Zachary Storella is a macro investor that specializes in trading the global foreign exchange market. We recently sat down with Zachary to learn more about the world of Forex trading, and to listen to his advice for novice traders. [no_toc]
Tell us a little about your background. Why did you decide to start Counting Pips?
I have been a Forex trader since 2006/2007 with a passion for global news, macroeconomics, politics, and business; and I generally always want to know what is going on in the world. I started my website, CountingPips.com, basically for one reason: to discipline myself to stay on top of the global economic trends (and in particular, the financial and Forex markets). On that particular metric, I feel like I have succeeded, because almost 10 years later I’m still trading and investing and am more committed than ever. I know that I have much more knowledge and experience than when I started out. I went from knowing nothing about the markets to maybe somewhere a little above that.
When you look at global markets today, what macroeconomic trends are you seeing?
The macroeconomic trends I see today are basically more or less what has been prevailing for the past few years, which is slow global growth, low inflation, and very low interest rates (and in some major countries, even negative interest rates). We have also had low oil prices and enormous central bank policies enacted globally in response to the financial crisis and its aftermath.
Despite some of the headlines and political rhetoric, the United States has been a bright spot in the global economy in recent years with strong job growth, technological progress, a rising stock market touching all-time highs, and a growing economy that may be strong enough to see a second interest rate increase in the near future after the Federal Reserve first raised the interest rate in December 2015.
Which markets or options are underperforming right now?
Two of the major European currencies are underperforming relative to their historical exchange rates against the US dollar. These would be the British pound sterling and the euro. The British pound sterling is mainly underperforming due to the vote to exit from the Eurozone that took place in July 2016 by a referendum of the British public (called Brexit). The euro, meanwhile, has been trading between the 1.10 and 1.15 exchange rate to the US dollar for the past two years basically due to overall economic weaknesses after having traded as high as 1.40 in the first half of 2014.
Your blog focuses a great deal on foreign exchange trading. How is Forex trading unique as compared to other options or markets?
Maybe the most basic difference is that currencies trade in what are called currency pairs. This means that instead of trading the dollar, the euro or the Japanese yen by itself as a stock, a trader will trade the US dollar (USD) against the euro (EUR) or against the Japanese yen (JPY). It is a direct comparison between two currencies. If you feel the dollar will be strong and that the Japanese yen will be weak in the future, you would then express this view by buying the USD/JPY currency pair.
In the stock market, an investor will buy the stock of Microsoft if it feels Microsoft is going to go up, or potentially sell Microsoft if it feels it is going to go down. In Forex, it’s a little more tricky because you need to compare the two currencies. This is a characteristic of what is called spot Forex trading.
What should a novice investor know or learn before entering the Forex trading arena?
I would counsel a novice trader to ask themselves many questions up front about what they’re trying to do before jumping into Forex trading. A new trader should really think hard and long about what they are trying to accomplish, why they feel they would be successful in this endeavor, and what steps they are going to take to be successful in this arena.
A novice to Forex trading should do their homework (read, read, read!) and familiarize themselves with the basic vocabulary and processes (platforms, brokers, etc.) of Forex trading, the fundamentals and economics that impact the markets they’re looking to trade in, and to really start working on putting a trading plan together.
Then I would advise practice, practice, practice. You can do this through a free demo account that essentially lets you trade live markets with virtual money, or by finding a broker that allows you to deposit small amounts of money and practice that way. If you lose it all, it will not hurt.
For part-time investors, what types of returns or income might they expect from trading in the foreign exchange markets?
In reality, the Forex market is fast-paced and ever-changing with many evolving global themes, which may likely work against a part-time investor who doesn’t keep up with the markets. Also, I would characterize the Forex markets as more of a trading market as opposed to the traditional buy and hold investing endeavor. The part-time investor may find his time most wisely spent in the more traditional buy-and-hold stock market realm.
What advice can you give to novice investors to help them avoid losing large sums of money in the trading markets?
I would generally advise the novice to trade where their conviction is the highest. They should look to put their money into situations where they have the most confidence and the highest probability of success, and should not fall into the trap of overtrading. It can be easy to feel that every trading pattern, fundamental change, or trading setup is a catalyst for a trade, but rarely is that true. They should focus only on what meets their criteria for their best trades.
Also and very importantly, always know ahead of time where your exit is for trades that go against you (your stop loss).
What other market opportunities do you think might open up in the next 3 to 5 years?
This is such a tough question because it is virtually impossible to forecast that far out in time, especially when events seem to change things so quickly. However, in general, there are likely to be many opportunities in the countries or regions that can escape this low-growth environment, since capital will flow to those areas where investors feel there is the greatest possibility for appreciation. Emerging market countries likely have a better chance at high growth than the developed countries, although the developed countries can provide more stability and safety.
It looks like the next 3 to 5 years will continue to be a period of rapid change as many sectors and industries promise to expand and change the world. From machine learning and artificial intelligence to renewable energies, cyber security, and virtual reality, there is no telling where things will head – but it is guaranteed to be extremely interesting.
Interested in doing some investing of your own? Compare online trading companies & apps with real user reviews.