Watch the Markets

I don't know of any substitute for watching the market. When you take your eye off, you might as well be unconscious. But with 24 hour markets, this is not easy. Picking your hours of alert watching is an important choice. You have to decide what you can live with. Some people only look once a week, trading from the weekly charts. Some try to watch every tick for 10 hours in 15 markets simultaneously.

Being committed to certain markets is an important key. My current thinking is that I need to watch 4 to 6 markets intensely from about 6AM EST to around 3PM, with glances at a bunch of others. I give my most intense attention to oil, namely the July Crude Oil Futures contract and the USD/CAD forex pair. My next favorite are the Treasury Bond and 10-year Treasury Note markets. Then comes S&P500 e-mini and a few others.

The commitment is to a continuous monitoring of the market. For me there are emotional reasons why I find this difficult. When I trade, I am emotionally involved. When I close a position there is a kind of emotional disconnect that occurs. Especially if I have a losing trade. I stop watching. But the battle still rages.

Watching the market has to be your number one commitment. Without that, you miss the moves. Orienting yourself to the trend must be a second important duty.

April leading indicators rise; recession to ease - MarketWatch

April leading indicators rise; recession to ease - MarketWatch

Posted using ShareThis

The Euro as Substitute for S and P Futures

As long as we are exploring the concept of trading the USD/CAD pair in lieu of the more expensive crude oil futures, why not test the idea of EUR/USD as a way of trading the S&P futures? This could be interesting. Today it would have worked pretty well.
The charts, compliments of INO, are 5 minute candlestick charts from today.

Basics of Diplomacy

. . . diplomacy is about trying to understand other people. Finding out what will encourage them to agree with you and what will prevent them. Having a well reasoned argument rarely works on its own.

--John Duncan, UK's Ambassador for Multilateral Arms Control and Disarmament

Somehow the forces that move the currency markets might yield lessons to the basics of diplomacy. Agreement could be when the market price is not moving--equilibrium. Or it could be when the market is moving--trend. The markets are composed of people. What will encourage them to agree with you? Support and resistance? Trading ranges. What will prevent them agreeing? Loss of equilibrium. Thus the currency trader studies diplomacy in order to succeed. The market is like negotiating a treaty. Could be a chapter in Elephant Theories.

What Action Are You Creating Today?

"Here I am planting the millionth tree. What action are you creating today?"
This picture of Governor Schwarzenegger comes from twitter http://twitpic.com/3slai

When Trading the USD/CAD as a Substitute for Crude

The 85% correlation between the USD/CAD and the price of crude oil makes trading the Loonie a convenient substitute for the relatively expensive crude oil futures contract. Each might go about this in his own way, but I am thinking it would be a good idea to keep on eye on the crude futures chart and the Loonie both, when attempting this strategy.

That way, when your position in the USD/CAD starts going wrong, you can check to see if the crude prices are moving a different way than you wanted and take corrective measures. For example, this morning, oil prices were up, Canadian trade balance was up. Loonie was stronger. It tested $1.1550 and bounced. I expected it to do a normal bounce and continue settling lower, but it bounced over 100 pips, thus stopping me out. Crude prices had fallen from the time of the bounce. I wasn't watching. So now I will watch. Just a tip.

I seem to be the kind of trader that would benefit from the discipline of a no-loss stop once the trade has gone in my favor say 30 or 40 pips. While this is not entirely satisfactory, it has the advantage of not losing money on the trade.

Shoulda Woulda Coulda

According to this video by Oliver North, one of the five principles for a successful life is never play Shoulda Woulda Coulda. I didn't know he was a forex trader. Do you think he was reading my mind?

http://www.youtube.com/watch?v=_yFUB-fIg04&eurl=http%3A%2F%2Fwww.5principlesoflife.com%2FpIndex.html&feature=player_embedded

Three Little Rules

Three little rules

Jamie’s rules for forex traders:

1. Understand the basics of technical analysis. You don’t need to be a quant-geek to be successful, but understanding the first ten chapters or so of the classic Technical Analysis of the Futures Markets: A Comprehensive Guide to Trading Methods and Applications by John J. Murphy would be a great start.
2. When the fundamental and technical outlooks for a currency differ, always side with the techs.
3. When the fundamental and technical outlooks for a currency converge, go for it! Take a more aggressive position than normal.

Jamie Coleman of ForexLive.com offers these pearls. I ordered John J. Murphy's book, as suggested in Rule 1, and was pleased to learn that Chapter One, Philosophy of Technical Analysis, reveals the source of Jamie's Rule 2.

The problem is that the charts and fundamentals are often in conflict with each other. Usually at the beginning of important market moves, the fundamentals do not explain or support what the market seems to be doing. It is at these critical times in the trend that these two approaches seem to differ the most. Usually they come back into sync at some point, but often too late for the trader to act.

One explanation for these seeming discrepancies is that market price tends to lead the known fundamentals. Stated another way, market price acts as a leading indicator of the fundamentals or the conventional wisdom of the moment. --p. 5

My own recent experience with the current bear market rally in stocks had me taking quick profits and moving back to the sidelines, waiting for the inevitable correction. It still hasn't come. I stayed out, based on the fundamentals not improving much. Yet the trend took off and left me there waiting for the correction. In this case, the wisdom of rule number two becomes apparent. Market price did indeed lead the known fundamentals. AIG went from 36 cents to $2, etc.

Jamie Coleman's 'little rules' are expressed so simply, they embody the quality of the Italian word, sprezzatura, a term that originates from Castiglione’s The Book of the Courtier. It is defined as “a certain nonchalance, so as to conceal all art and make whatever one does or says appear to be without effort and almost without any thought about it.

These nonchalant rules helped me to sort out the relative importances of fundamental and technical analysis when they are in conflict. Thanks, Jamie.

http://en.wikipedia.org/wiki/Sprezzatura

I picked up a nice used copy of John J. Murphy's classic at my favorite shopping place. http://www.abebooks.com/

High Traffic Business and Econ Websites

Here is some good information. What do all these people know
that I don't?

http://www.gongol.com/lists/bizeconsites/

The Quotable Gerry Davies

Gerry Davies of ForexLive provides very colorful commentary from the UK. He lives in East Anglia. Gerry Davies has over twenty three years experience in global financial markets. He has worked as a market analyst for twelve years, the majority of that time employed by Thomson Financial. Gerry spent three years working in the company’s London office, before relocating to the U.S. where he worked out of the Boston office holding the position of Regional Director Foreign Exchange.

Prior to his work as a market analyst, Gerry spent eleven years trading foreign exchange and money markets at a number of international banks, including Canadian Imperial Bank of Commerce, United Overseas Bank, Credit Commercial de France and Manufacturers Hanover Trust Co.

His perspective on the markets is invaluable. I liked this quote from today. "Anyways, I’m a borne again optimist, and I’m increasingly convinced the worst is over regarding the global economic crisis (remember Gerry, think HAPPY thoughts.)"

A Way To Trade Oil

Kathy Lien, that incisive and energetic currency analyst, said something today I found especially interesting. "Over the past year, the positive correlation between oil prices and the Canadian dollar / U.S. dollar currency pair is more than 95 percent."
Seems like someone whose account wouldn't accommodate an oil future's contract, may be able to trade the Canadian Dollar instead. The trick is in finding a time frame and stop that keeps you following the trend without whipsawing you all the time. I find the Loony to be very choppy.

For a look at her chart, click on the link.

cadoil050509.jpg (JPEG Image, 647x354 pixels)

Jame Coleman says Tell My Friends

I followed Jamie Coleman's commentary closely a few years ago when he was with Thompson Financial. I lost touch with him for awhile, but found him again at www.ForexLive.com. This is good news. I think you will like his insightful observations. Sometimes he seems to know the future. But of course, no one does.


Jamie Coleman

Prior to launching ForexLive, Jamie Coleman spent nearly twelve years at Thomson Financial as managing analyst of the institutional forex product IFR Forex Watch. In 2007, he left the Forex Watch team to launch a retail forex-oriented site which became the popular Reuters FX Hub. FX Hub fell victim to cost cutting after the sub-prime mortgage crisis swamped the financial markets in 2008.

Prior to his work as a market analyst, Jamie spent 12 years trading spot and forward foreign exchange at a number of major banks including, ABN Amro, ING and NatWest USA. His biggest career break as a trader, being hired as chief dealer at Baring Securities in New York in February 1995, was derailed by Nick Leeson, one of the great rogue traders of market lore.

Jamie is a native New Yorker and graduate of Georgetown University.

All Atwitter

My blog is now upgraded and I hope to have a Twitter feature soon. I hope you enjoy the new look and functionality.