How to Trade Like The Big Banks | Smart Money JP Morgan Trader Kathy Lien

Summary

In this insightful interview, successful trader KY Ly, formerly of JP Morgan, shares her trading strategies and experiences. She emphasizes the importance of multi-time frame analysis and not obsessing over risk-reward ratios, advocating for a balanced approach between technical and fundamental analysis. KY discusses her daily routine, the key differences between retail and institutional traders, and her upcoming book on prop trading secrets. She also offers advice on risk management and handling the psychological aspects of trading.

Takeaways

• 📈 Successful trader KYLY shares insights on trading strategies and time frames, emphasizing the importance of multi-time frame analysis.
• 🕒 KYLY's trading signals are based on the 1-hour time frame, but she checks higher time frames like the 4-hour and daily charts for confirmation.
• 🌐 As a former JP Morgan Chase trader, KYLY's daily routine involves trading twice a day, focusing on the New York open and the Asia open sessions.
• 📊 KYLY recommends retail traders to use a combination of technical and fundamental analysis for successful trading, as institutional traders also focus on both.
• 📈 Bank traders often trade on momentum and mean reversion strategies, which retail traders can replicate by following market sentiment and looking for price corrections.
• 🎯 Risk management is crucial in trading; KYLY suggests a two or three-tiered exit strategy to bank profits and protect investments.
• 📚 KYLY's book 'Day Trading and Swing Trading the Currency Market' is a valuable resource for those interested in learning about fundamental analysis.
• 🤔 The major difference between retail and institutional traders is the time horizon and level of accountability; institutional traders have a more conservative approach due to their longer holding periods and need for justification.
• 🌐 Institutional traders may use technical indicators for observation but base their strategies on arbitrage opportunities, market misalignments, and global macro factors.
• 💡 KYLY advises retail traders to focus on trend-following strategies and establish clear trading targets for better discipline and psychological management.
• 📖 KYLY's upcoming book 'Prop Trading Secrets' will feature interviews with successful proprietary traders, offering insights into their strategies and the modern landscape of prop trading.

Q & A

What is the primary time frame KY uses for her trading signals and why?

KY primarily uses the 1-hour time frame for her trading signals because it reflects her personality and trading style. She is not a scalper or an aggressive day trader, and she usually holds positions for a day or two, maximum.

How does KY approach multi-time frame analysis and what higher time frames does she check?

KY is a strong believer in multi-time frame analysis. Although her strategy triggers on the 1-hour time frame, she always checks higher time frames like the 4-hour chart and the daily chart to ensure she is not buying into resistance or selling into support.

What is KY's daily routine as a trader?

KY's daily routine involves getting up by 6:00 a.m., doing research, analyzing data from overnight markets, and looking at the news flow. She then identifies trading setups and decides whether to buy or sell a currency pair. She trades twice a day, during the New York open and the Asia open.

How does KY define the Asia open and when does she typically trade during this session?

KY defines the Asia open as 8 p.m. New York time. She usually trades during this session and sometimes carries her positions overnight, often finding her profit targets hit or half her position reaching a profit target by the next morning.

What key strategies or techniques do big banks employ in Forex trading that retail traders can also utilize?

Two popular ways that bank traders trade are trading the flow, where they ride the momentum of large transactions, and trading mean reversion, which involves betting on prices returning to average levels after significant moves.

What is KY's recommendation for retail traders regarding technical versus fundamental analysis?

KY recommends using a combination of both technical and fundamental analysis for successful trading. Fundamentals help determine the direction of trades, while technicals help with entry and exit points.

How does KY approach risk management in Forex trading?

KY suggests using a two or three-tiered exit strategy, where she might sell half of her position after it has moved a certain amount, trail her stop to break even, and then let the rest of the position ride for potentially larger moves.

What is the major difference between retail traders and institutional traders, according to KY?

The major difference is that institutional traders tend to hold positions for longer periods and have to justify their trades to higher-ups, making them more conservative and less impulsive than retail traders.

What technical indicators do institutional traders specifically use, and how do they base their strategies?

Institutional traders often use technical indicators for observation purposes rather than as the basis for their strategies. They typically base their strategies on arbitrage opportunities, market misalignments, or actual data.

How does KY handle the psychological aspects of trading?

KY handles the psychological aspects of trading by setting a weekly trading target, which helps her focus and manage her emotions. Once her goal is met, she becomes more conservative to protect her profits.

What advice does KY have for retail traders on how to improve their trading strategies?

KY advises retail traders to focus on trend-following strategies, establish trading targets, and find the right time frame that suits their lifestyle and personality. She also suggests not obsessing over risk-reward ratios and instead focusing on higher accuracy trades.

What are some of the common mistakes retail traders make, according to KY?

Some common mistakes include not fully understanding trading strategies, revenge trading after losses, being too greedy with profits, and not knowing how to protect profits with a defensive mindset.