Trader InterviewTrader Interview

Pod Chats: Paul Scott on Trading FX

Paul Scott is an ex-investment banker and former trader of Base & Precious metals and spot FX who now runs his own Forex Trading Consultancy.

Two Blokes Trading

Two Blokes Trading Episode 50: Trade Supply Demand Levels Like Banks. Click above to listen to the full episode

He was introduced to the trading world at the sprightly age of 16, when his father took him on to the floors of the London Metal Exchange.

Despite starting (by his own admission) as a “glorified tea boy”, he made his way through the ranks before eventually working at several investment banks before deciding to leave and teach people about how trading is done at the 'top table'.

In this interview with Tom and Owen from Two Blokes Trading Episode 50, he provides insight into the way the FX markets move and who the key participants are, stating that a common misconception of the markets is that they are really complicated. Instead he believes it’s all about looking at the bigger picture…

Trading is essentially the study of human behaviour.

On looking back to the future…
You look to the past to tell you whats going to happen in the future because the same value placed upon currencies have been consistent, going back 40 years.

On day trading…
Your broker loves you to day trade. It's hazardous as people can get addicted to trading, its an adrenaline rush. You need to step back away from that and look at the bigger picture. What we do here, we look at at least 20 years of history on a monthly chart. From there we pick our levels. And from there we an go in on a weekly to make a few adjustments. And then to trade it on a daily.

On recent data…
‘They’ want you to believe that last week is more relevant than 20 years ago. Because what was expensive 15, 10, 5 years ago, there is a high probability that when price comes back to that level the institutions are still going to place the same valuation when it gets there. So what happened last week doesn't matter as much in the grand scheme of things.

On being different…
It takes character, it takes consistency, it takes a logical mind. I've worked with some absolutely fantastic traders and their ability to read markets and having the 'cojones' to hold on to a trade and not cut them, that's a thing as well. Put it this way, traders at an institutional level are no smarter than the man on the street, they just do it as a day job, and because they do it everyday, things become more natural to you and to stand out from the crowd, is the guy who makes the most money.

On bank research…
The banks send out reports which include MACD, Stochastics, Elliot Wave, RSI, trend lines. Why? Because if an analyst comes over to a trader, he says "I'm buying here, I'm selling here, now bugger off and leave me alone, I haven't got hours to sit here and go through a chart and make analysis fit."

So what does an analyst do? They have to work with the trader, he needs to know what the trader’s mindset is and what he’s going to be doing. The banks clients don't just want to receive a two-line email, because if you're paying the bank millions of dollars in trade commissions, you want to think you're getting value for money.

So this is where the analysts come in. He takes the two-line email and turns it into a full page report, writing a load of blurb to justify why we've used these pieces of analysis and why the banks are doing this. If you had access to these papers, you would naturally assume that this is what the banks are actually doing, and the banks are not going to come out and say, no that's not what we do. We trade on supply and demand.

On markets…
The market is moving generally, not because of speculation but because of the function of the market and why it exists, which is to allow people to conduct international commerce. If you really knew how simple it really was, you would never put money with a money manager, you'd sit down and go, I could do this myself.

On trading itself….
Trading is essentially the study of human behaviour.

Want to listen to Paul’s full interview with Two Blokes Trading? Listen here to Episode 50: Trade Supply Demand Levels Like Banks