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October 29, 2013

TMMs TOP TIPS

Filed under: Forex Strategies — Tags: , — admin @ 4:44 pm

Team Macro Man have been compiling their Market top tips in the style of UK’s “Viz” magazine.

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Pit Traders – Why not show off the weight of your brain by displaying it on a neck fit for an elephant.

Pretend you have a highly paid job in finance by willingly paying the astronomical prices city bars demand.

Wealth Advisors. Why not cold call everyone on Bloomberg on the assumption that they all have have vast fortunes they don’t know what to do with.

Head Hunters – Why not make the recipient of your call feel really special by immediately calling back on the same number and asking to speak to the person next to them.

Management – Surprise everyone by managing UP expectations at year end.

Analysts – Display your mastery of English by writing 16 pages of analysis when the single words “buy” or “sell” would do.

Shouting “F***ING SYSTEMS!” and smashing your keyboard into your desk makes an ideal alternative to apologising for your own input error.

HF CIOs: Telling PMs which trades would’ve made money after the fact is a great way to show your superiority

Sales – Why not show off your mastery of both sides of a price by shouting out the wrong one when the client deals.

Forwards dealer? Dealt on the wrong side? Just insist you were dealing futures conventions.

Emerging market traders – Learning the names of the capitals of the countries you trade in is an ideal way of showing a knowledge of your markets.

Analysts – Using the word “exhibit” instead of “chart” or “table” in research is an ideal way of showing you are a failed lawyer.

TV Business Anchors – Starting a piece with “You know what? I know nothing about this” makes an ideal alternative to an over-confident pretence.

Fund managers – Suffering from huge negative returns? Benchmark to something that has done worse.

Want to offload your huge share of bank stock to a gullible buyer? Privatise the Royal Mail at a discount first.

A cumulative graph is an ideal way of ensuring a graph that shows growth.

99/01 makes an ideal price in anything that trades at par.

Pretend you are an options trader by randomly shouting “And I want it {insert 3 random greek letters} hedged”.

Pretend you own your own e-trading platform by mentioning latency in every sentence.

Asked why a market is fast moving? “Stop losses” makes an ideal alternative reply to “I haven’t a clue”

Back Office. Have an urgent settlement query? Make it un-urgent by addressing it to the trader involved by second class post.

Traders – Don’t know what spread to make? Just make choice and shout at the sales guy for not spreading a gift.

Huge loss? Save face by justifying it “for tax reasons”.

Been out with your friends drinking ’til 4am and are sick at your desk? Blame it on a client.

Relationship management – Pretend you are an Agatha Christie murderer by weaving a web of deceit about what you have or haven’t done.

HR – Dress for the part! Wear a dark cloak and carry a scythe when creeping up behind someone to “tap them on the shoulder”

Traders -unsure of your position? – Buying 100x your limit is an ideal way to know you are now long.

Options dealers – If you wait long enough before making a price the client will most probably go away.

Metals traders – Why not show off your market acumen by remarking on huge demand for metals every time the dollar craps out.

Kicking the power off button on the PC under your desk makes an ideal way of avoiding complex pricing.

Fibonacci levels make an ideal alternative to knowledge.

Head Hunters – show off the depth of your rolodex by asking candidates to connect on linked in

Pretend you are senior management by confidently asking questions that betray your lack of knowledge of the basics.

Relationship management – Why not introduce your company’s biggest competitor as a client as they obviously trade large amounts of your product.

Back office – Pretend you are a trader of 25 years ago by slicking back your hair and wearing Gordon Gekko braces.

Sales – Shouting “Nothing, Too Wide!” at the trader is an ideal way to cover up you forgot to get the price out.

Impress your dealing room colleagues by having a friend mail you large empty boxes embossed in top designer logos.

A slide presentation of illegibly dense spread sheets makes an ideal way of saying you have no social skills.

Clients. Calling all your banks asking for a complex derivative in 100x market size and telling each “nothing too wide” makes an ideal way of passing a dull day.

Traders – Asking “How much? For who(m)?” six times makes an ideal way of buying time to trade ahead of the client.

Sales – not answering the phone is an ideal way not to make a mistake.

Analysts – Making a forecast which involves price AND time is an ideal way to be wrong.

Technical Analysts- struggling with non performing trend lines? – try a log graph.

Elliot Wave analysts – the wave count doesn’t fit? Easy .. just change it.

Hungover? A disabled toilet makes an ideal midday bedroom.

Junior on the lunch run? – When offered to “get something for yourself” buy a new suit.

A recently resigned/fired colleague makes an ideal scapegoat.

The matrix title background displayed full screen makes an ideal IT wind up.

Telling your boss that you were never told you had to book any of the trades you have done for the last 2 years is an ideal way to induce his cardiac arrest.

Having a glass corner office is an ideal way of not having to produce anything.

Traders – randomly standing up and screaming “YES , OH JESUS ,YES!!” is an ideal way of making people think you are a good trader.

Management – Introducing new protocols and systems every year is an ideal way to fuck everyone off.

Regulator – Making it everyone else’s responsibility is an ideal way to avoid responsibility

Compliance – Making it everyone else’s responsibility is an ideal way to avoid responsibility.

Management – Making it everyone else’s responsibility is an ideal way to avoid responsibility.

Compliance – Introducing online regulatory training is an ideal way of ensuring everyone has a reason to be fired.

Brokers – Telling witty football stories is an ideal way of best pleasing a client desperate to get out of a position.

A Sinclair ZX80 or Commodore 64 makes an ideal replacement for many banks’ trading platforms.

HR – Randomly blocking 2% of the security entry cards each day is an ideal way to keep staff on their toes.

Fund Consultants – Charging fees for pointing out the past without any responsibility for the future makes an ideal way to earn a living.

Strategy – A set of dice make an ideal analysis tool.

Spot traders – Shouting loudest is an ideal way to win an argument.

Fix fixers – Using Bloomberg IB chat to communicate all your misdeeds is an ideal way to be caught.

Business analysts – Why not insist all lower desk heads provide irrelevant data and analysis which you know they don’t have.

HR – Silently walk around the dealing room putting a sticker on each fourth desk.

Management – “Focusing on core strengths” makes an ideal mantra for buying yourself another year.

Management- Introducing tolls at the security stiles in reception. makes an ideal revenue earner.

Back office – Employ speakers of obscure tongues to add that extra level of excitement to urgent phone queries.

Cleaners – Stretching bin liners trampoline tight over the bins and setting up a dry cleaners is an ideal way to supplement your income.

Money Market dealers – hanging a wooden sign over your desk displaying “5/8, 1/2” is an ideal alternative to making prices all year.

Option dealers – offering a client 1mth EUR/USD makes an ideal alternative if he asks for 3mth SGD/JPY RKOs.

Suing someone for money you have lost makes an ideal alternative to facing up to your own stupidity.

Why not make your next year’s targets seem less surreal by dropping acid.

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The comments section is open for additions.

October 21, 2013

Perusing a Speculative Commodity Rally.

Filed under: Forex Strategies — Tags: , , , — admin @ 4:43 pm

First a kind message to those delightful people that provide rail services to the southeast of England.. “IF I WAN’T TO BE HELD IN A SWEATY BOX IN LEWISHAM I WOULD HAVE CALLED A PHONE BOX S+M NUMBER RATHER THAN PAYING TO GET ON YOUR TRAIN!”. There. That feels better, but it does strike us as odd that if a bank might possibly have missold a tiny product it has to pay grillions in compensation but should a rail co well and truely screw up thousands of people’s day then a tannoy apology suffices. We can hardly see the regulator allowing banks to just get away with “we apologise for the manipulation of your fix this morning, this was caused by overunning profiteering. Once again we apologise for any inconvenience caused”.

It’s going to be light from us this week as the wild and windy moors or northern England attract us away (if we ever get there) from the wild and windy markets. But these markets aren’t really that wild or windy unless you are an uncool dude who is refusing to toke on the spliff of carry and refusing to go with the mellow flow of the market. It’s all a bit Apocalypse Now. The beginning of the river trip where whilst you know there is some real badass shit out there, you might as well ride the boat up the river catching some rays, listening to some tunes and puffing on whatever takes your mind off worrying about the next ambush around the corner. As Mrs TMM has often said, “Only worry about what you can change” and yelling that “It shouldn’t be here” isn’t going to change it.

Which is probably exactly what most people are worrying about at the moment. Core beliefs have not died and we are in that part of the S curve where beliefs are being sorely tested by Mr Price inserting cold steel into the flesh of positions based on fundamental pricing and traditional measures. As mentioned in previous posts, we think that we should hang up the logic and embrace the mood for the next few days. Or at least not stand in front of it.

Does this all end in tears? Of course. You can’t please all the market all of the time but in what guise will those tears manifest themselves? Well TMM are putting on their simple hats and see something like this.

Increased asset prices are the transmission function by which CB created cash and liquidity leaks out into the real world, reduces deflation and finally creates some inflation. We believe that western central banks are going to be deliberately along way “behind the curve” in a traditional sense, not wanting to choke off any growth (unlike the idiots in Congress). Equities, when they really start to move, become a form of money as they become a method of payment or collateral for loans in their own right and though not measured as money supply, should be. But TMM feel that any rally, when dramatic enough creates such price stretches that other assets start to look comparatively cheap. Even things that have been considered basket cases begin to look attractive.

Now whilst things don’t look good for commodities on a big macro scale, running short has seen at best lacklustre performance over the past few months and in many cases shorts are beginning to hurt. China data is picking up (even if you don’t believe it), copper prices are not going down and iron ore prices are going up (as is coal). Now of course this doesn’t mean that the macro background is monstrously better but TMM think that the current background of price chasing in equities is starting to spill into commodities.

Whereas equity asset rallies transmit inflationary pressures through stimulating greater leverage against those portfolios (late 90s) commodity price rallies show up directly in inflation. IF speculation spills over into commodities then we could well see a repeat of 2006 where production was being syphoned off into speculative storage just exacerbating the problem of price rallies. Whilst regulators have been focusing on nailing down banks we would suggest that they have taken their eyes off the ball when it came to reducing speculative commodity price spikes, so the risks remain. TMM’s greatest counter indicator is also saying its time for commodities to become more interesting – Haven’t most financial institutions just finished dramatically scaling back their commodity capabilities?

TMM know that supply has increased dramatically in many of the basics but we still think that there is a strong risk of an “unexpected” commodity spike with its inflationary consequences coming on top of rallying economies and strengthening job markets. Not an ideal time.

So back to the start of this post, an “end in tears” is certainly on the cards, but where tears = inflation,

What are we doing? In the short term and as a spec path of pain trafe, as the old favourite of Aus looks already overdone, we are thinking this.

US debt ceiling rebound in risk + Minimal immediate tapering = EM higher beta bounce.
=> EM bounce + rallying commodities + an under-performing market = buy Peru.

Have fun. We will be singing Kate Bush songs about “wiley windy moors” into the teeth of howling gales.

October 18, 2013

Regulator’s Perfect Market Hypothesis

Filed under: Forex Strategies — Tags: , , , — admin @ 4:42 pm

With so much talk about “Perfect Market Hypothesis” around after the recent  Nobel prize awards, TMM started to wonder what a perfect market would actually look like and swiftly came to the conclusion that it is all in the eye of the beholder. Considering that the regulators are now stamping their authority on western financial markets we thought it probably best to start with the Regulator’s Perfect Market Hypothesis as they are driving future direction.

Regulator’s Perfect Market Hypothesis

Market overview –

The market will be permitted to function on condition that:-

The market is not and has no derivative.
The market carries no risk for small investors
The market carries high returns for small investors
The market transfers risk away from the State to the large investor, unless that large investor is a State pension fund.
The market directly funds investment in national infrastructure.
The market is environmentally friendly.
The market generates significant tax revenue.
The market supports more regulatory and reporting staff than it does investors or operatives.

Regulation –

The Market will be bound by regulations flexible enough to be interpreted freely by the regulator but stiff enough to mean that breach is necessary to allow normal market function.

Information Dissemination –

Any person or body analysing the market will be deemed unfit to participate in the market.
Any analysis on the market shall be submitted to and be the sole property of the regulator for them to release at their discretion.
Information relevant to market direction will only be released at 9am each morning, two hours before market open.
No form of communication involving any aspect of the market is permitted other than that issued by the regulator.
Pricing information will be published daily to those who can produce evidence of having completed 200 hours community work in the prior month.

Trading –

All trades will  be executed on an Exchange.
No electronic trading will be permitted.
The Exchange floor will be populated by randomly, yet inclusively, selected people weighted towards those from disadvantaged backgrounds.
The market will trade between the hours of 11am and noon local time.
The Exchange will be run by a Utility company operating under a state umbrella.
Only one trade will be permitted per day per counterpart.
The Exchange will demand collateral of 110% of the face value of any open position and said margin will receive a rate of return of Libor -10% or −10% whichever is lower.
All trades will be subject to a 5% “Tobin” tax
Trades will be submitted to the Exchange that will then decide on the size and direction of the trade thus eliminating any advantage of proprietary knowledge.


Reporting –

Each trade will be manually examined for signs of malfeasance by a team of 10 regulators and only released for settlement once committee approval has been sanctioned.
Failure to report a trade due to regulator error will be deemed the responsibility of the investor if they are in the highest tax band.
Each trade will be published in 6ft high letters upon the residence of the transactor, together with their open position.

Price action –

        The Market will be permitted to rise on condition that –

All the population own it (Apart from Hedge funds, bankers and anyone else deemed morally reprehensible at that moment).
The rise creates greater tax revenues.
The rise does not create Inflation.
The rise does not create social inequality.
The rise does not create deflation.
The rise does not create a bubble (to be deemed as such at the discretion of the regulator) .

       The market will be permitted to fall on condition that –

It is solely owned by investors deemed as morally corrupt.
Hedge funds are bound to buy at the previous high from small investors.
Profits from the sales are used to create more nurses and teachers.
It is about to go up again.

Rider –


The market will not be referred to as a market but as a “growth and employment scheme designed to reduce risk whilst enhancing living standards, social mobility, equality and diversity through mutual participation and synergistic interactions”

October 17, 2013

Morning Murmuration

Filed under: Forex Strategies — Tags: , — admin @ 4:42 pm

That’s another set of Debt Ceiling re-sit exams behind us. Sort of, for whilst the preliminary results for the debt ceiling are a deemed to be a scraped “pass”, further re-sits are inevitable later in the year, but in the meantime markets can now allocate a bit of freed up processing power to the background tasks of tapering and growth overlaid with a smear of collateral long term confidence damage to US process and reliability.

This morning’s price action is a little underwhelming. Earnings are now upon us and the valuation camp are calling tops for US equities but the the core sectoral bulls are chomping to get back to buying now that the ceiling is on the back burner. Some have already cast their die. Dagong, one of China’s credit rating agencies has downgraded US to below Botswana in their rankings, but in TMM’s eyes Dagong is just China’s answer to Zero Hedge. However, for many there is a lot of indecision as to which way today breaks. It feels as though everyone is watching the guy next to them for confirmation of the next move on to which to jump.

In other words, behaviourally, this morning feels like a murmuration of starlings.

TMM are hoping the flock rises.

Now back to bubbles. What do you do when you are not getting an income from anything or you consider the income too low relative to risk of underlying price moves to make it worthy of consideration? Well if you are like TMM you focus on the price change capital value part of the equation rather than the income or coupon side. Of course the price SHOULD be reflective of the income streams but that can easily be ignored when prices start to trend and rising prices are backfitted against future hope stories to justify monstrous P/E’s. (Look what at Tesla).

This versions of the problem with the “relative” zero bound effect is something that we feel is destabilising the old balance between true valuation and bubble generation, with the bias moving to price chasing and a faster frequency and greater amplitude in the wave form of asset classes. Money will chase price moves amplifying them rather than seeing logic damping them. A great example of this is London property where the dividend (rent) is thought to be so insignificant that it ofeetn isnt even collected (empty properties). It is all to do with appreciation of a capital value which cannot even be truly measured other than against “last price paid”.

TMM are not saying that London property is a bubble, though it does share many of the definitions of one, and are definitely NOT saying that UK property is a bubble. This (courtesy of housepricecrash.com) does not look like a bubble –

But we are saying that we expect this behaviour to become more redolent in financial markets as capital chases capital growth rather than income. It’s all part of the super savings glut. As with a ship taking on water, the inpouring and sloshing of all this cash can destabilise and capsize any craft not fitted with protective bulkheads in the way that did for the the Herald of Free Enterprise and Titanic, but we believe we are a long way off that point in any of the markets currently being cited. Screaming “Stop! Bubble!”, is hoped by many to stop the bus they have just missed allowing themselves a chance to get on board.

It’s just desperation for performance driving herd mentality in a low yield world which is too driven by short term peer performance benchmarks.

Now, back to the Starlings..

October 16, 2013

Congressional Ultimate Worst-Case Scenario Survival Handbook

Filed under: Forex Strategies — Tags: , , , , , — admin @ 4:43 pm

Watching the train wreck of US Congress conjures up images of two characters in an action movie fighting it out on the roof of a train as it approaches a bridge or tunnel or broken line. Only in this case we don’t care who wins as long as they just stop the train.

This led us to research recognised ways of surviving when riding the top of a train and we found this in the Ultimate Worst-Case Scenario Survival Handbook

How to Maneuver on Top of a Moving Train and Get Inside

1. Do not try to stand up straight (you probably will not be able to anyway):Stay bent slightly forward, leaning into the wind. If the train is moving faster than thirty miles per hours, it will be difficult to maintain your balance and resist the wind, so crawling on all fours may be the best method until you can get down. .

2. If the train is approaching a turn, lie flat; do not try to keep your footing: The car may have guide rails along the edge to direct water. If it does, grab them and hold on. .

3. If the train is approaching a tunnel entrance, lie flat, and quickly: There is actually quite a bit of clearance between the top of the train and top of the tunnel-about three feet-but not nearly enough room to stand. Do not assume that you can walk or crawl to the end of the car to get down and inside before you reach the tunnel-you probably won’t. .

4. Move your body with the rhythm of the train-from side to side and forward: Do not proceed in a straight line. Spread your feet apart about thirty-six inches and wobble side to side as you move forward.

Warning – the sizes and shapes of the cars on a freight train may vary widely. this can make it either easier or significantly more difficult to cross from one car to another, A 12-ft boxcar may be next to a flatbed or a rounded chem car.

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This is obviously modelled on the Congressional Ultimate Worst-Case Scenario Survival Handbook entry.

How to Maneuver on a Ridiculous Impasse and Get Up on the Inside

1. Do not try to stand up straight (you probably will not be able to anyway as you are a politician): Stay bent slightly forward, leaning into the resistance. If the issue is moving faster than your simple mind can comprehend, it will be difficult to maintain your balance and resist the pressure, so crawling on all fours may be the best method until you can climb down.

2. If your policy is approaching a turn, lie flat; do not try to keep your footing: Your party may have guides along the edge to direct policy. If it does, grab them and hold on and go with the flow.

3. If the impasse is approaching a deadline, lie flat, and quickly: There is actually quite a bit of clearance between the impasse and political death – about six weeks, but not nearly enough room to stand for election again. Do not assume that you can persuade the opposition to agree to step down before you reach the deadline – you probably won’t.

4. Move your view with the rhythm of the opinion polls -from side to side and forward: Do not proceed in a straight line. Spread your feet apart, ignore common sense and wobble side to side as you move forward.

With the additional tip –

5. If you see a broken bridge coming up ahead DO NOT alert the driver, everything will be just fine, just keep on fighting.

Warning – The sizes and shapes of egos in Congress may vary widely. This can make it either easier or significantly more difficult to jump from one solution to another. A 6-ft bonehead may be next to a 5ft knucklehead or a rounded obfuscater.

October 15, 2013

FX Fix Fix?

Filed under: Forex Strategies — admin @ 4:45 pm

A quick comment on the ongoing investigations into FX fixing fixing, where the public’s ire against city malfeasance, led by Bloomberg articles, has come crashing through the gates of the commission free, pretty unregulated, non-exchange, “my word is my bond and my price is my price not someone else’s e-platform” FX market, born forward upon the blazing chariot of the newly armed regulator supported by premature media branding of it all as “scandal”.

The centre of the debate revolves around the WMR fix, which is a strange animal. It isn’t a real exchange rate you can trade on in a centralised exchange, it’s one which is drawn up by a private body and released after its calculation from published dealable prices over the course of a preceding time frame. Many asset managers and funds have their portfolios benchmarked against this number and hence would like to see their execution done as close as possible to it so as not to have annoying accounting disturbances in their portfolios. As always, the greatest problem with benchmarks is that people tend to get more worked up over variance from benchmarks rather than the actual level of the benchmark itself. This then opens up behavioural risks in the system due to the divergence of accounting from reality. Oh my word, haven’t we seen that before. As we regularly say – “Benchmarks are Bollocks”

Today has seen the first “outing” of a POTENTIAL perpetrator who PERHAPS COULD have MAYBE done something wrong when hedging his fix trades. And the media are all over it. TMM are struck by how glaringly unfair it is that whilst today in the UK a newspaper cannot say that a footballer has had carnal knowledge of his goat, or even say that they are prevented from saying something about said footballer, the financial regulators can publicly say Johnny Spoteffeks is under investigation (hence wrecking his career) and not have to give any reason why, nor even to have found him guilty of anything. That in our mind (if the bollocks of benchmarks are normal) is blue whale testicular.

It would be very sad should anyone would fall victim to an FX fix fix fix, so perhaps can we ask that the FCA be subject to any upcoming Royal Charter on press regulation? Or do we have to wait for them to say something incriminatory about Ed Miliband’s dad before that happens?

October 13, 2013

US Politics stretching equity catapult elastic.

Filed under: Forex Strategies — Tags: , , , , — admin @ 4:45 pm

The broad thesis that TMM have been running over the last few months is that the world continues to recover from the great financial crisis and we don’t expect that to stop.  If we were to look at the recovery as a Formula 1 race then though everyone is generally moving forwards, emerging markets have pulled into the pits to refuel, Indonesia and India having been found to have severely overheated. Europe has just left the pits after having had most of its bodywork patched together after a nasty crunch and is catching up fast. But the leader over the last 2 laps, the US running on natural gas, has suddenly pulled over. Not due to equipment failure but  to an insane in-fight between its own management team leaving the leading driver under instruction to shut the car down. Team Macro Man think that the Fed should do a “Vettel” and ignore team instructions and just get on with winning the race.

Early August had a definite feel that good news was pretty much fully discounted with respect to direction (but not yet fully priced – more later) and that we should be looking for something for the disasternistas to get their teeth into in order balance things up and wow hasn’t this US showdown been just the ticket? However we maintain our dogged view, last employed during the European crisis, that when politicians are close enough to the edge of mutually assured destruction they WILL get their acts together. The frightening part for everyone else is seeing them dance so close to the edge.

So where are we in the US? The political risks appear to be limited now to an extended government shutdown. GS estimates something like ~15bps off 4q GDP growth per week of shutdown, but it will be made up when the government re-opens, so it’s not clear how big of an impact it will have. But the main driver for the recovery of markets is the removal of both the default tail risk ( cf. European response to OMT) as well as the risk from a sudden stoppage in entitlement programs.

It seems unlikely that the Fed will taper while the government is shut down and we have to cope with a lack of reliable macroeconomic data. People have also noted that even if the government IS reopened shortly, much of the released data will be affected by the shutdown in various ways anyway resulting in noisy feedback loop debate as to what reality is.

Given that the FOMC minutes showed a fairly close vote towards a taper last month, it seems reasonable to assume that taper mania will be back in full swing as soon as the shutdown is over. Consensus seems to be moving towards 1Q right now, which seems reasonable. But barring a downturn, it seems hard to imagine a substantial fall in yields in the near term. The Eurodollar strip is priced almost to perfection vs the FOMC’s projections after adjusting for a ~20bp spread for Libor-OIS:

What is interesting is that the pace of hikes priced into the market slows starting in 2018, ~5 years forward. There are several possibilities for this, but one may be that Yellen has said in the past (6/6/12, specifically) they she thinks the economy’s equilibrium real Fed Funds rate is probably well below its historical average. She didn’t give a number of course, but with the FOMC central tendency estimate for the equilibrium rate at 4% at the last SEP, there was 1 vote at 3.75, 2 and 3.5, and 1 at 3.25. Note also that in her “Optimal Policy” speech, she has Fed Funds at 3.25 in 4Q 2018.

Watching market response through all of this has been interesting and indicative. Considering the moves in T-Bills and the responses by Hong Kong to haircut them as collateral ( the Swiss considering the same) it looked as though the closest thing to cash and the world’s favourite safe haven was doomed to destruction. But relative nonplussed performances of Eur/usd and indeed the non-cataclysmic equity response had us wondering if maybe some Machiavellian political forces were encouraging this run to spur the other side back to the negotiating table. The US10year back to 2.60 can be seen as a return to comfort levels after the last panic spike higher. This leaves us with the view that this US congressional mess is a valley that has to be bridged to higher lands on the other side.

In the meantime, traditional measures make the conditions for equities look pretty benign here, although given the repricing in the VIX, arguably almost all of the default tail risk has been priced out already. BUT, and this is the big but, we are strong believers that in an environment where people continue to have to choose between cash, bonds or stocks, the inflows into stocks will continue. To TMM there is a mismatch between folks talking the equity talk and walking the equity walk,  perhaps because they are afraid of the the micro-analysis telling them that equities are fairly/over/madlyover priced. But if we are to look at how markets have behaved and how the current environment of excess savings chasing minimal returns is playing out, then traditional fine measures will be nothing in the face of sloshing tides of money chasing anything that is simply “going up”. (We recommend Izabella Kaminska’s great post on yield chasing and bubbles here).

TMM has, as regular readers will know, been a great fan of overweight Europe for the past year or so but popularity is catching up with us and we note that based on forward P/E, the Eurostoxx50 has now exceeded late 2009 levels. Against the S&P, the Eurostoxx is as rich as it was last December, and before that in late 2006.

Now as we said above, this matters little if we are looking for another tidal wave of renewed portfolio switching (this US scenario has offered a secondary “out” opportunity to those having missed the boat re bonds to equities) but it does make us look at reweighting more to US from our very overweight Europe view.

TMM feel that the debt stuff will be resolved, or put on the back burner again European style, enough for a market melt UP into the year end.

And as a footnote – Whilst TMM believe the pricing and distribution of UK’s Royal Mail issue was designed to act as ground bait to attract the shoals to take the hook of a trickier upcoming RBS sale, its success has given the UK public’s general interest in equities a real boost. TMM reckon that for every cry of “Foul easy profits” from left-wing spokespersons there are a hundred responses – “Easy profits? Where?”

October 7, 2013

This Post has been 10 Years in the Making

Filed under: Forex General — Tags: , , , , — admin @ 5:31 pm

It has been now 10 years since I first started my journey in currency trading.

Wow! I’m at a shock at just how fast time has flown by (it really only feels like a few years).

And I suppose the reason why forex trading has only really “felt” like a few years is that I’ve only ever had patches in my life where I was devoted full-time to it. This website has also helped to fill in some of the time and allowed me to share some of my thoughts throughout that period, but even so it should be qualified that even though I’ve been around in the forex market for 10 years it’s only been on a “casual” basis – no doubt those who’ve been involved with it “full-time” would feel the 10 years more!

The beginnings

So how did it all begin?

While I had been trading derivatives and stocks on the Australian Stock Market for about 5 years prior to embarking into the forex market, I can recall that it really “began” when my father and I purchased a 3-day long weekend seminar on someone who had been trading for a year or so in the forex market and was willing to share their methods.

I had already heard much about the forex market and knew from my cursory knowledge of the industry that it was a difficult, faced-paced, 24-7 market that would take awhile to master. Unfortunately all that cursory information went out the window and I “believed” I could be someone who could make it work for me. My father thought the same!

So we attended this seminar where we learnt some of the basic semantics about the forex market on the first day and then learnt about more of the operational side of forex trading with how to choose a broker (there weren’t a lot around back then!), calculating risk & position sizing as well as some of the more nuances of forex trading which are important such as opening and closing times around the world and swap charges on the second day.

It wasn’t until the third and final day we were given the trading methods which varied from trading opening breakouts with sentiment-based indicators (RSI and Stochastics) to trading longer-term positions with trend-based indicators such as the MACD (by longer-term I mean the trade lasting a few hours). From memory the systems were okay and until the seminar closed the group looked at both successful and unsuccessful trades on the systems to gauge how well each method fared.

Unfortunately while the seminar was good on it’s informational content it created a bad habit of overtrading. With so many systems at our disposal it seemed like there was at least something moving which we could trade!

From then it didn’t take long before I started blowing up my accounts.

I thought that maybe I was missing a secret ingredient and then started to embark on finding what that secret forex thing was. After searching low and high for several months I then decided to reach out to the broader world and spawned what has now become this very website – Currency Secrets.

Initially I started Currency Secrets by sharing some of the general knowledge I had gained from my derivatives and stock trading exploits on the ASX, but as I began to experience more of the industry with forex broker platforms I soon found this site becoming more of a sharing of those experiences. Initially it became an area of forex broker reviews, then it moved on to forex data providers before moving on to forex signal providers.

The site became quite popular in it’s day achieving as much as 500 hits a day, but I soon found that the site became an area where people vented their frustration at the forex broker. I remember setting up a new forum-based website to help funnel the frustration as I didn’t want this site leaving a sour taste in everybody’s mouth, however, the reviews continued to trickle in.

By 2007 my forex trading activity began to markedly diminish as I was only achieving sporadic results. I decided to keep Currency Secrets active as there many users who were benefitting from the information, experiences and knowledge contained.

In 2008 and 2009 I refrained from all forms of trading and went about on a change of career – once this was established I then married my beloved wife in 2010 and by the middle of 2010 I decided to give forex trading one last fling.

A new beginning

With a new resolve and an almost 3-year hiatus from forex trading I tore off the shackles, shook off the dust from the site, threw out the forex broker reviews and forex signal information that was no longer pertinent and began to look at the forex market from a fresh new perspective – having forgotten a lot of the methods I had been taught I began to look and question things from a renewed vigour.

Throughout the last three years since that new start in July 2010 I have continued to question everything about my approach and have refined my forex trading method to be more robust without me sitting behind the screen all day.

Being a husband and a father has helped to limit my screen time which has also helped my forex trading. The biggest disadvantage I had back when I begun forex trading was having too much time. Now that screen time is limited, my approach to forex trading is one where I only have quick moments throughout the week to review – and this has helped me immensely.

Lastly, one of the biggest benefits I have gained from forex trading has not been the money made (or lost) but for me the programming concepts I have gained from starting as a manual trader to a fully automated trader. I have never undertaken a computer course in my life, but I have found understanding computer programming principles easier through the lens of forex trading than what I would otherwise have struggled with in a computer programming course.

Forex trading offers a valuable opportunity not only for people to make money (which is what usually gets people hooked to start), but also the opportunity to LEARN a programming language and to master programming principles. When your money is on the line and it begins to dwindle away because of a programming bug in your code I guarantee you will learn *really* quickly how to source the problem and rectify it ASAP – no computer programming course I ever know can help you learn as quick as that!

So 10 years have passed and I hope in the next 10 years that the success of my automated forex systems will continue. I believe the automated approach is the best way for forex traders to go and would highly encourage everyone to learn to code. The automated market is currently limited to MetaTrader and NinjaTrader, but I believe over the next coming 10 years we will see this space become a lot more crowded with new and more intuitive API’s.

The post This Post has been 10 Years in the Making appeared first on Currency Secrets.

October 6, 2013

A 10 Year Lesson

Filed under: Forex General — Tags: , — admin @ 5:32 pm

Having reflected on the last 10 years of my forex trading experiences I thought I would capture some of the lessons I’ve learnt throughout that time by asking and then answering:

“With the things I know now, what would I tell myself when I first started in forex trading 10 years ago?”

1. Preserve capital

The first thing that immediately enters my mind is to preserve capital. You cannot trade with nothing. If you trade with nothing, you make and lose nothing.

2. Safety first

This goes hand-in-hand with the first point, but you need to think safety first. Too many people in this market think on the money they’re going to make only to find that their hard eared cash flies away just as quick. Always start small – forex trading has the flexibility of being able to scale, but only increase size once you have a proven track record. Know your risk and be happy with losing that amount should it happen – also know your portfolio risk too – don’t forget the cluster bomb effect forex trading has on your account!

3. Slow down

The problem with the forex market is that it is a market which is open 24 hour a day 5 days a week. Not only do we have a multitude of currencies to trade, but we also have a multitude of time frames to choose from. Just because we can trade these things doesn’t mean we should. If we have established point 1 & 2 above it will be manifest in the frequency of our trades – we shouldn’t be trying to chase the market or trade everything that moves. It’s important therefore to let the market go to trade at your pace and if there’s nothing there today then let it be and come try again tomorrow.

4. Where’s your plan?

How will you ever know how well you are going if you don’t document your trading process? How will you know what needs to improve if you don’t know what you’re doing? It’s sooooo important to write things down – whether that be digitally or physically have something that is written down. By having a plan of attack it helps you to KNOW what to do when the screen is flickering and prices are moving about wildly. Also, write your plan without the market interfering (preferably on the weekend when the market has closed).

5. Did you follow your plan?

Now that you have a plan set up, did you execute it properly? You may have the best plan in the whole world, yet if you fail to do what it says what good is it? Don’t waste all your wonderful analytical time by doing silly things once the market is open – keep it simple and just follow your plan. Your understanding and growth will be exponential if you follow through with what you have written.

6. Analyse your results

Set a time (preferably once a month or once a quarter) where you go back through your trades to analyse them. See if there are aspects to your trading method whereby you can improve your results, ask yourself if you can increase your stops, reduce your initial stops or widen your initial stops, maybe only trade at certain times of the day, maybe NOT trade a particular currency (etc).

7. Answer every week – why are you doing this?

Remember – time is the most precious commodity because you don’t get it back. Money can come and go. And while forex trading may provide the luxury of enhancing your lifestyle with giving you more things, it’s not a means to end. If the journey is no longer enjoyable, move on to something that is – the world is a big place and there are lots of other things to enjoy out there!

8. Keep asking questions

Don’t stop asking questions, but at the same time try to seek answers.

9. Be accountable

It’s easy to think that we’re responsible, but if possible be accountable to someone – preferably team up with someone who knows what forex trading is all about and knows the game and can help you in your journey. Maybe report to them your monthly or quarterly analysis (from point 6). By being accountable it helps us to keep focussed on our plan and helps us to therefore improve.

10. Kaizen

Always look to continuously improve your forex trading skill set – whether it be programming, analysing data or seeing new opportunities. However, focus on mastering one strategy at a time. Get one mastered well and you’ll soon find when you move on to another that the framework and process you’ve designed helps to bring your second strategy up to speed quicker.

The post A 10 Year Lesson appeared first on Currency Secrets.

October 1, 2013

Calculating Risk Dynamically

Filed under: Forex General — Tags: , , — admin @ 5:32 pm

Calculating risk dynamically generally means that you apply a formula to calculate what the lot size of your position will be for any given trade. As you account grows this amount will adjust accordingly. Previously I had talked about how I managed risk manually by using an external variable within my MetaTrader 4 code that was my risk per trade and how I adjusted it according to the amount of equity in my account.

However, the problem I’ve found is that it’s manual! I didn’t want to have to physically change the number each and every time (even if it did only change once a month or once every two weeks).

So, I thought about the best ways to dynamically calculate my risk per trade.

The first option that was perhaps the most obvious was by simply multiplying my AccountEquity() by a fixed percentage. A common approach these days is to multiply your AccountEquity by 2%, eg.

RiskPerTrade = AccountEquity() ✕ 0.02

However, I don’t place all the money I have for investing into my forex trading account – I trade with drawdown money (the money I’m prepared to lose). Therefore, if my drawdown money represents 30% of my total forex investment and I choose to continue risking 2% per trade then I’m actually risking 0.6% per trade on my total forex investment:

RiskPerTrade = 0.3 ✕ 0.02
RiskPerTrade = 0.006 (or 0.6%)

I could just amend my code to more accurately reflect what the AccountEquity() represents and continue with this pseudocode:

RiskPerTrade = ( AccountEquity() / 0.3 ) ✕ 0.02

But this then presents another issue – what happens when AccountEquity() grows, let’s consider the following:

STARTING ACCOUNT:
Total Forex Investment (TFI) = $10,000
Drawdown Limit = 30%
Cash = $7,000
Starting AccountBalance() with Forex Broker = $3,000
RiskPerTrade = ( AccountBalance() / 0.3 ) ✕ 0.02 = $200 (2% of TFI)

FOREX ACCOUNT DOUBLES:
Total Forex Investment (TFI) = Cash + AccountBalance()
TFI = $7,000 + $6,000 = $13,000
Cash = $7,000
RiskPerTrade = ( AccountBalance() / 0.3 ) ✕ 0.02 = $400 (3.1% of new TFI)

As you can no doubt appreciate as our AccountBalance() continues to grow so too does our risk per trade as a percentage of our total forex investment amount. This isn’t ideal if we adhere to the total fixed percentage rule when employing my “only trade with drawdown” – obviously we could very easily circumvent this problem by placing ALL our funds into our forex trading account but this then poses another risk of losing everything through our programming (a missed bug that depletes the account – which I have done before!).

So, another way I have looked at this problem is to approach it from a similar, yet different angle. Instead of looking at risk as a percentage of my total forex investment, think of risk as the quantity of consecutive losses needed to wipe out my account. Because I now have measures in place to minimise my portfolio risk I now think of terms of how many consecutive losses would I need to wipe out my account.

By employing the 2% rule in effect you are stating that it would require 50 consecutive losses (= 1 / 0.02 ) to wipe out your account – a number that certainly would keep your capital preserved! So, if we were to employ this technique in our calculations we could maintain our 2% rule by simply changing our coding a little:

FOREX ACCOUNT DOUBLES:
Total Forex Investment (TFI) = Cash + AccountBalance()
TFI = $7,000 + $6,000 = $13,000
Cash = $7,000
RiskPerTrade = ( Cash + AccountBalance() / 50 ) = $260 (2% of new TFI)

It does mean maintaining the Cash variable within my code, but as this is unlikely to change much at all I can hardly foresee many edits being made in time.

The great thing about this new money management structure is that it now has me pondering what would be the ideal divisor be that both maximises profit per trade (due to the risk per trade being as large as possible) yet at the same time maximise capital preservation (keeping the risk as small as possible to avoid a string of losses).

Ah, the joys of money management!

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