Trading myths: Voodoos and gurus

Posted by admin on May 14, 2013
Posted in: trading mindset, trading psychology, trading system. Leave a Comment

One of the main differences between serious traders and amateurs is their dedication to the actual art of trading. Most newbie traders are so obsessed by systems, markets and timeframes they get lost in the multitude of decisions one has to make, even before trading.

The reality is that virtually any trading system will work if you spend long enough using it and fine tuning it to the market you are trading. Unless, you are a high frequency super trader that trades on a millisecond time frame, most trading systems have been around for a very long time. Before computers, in fact. Look at all the current indicators people use and then of course candlestick charting, which goes back thousands of years. Then there are the Fibonacci systems and Darvas box’s none of this is new. So putting innumerable twists on the same system is futile.

Successful trading is a mind game. Convincing yourself that you have a system, as good as any, making it work for you on your market and within your parameters and then following the flow.  All the real market gurus that made billions did not play around with a multitude of random systems. They developed their own based on what they believed in.

Sooner or later you will come across WD Gann. In current money he would have made hundreds of millions on the stock market. He predicted the tops and bottoms of so many stocks correctly you would have thought he was a time traveller. Well, ironically he was very much into Astrological phenomena and used them to time some of his entries and exists. Whatever it takes.

So the reality is that unless you can use the stars or tea leaves to predict market movements choose the most convenient and simple system that you can understand and make it yours. You may not make millions in a  year but you wont blow your account, and as you enter into the flow of the market, it will speak to you.

Overcome your fear of trading, practice discipline and be patient. Take the trades as they come along, abide by the signals and spend much of your free time developing and bettering your edge. Tinker with your system, to make it more efficient, but do not keep changing it. Forget about the gurus and voodoo traders. They will take your money, sell you a crazy system, not tell you how it works, and start a new one.

TAKE Responsibility of your own trading and you will be one of the 5% who make it big.

 

 

Forex musical chairs and global currency war

Posted by admin on January 28, 2013
Posted in: dollars, economy, euro, forex, middleeast. Leave a Comment

Foreign exchange traders are celebrating. The volatility is back in the market and its gone global. Last year the collapse of the Euro was the main headlines of the year, but this time round it seems there is a choice of where the doom and gloom will go.

Towards the end of last year we had the fiscal cliff, the Mayan prophesies and the potential collapse of the whole planet. We ended last year and started this one with the Yen and then swiftly moved on to Sterling. The Euro has not had a bashing for a few weeks, so that could be next. However, I am sure the wonderful people at the Federal Reserve are cooking up a plan as I write. After all, the mighty dollar rarely stays out of the spot light for long. There is probably a long list of potential flash points for markets in the next few months but a few key ones come to mind.

The first being state economies. As the British economy has shown in the past few weeks, there are still many surprises to come and the endless stream of quantitative easing may be like having Espresso on tap but we all know what happens after a few too many of those. Stimulus after stimulus without any real structural change to the economy just leads to the same mistakes. Getting out of the Euro is a last and dangerous end game that can only end in tears for all concerned.  Apart from the traders of course. The uncertainty is extra pips, no complaints there.

In the US all isn’t as rosy as imagined, So much was resting on the US’s most innovative company Apple and they seem to be disappointing. It is true that some of the industrial companies are now faring better but there was such a low threshold for virtually bankrupt companies that survival month by month is a fascinating revelation.  Where more jobs will emerge from is a mystery so the US will be trying to drive the US Dollar down, to make that debt cheaper and US products more competative

Then there is China. Figures from China are now surprisingly good. It seems they went through a collapse, recession and massive recovery in about 8 months. Very impressive, however figures for China are about as transparent as a brick. The economic mandarins have a reputation of pleasing the politicians and great leaders and making all these numbers up, so I guess if they say they are doing well, we should believe them,

So that leaves the final potential calamity that could befall the Earth. You will not be surprised to hear that this is the Middle East. In Syria, we are hitting endgame. It is all conveniently below the radar, but for how long. The Iranians with or without their nuclear arsenal have elections coming up and as everyone knows this is a great time to throw a spanner in the works. Egypt’s so-called democracy is already unravelling and Israel has effectively chosen a more anti-war platform, but the reality there is the rest of the Middle East is doing such a grand job at unravelling Israel just has to watch from the sidelines.

Well folks, I hope that was enough material for you all to digest. Will be back with more exciting anecdotes tomorrow cheers.

Currency war myths and realities

Posted by admin on January 25, 2013
Posted in: economy, euro, forex. Leave a Comment

It is interesting how the financial press are suddenly writing about the possibility of currency wars. This is quite a misguided notion, as realist political and economic ideology has predominantly governed how the free market economics of the current global currency system operates.

This ideology is primarily based on self-interest. This has been clearly visible even  in the close-knit framework of a common currency, the Euro. Sometimes the self-interest can be constructive, as in the formation of  the European Economic Community and in other times it can be catastrophic. The total isolation of Iceland during the sub prime crisis and UK Prime Minister Cameron’s decision to hold a referendum and effectively hold the UK economy hostage to fate, based on political ideology is potentially self-destructive, if it ever plans out.  It is understood that on some occasions central banks collude to stabilise the global economy and in others the self-interest of their national economies and politicians leads to outright competition for resources.

After all, this is all it is about, resources. Physical and monetary. Some states have a lot of it and others, not so much. It is virtually impossible to have a true currency war as it is a zero sum game. All currencies are inevitably pegged against each other and the more liquid currencies trade heavily and in unimaginable volumes. It is true Switzerland has managed to control the rate of the Swissie against the Euro, but on a global level Switzerland is a tightly controlled economy with a relatively illiquid currency. Furthermore, much of the capital inflows into Switzerland are physical assets and transactional dollars. It is easier to monitor and control bank balances than the trillions of dollars and Euros that get traded in the dealing rooms across the world.

The central bankers and politicians of the larger economies have far more subtle ways of massaging their currency than overt war. The Euro economy has benefitted from the weak Euro, predominantly based on pretty much false rumours of its demise. As soon as the Euro seems to pick up, out comes a European politician or central banker with information about how difficult it all is and it could all go pear shaped. Cameron’s potential referendum and random spats with the US did wonders to bring the pound down and of course there is the recent commentary by Japanese central bankers and politicians.

All in all, the modern economy has no place for currency wars but it has a place for politicians and central bankers that can and will manipulate the currency or the perception of a currency for self-interest.

The ups and downs of trading

Posted by admin on January 23, 2013
Posted in: forex, trading, trading mindset, trading psychology, trading system. Leave a Comment

A pretty crazy day of trading.  The Euro seesawed all over the place. Am sure many stops were taken out. I know friends long in the Euro on the edge of their seats hoping it doesn’t collapse. Luckily tomorrow is another day. The 24hr trading in Forex leaves loads of room to trade and loads of room to make mistakes and correct errors. Markets are ever-changing. It is ironic that no 2 traders trade the same way or use the same system.

The cliché has always been keep your emotions out of trading. I totally agree with that but there are 2 sides to this. We are human and we have little control of our real emotions. Much of that is hidden deep down and is regarded as a nuisance. The rest of our emotions are probably quite necessary at some level. Fear might be pretty crap on its own and fear of losing one of the reasons some people never trade but that gut wrenching feeling on a Friday, when you just know the markets are about to turn and take your profits right before it happens is also a form of fear, but a useful one that all traders depend on now and again.

The reality is that more hedge funds have probably failed from faulty algorithms and bad analysts than bad traders. sometimes the egg does come before the chicken. So before you go and switch off all your internal feelings, make sure you don’t press delete on years of innate market knowledge and experience that has been hot-wired to your brain and cleverly called intuition.

Trading in a vacuum

Posted by admin on December 27, 2012
Posted in: trading, trading advice, trading mindset, trading psychology, trading system. Leave a Comment

Wouldn’t trading be easy if it was like one giant backtest. You could look at all the nicely formed spikes paint a few arrows on the perfect 200 pip trades and tally up your triple figure growth. This is how a machines trades. No bills to pay, no emotions and no anxiety. Just a simple buy or sell. The only numbers a machine understands is the binary. It could be yens, roubles or even the future Deutsch Mark. Machines trade with no emotion and no baggage.

But at the end of the day it is a human that has programmed the algorithm so it is easy to blame them when the system fails but the reality is quite often that the market conditions have shifted and the owner of the machine refuses to pull the plug for emotional reasons. Even then it is an emotional response. It is quite possible that if the margin calls were not piling up it would be in profit before the investors even blinked.

In a nutshell, great trading is not about predicting the future. The second a trader is convinced that his/her magic system predicts the future he will be in for a massive surprise. The markets are great equalizer in this respect. This is no different to the over-confident soldier who momentarily thinks he is invincible. As the Mayan prophesy phenomenon proved, not even super intelligent ancient people who were visited by UFOs could really tell when the world would end. Then again a Mayan would probably say they were talking about the fiscal cliff.

A substantial part of trading involves being humble, listening to new ideas and studying new systems, but most of all learning from your mistakes, and other Peoples. The rest is just mechanical and should involve no emotion. The signal comes, you place the trade, set the stop-loss, take profit and look at your money management criteria. Then you move on. If it fails, there will be other trades, if it is a winner, you buy the wife some flowers and the kids a new Lego set.

The high fiving and self congratulating is only good for a minute because your next trade, a few minutes away may go horribly wrong, if you are too high on champagne to stick by the rules. The Mayan’s would have laughed at us. They would have asked what all the fuss was about, after all if we had looked closely at their calendar we would have realised it just repeats itself every now and gain. So it wasn’t really the end it just reset itself to zero.

Indicator contagion

Posted by admin on December 26, 2012
Posted in: trading mindset, trading psychology, trading system. Leave a Comment

There seems to be an incredible phenomenon that has swept trading on the internet, Signal contagion. Looking through the indicator list of most charting packages takes you through an A to Z of abbreviations that boggles the mind. It is quite amusing that most of these indicators are based on one piece of information, Price and actually lag the information they represent.

If that is not enough, there are plenty of software offerings that allows us to create even new indicators and call them something spectacular. I sometimes wonder if there is a class of trader that just likes testing new indicators and never really trading. I mean, if we actually find something that works, we may have to use it and make some money. Indicators and systems are quite exciting things and the market throws up an endless opportunity to test new systems. Some based on ideas that are thousands of years old. What Fibonacci numbers or Ichimoku clouds have to do with the modern world of high frequency trading is intriguing.

Yet much of the market is perception and psychology and if enough people believe that clouds drive markets they eventually do. I am pretty sure the high frequency computers eventually look at clouds, as they eventually become part of the whole trading paradigm and they do have fancy names. Though, using the cloud does sound like some high-tech new gadget.

You could try something new for a change. How about actually looking at a chart and some news, plotting a few lines and seeing where it all ends up. News, you say. Not so unusual as even the most committed technical traders seem to be glued to their Twitter streams with endless commentary from gurus. Every candle, every tick and every piece of trivial news is not relevent. Most brokers are quite happy to provide more and more resources, as most traders do not have the time to react once they see their multiple competing signals, look at the advice from the gurus and  figure out the timing of the whole thing. Then we are also told to look at multiple time-frames as well, just in case.

You all know what the high frequency computers have done while all this is happening. If we backtrack for a minute, it seems obvious that psychology and perception are key indicators of market sentiment. There is always talk of smart money, and my assumption is that smart money are the HF computers that use arbitrage techniques and phenomenal speed to take advantage of small differentials in price.

To beat the market you have to be ahead of the market and in most books that means no lagging indicators, it means price, volume and any other edge you can muster. Pivot points and trading the news seems to be a fashion or you can follow one of the growing army of new age gurus, the social traders.

 

 

Momentous moves in the Euro

Posted by admin on December 6, 2012
Posted in: dollars, economy, euro. Leave a Comment

Wow, after all the talk about Euro strength the single currency pretty much collapsed in 48 hours. In the past few years we have constantly seen a jockeying by central bankers to devalue their currencies and today it was the Euros turn again.

Despite all the rhetoric of the collapsing continent the German economy has benefitted immensely from a weak Euro. In the days of the Deutshe Mark the stability of the German economy and the near perfect stewardship of the Bundesbank often led to quite a strong currency. This hurt the export oriented German economy. The current predicament of the Euro is a welcome relief to the German exporters.

The competitive nature of German exports in the face of a weak Euro more than make up for the contributions that Germany has made to shore up European finances. Add to that the economies of scale from using cheap labour from Eastern Europe and Southern Europe and a manufacturing led boom is clearly around the corner for the German economy. It is true that German assets have depreciated due to the fall in the Euro, but faced with a dollar that is also weak and immense restrictions on investment from non-European countries that has so far not been a problem for the economy.

In fact the only real threat to the German economy is political. If the more liberal pro European politicians are replaced by a more insular political party than the pressure to limit European advancement would be immense. This could have an immediate impact on Germany and Europe. One has to look at the pressures faced by the UK PM, Cameron from his Euro sceptic wing. They have pretty much clipped any European policy that hints at a rapprochement with Europe.

As a trader, it is clear that European officials will drum up Euro failure and crisis, as soon as they sense that the market is revaluing the Euro upwards. This is great to know. It is not as blatant as the Swiss Central Bank’s currency manipulations but it comes close.