bond futures, all right. Now I’m going to show you here on the forex market what the difference between the GBP/USD and the GBP/Japanese yen. This is March 22, so I’m going to put on a line here, my March 22. You can see that it is exactly the same hour of the day. And we wanted to make a bear play right here when price was at exactly this level, okay. Now, if we would have made the bear play when this flag broke out on the GBP/USD, this trade would have yield approximately 134 pips, which is not bad for a day trade. But because we know that the trade will yield more pips on the GBP/Japanese yen, we make the trade on the GBP/Japanese yen. And as you can see this trade would have yield 243 pips. Meaning that just by knowing which market to choose from, we are making 100 pips more on a bear play on the GBP, or the Great Britain pound. I can go around and show you more examples, but basically this is what you need to look for, all right. If you wanna make a bear play on the pound, choose to make it on the pound versus the Japanese yen, all right. Because you are going to be yielding more pips on a day trade.

The Best and Worst Markets3

Now, if you trade futures, the focus should be very liquid markets. And if you choose to trade stocks, go for stocks with at least 100,000 shares traded per day. Now, if we go back to the charts, I’m going to show you what a not very liquid market looks like. And this is corn futures, all right, with the May 2016 expiration. And as you can see, well, by the look of the chart alone you can see that this is not a very liquid market to be trading, all right. And of course, to be able to trade corn, you need to know what moves corn prices, all right. So if you’re trading futures, you’d better off trading crude oil or any other stock indices available. For example, right here this move to the down side yield around $27 on the E-mini S&P500;. If we go to the crude oil chart, you can see that this move to the down side yield $2.45, all right. And in crude oil, $2.45 with one contract is $2400, all right. So you can see that because of the market volatility you are going to make in more money. And by choosing the right market to put your money on, you are going to make a better return on your investment.

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