Friday, June 12, 2009

Trading is Like Starting a Fire with Flint & Steel



Trading Forex or futures markets is like starting a fire with flint and steel. A lot depends on your kit and your skill, but a lot depends on the elements. What you have in mind is building a nice fire. That would be a healthy winning trade. Striking your flint and steel together would be taking a position in the market. The tinder would be the amount you are willing to risk on the trade. The kindling would be having your trade go in your favor by the amount of your risk capital (tinder). A log would be the trend. Getting the logs to burn comes about by catching the trend and riding it.

The day-trader is always concerned with striking his flint with the steel and not getting burnt. Sometimes it seems to be raining or windy or both. You don't get much started. The experienced fire starter looks for the best kindling and tinder. Patiently waits for his trade to set up. The impatient one keeps burning tinder and char cloth but all too often the fire dies. Fire starting is a survival skill that can be learned. A forex trader who approaches the market as a problem in fire starting could do worse. We trade our beliefs about the market.

Wednesday, May 27, 2009

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.

Tuesday, May 19, 2009

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.

Saturday, May 16, 2009

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.

Friday, May 15, 2009

What Action Are You Creating Today?

Here I am planting the millionth tree. What action are you cr... on Twitpic

"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

Tuesday, May 12, 2009

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.

Monday, May 11, 2009

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

Saturday, May 09, 2009

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/

Thursday, May 07, 2009

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/

Wednesday, May 06, 2009

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.)"

Tuesday, May 05, 2009

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)

Sunday, May 03, 2009

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.

Saturday, May 02, 2009

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.

Thursday, September 13, 2007

Halsey's Poetry

A friend of mine has been writing poetry for years, but didn't show much of it until very recently. Poetry writing is so personal that it takes courage to 'show off' (believe me, I heard dat.)

If he consents, I will publish a link to his blog so my many readers can experience these thoughtfully crafted verses.

Monday, August 20, 2007

Peter Drucker Article

Dr. Peter Drucker, the dean of management consultants, met this past winter with members of the US Congress. His remarks are relevant and instructive as we ponder the potential of government in this particularly unpromising election year. We've excerpted them from What's Next: A Newsletter of Emerging Issues and Trends, which is published by the Congressional Clearinghouse on the Future. You can reach the Clearinghouse at 555 House Annex 2, Washington, DC, 20515 Tel. 202/226-3434.

Every 200 or 300 years, there is a very short period when the world suddenly changes - the way it does in a kaleidoscope. This is one of those periods when the old solutions no longer work. One can clearly see new priorities.

Since the French Revolution, we have believed in what I call "salvation by society," the belief that government and society could basically mold the human being. Communism was the extreme manifestation of this secular religion. In this country, that belief peaked in the Kennedy years, and by now, it is pretty much gone. It is gone in the rest of the world, too. And so we have a world that has no ideologies. We can expect that within 20 or 30 years, we will have major new political alignments. In this country, our parties have never been ideological. [...]

For 200 years, all the debates have been over what should be done. Since 1792, nobody has asked, what can government do? Now, for the first time, we are asking the question. Government, like any other institution, has core competencies. We have learned from other institutions what happens when institutions try to do things that don't fit their competence - they usually end up flat on their belly. Of all government [social] programs of the last 40 years, not one has worked. Head Start is the only exception. This is not an American phenomenon; it is worldwide. Japan is an exception, [but] it is beginning to hit Japan. [...]

We started the Core Management Foundation one and one-half years ago with the avowed aim of tripling the effectiveness of nonprofit institutions and doubling their share of the GNP. Those are realistic, but not easy, goals.

One of the great movements in my lifetime among educated people is the need to commit themselves to action. Most people are not satisfied with giving money; we also feel we need to work. That is why there is an enormous surge in the number of unpaid staff, volunteers. The needs are not going to go away. Business is not going to take up the slack, and government cannot.

I think we will depend on the nonprofits. The nonprofit sector is the largest employer in the American economy.

Productivity [in manufacturing and agriculture] has increased 50-fold in the last century ... and is growing as fast as ever. [Now] both sectors together employ fewer than one-sixth of the labor force. [...]

Knowledge has become the central resource. [But] the productivity of knowledge workers is incredibly low. Does anybody here believe that the teacher of 1991 is more productive than the teacher of 1900? The productivity of service workers is even lower.... Over three-fourths of our workforce are service and knowledge workers. By the end of the century, 90 per cent of total workers will be knowledge and service workers. Productivity of knowledge work and dignity of service work are the two great priorities.

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Wednesday, February 15, 2006

FRB: Monetary Policy Report to the Congress - February 15, 2006

FRB: Monetary Policy Report to the Congress - February 15, 2006

Follow the link to see the text of the new Fed Chairman's first report to the Congress. I can tell you that the currency markets are very interested.

U.S. Treasury - Treasury International Capital System - Home Page

U.S. Treasury - Treasury International Capital System - Home Page

The current account deficit is still being comfortably funded despite news media hysteria. US securities of $185 billion were bought with international capital inflows last year above and beyond the current account deficit. --tb