A Warning: US Stocks Topped?

Arrow graph going down

BarroMetrics Views: A Warning: US Stocks Topped?

Figure 1 shows the warning: The St Louis Fed Asset Monetary Base has broken below the previous low point. In the past, if we saw two consecutive closed below a significant low, it would suggest that the deposits, currently with the St Louis Fed, will flow into Main Street. (The next reading is due around Nov 4.)

Should that happens, we can expect to see inflationary pressures rise about three months after the flow began. So, inflationary pressures should be seen, say about February/March 2017. This date accords with my work: we’ll see a market top in the last quarter of 2016 to the first quarter of 2017.

Where are we then on the rate rise scenario?

We can expect to see a rate rise in December in 2016 with a FED promise of “measured rises in the future – depending on data.”

The markets seem to have taken the view that once the rate rise in Dec 2016 is out of the way, there will be only one more rise in 2017, if that. (see for example, “Fed Forecasts See Lower Rate Path In 2017, 2018.”

An unexpected increase in inflation projections will cause the US stock market to tumble and USD to start a strong rally because the projections will suggest a more rapid rate rise.

The questions raised will be:

  • What will the FED do if US stocks head south?
  • And, will its action, given the deficit, be able to stop the bear market from gathering a head of steam.

Let’s see.

2016-10-21-slfr-ambFIGURE 1 ABM

Defended Levels?


BarroMetrics Views: Defended Levels?

Figure 1 does not do justice to the move in the GBPUSD on October 7, but it gives you some idea. We saw 969 pips in 10-mins.

Let’s place the 969 into perspective. Ar the time, the average weekly range was around 250 to 320 pips; and the average monthly range was around 490 to 620 pips.

So, in 10-mins, we saw a range that would normally take over a month to attain!

Naturally, this caught the eye of the press and we saw ‘blame’ apportioned to a French comment about Brexit to an algo’s ‘fat finger’.

But, for me, an even more noteworthy event occurred yesterday – we saw a mini-October 7 move. There was a 155 pip move in about 30 mins. That’s a little more than the current average true range of 135 pips.

Apart from providing for a fab day trading opportunity, the price action is the preliminary confirmation of the need to change my idea for trading the GBPUSD. Until now, I have been shorting the GBPUSD at designated levels with a great deal of success.

October 7 and 12 suggest that it’s time to reassess. If my birthday celebrations don’t get in the way, I’ll discuss the new strategy tomorrow; if they do, I’ll blog Monday.


Figure 1 GBPUSD 10-min

Slow, Very Slow!


BarroMetrics Views: Slow, Very Slow!

My post this morning to the Ultimate Facebook Group (closed group) Page.

Too slow! I was way to slow!!!
I had 3 minutes to secure an exit at 1.1900 or lower for my GBPUSD short.

But failed to react in time to place the limit order – a market order would have ensured a poor fill.

The buy stops I was counting on to move the GBPUSD – in case of a bullish USD NFP – are now gone. I have just placed staggered orders to exit from 1.20810 to 1.17570, probably won’t be reached, but, I’ll leave them, in case NFP is favourable – but see last paragraph. Orders are good for today.

Stops now down to 1.26370.

The structure of the GBPUSD, short-term, has changed. The stops below the price action are gone, at least for the moment. Given this, to continue moving South, the GBPUSD needs follow-through news from the NFP. Even a neutral figure will probably send the pair North.

Starting at 6:00 PM HK time, I’ll be looking to exit 25% before NFP, if I can secure prices below 1.2150 i.e. I’ll be amending the limit orders I currently have in place from 6:00 PM HK

I attach a chart of the price action from my trading journal.






BarroMetrics Views: Hurdles!?

Unsuccessful traders face two major hurdles to their success:

The first I first learned from the late Mark Douglas, the Four Fears:

  1. The Fear of Missing Out.
  2. The Fear of Leaving Money on the Table.
  3. The Fear of Being Wrong, and
  4. The Fear of Losing Money.

Insidiously, the four fears set us up for failure. Imagine this: “We’ve just missed getting long by a tic or two. It then immediately roars up without us. We sit there stunned as the market keeps moving parabolically up – a humongous move and we are not aboard!”

So, the next time, with this memory fresh in our mind, we just jump in ……sure enough, this time, the trade goes against us, and we suffer a larger than normal loss.

In both trades, the market triggered at least one of the four fears. In the first, the fear of losing money and fear of being wrong and in second, the fear of missing out.

The second hurdle:

  • Seeking to control what is beyond our control – usually the outcome of a trade; and
  • Ignoring to manage what is within our control – usually our behaviour.

Successful trading requires a merging of our intellect and emotions – that’s the Holy Grail of trading – the road to profitability. But, newbie traders instead focus on a mythical holy grail method that does away with losses. The claims in my email inbox to the contrary, no such method exists (and if it did, would it be sold to you?).

Consistent profitability comes from producing a win rate x average dollar win greater than a loss rate x average dollar loss. And, we attain this positive expectancy when:

  •  we have a method that possesses a statistical edge,
  • marry the method with a money management approach, and
  • execute it on a consistent basis.

Pete Steidlmayer’s success equation remains as true today as when he penned it:

Market Understanding x ‘YOU” = SUCCESS

So how are you the ladder of success? Are you overcoming the two hurdles? If so, how did you do it? Care to share?

It’s That Time Again



BarrosMetrics Views: It’s That Time Again

It’s that time again, on Friday, October 7 at 8:30 a.m. EST, we have Non-Farm Payrolls. The consensus figure is around 168k to 170k with the consensus range being 155k to 200k.

Long time readers know that I view US Labour stats more of a political tool rather than an economic measurement. The question I ask is:

What number does the Fed need?

In this case, it needs a number that is not too bullish or bearish. To retain any credibility, it needs to raise rates in December, but it does not want to tank the stock market. So, the best number intervening number is one that does not cause too much euphoria and one that does not send US stocks strongly south.

Last month we had a number at the lower end of the consensus range. I expect this month will be at or slightly above consensus but within consensus range. Such a number should keep the US stock market steady.

By the way, the chart heading this blog suggests that the US job front has been improving under Obama.

I’ll let you make up your own mind.

Figure 1 is the ShadowStats estimate of the unemployed rate compared to the Labour Dept’s numbers. What is probably alarming the Fed (I choose to believe it does not subscribe to its own hype), is the divergence between the Labour figures (dropping unemployment) with the SS chart (steady at 23%).


FIGURE 1 ShadowStats

Breakthrough Strategies of Wall Street Traders


BarroMetrics Views: Breakthrough Strategies of Wall Street Traders

A few months ago, Bill Brodi interviewed me. He has now included that interview in his new book, “Breakthrough Strategies of Wall Street Traders: 17 Remarkable Traders Reveal Their Top Performing Investment Strategies.”

In the book, Bill interviews both market professionals and ordinary people who have made it big by trading the markets. Some started with just $10,000 and went on to make millions.

Now, if you thought this is just another “Market Wizards” type book, you’d be mistaken because……

…..in Breakthrough, trader-investors reveal the exact buying and selling rules they employ for trading the markets via stocks, options or futures, and they are clear enough that you can try them out to duplicate their techniques.

The book covers the spectrum of:

  • Investing-Trading instruments from Stocks to Futures to Options to ETFs to FX.
  • Investing-Trading timeframes from day trading to swing trading to buy and hold
  • Investing-trading methods from BarroMetrics to Price Pattern and Time to Market Profile to Sector Investing to Buffet style investing to Quant Investing.

And I have mentioned only some of the areas covered by the interviews!

In short, there is something for everyone.

By the way, you may wonder why I would recommend a book that covers instruments, timeframes and methods that I don’t trade or use.

Well, I am particularly interested in reading about how others invest-trade. I’m always open to learning something new. My best ideas have come from areas unrelated to my field of expertise and student questions.

If you read my interview, you’ll see what I mean. There is an entire chapter devoted to my trading techniques and system rules (with all the do’s and dont’s).

The interview ran about an hour and a half. The interview contains all the lessons I privately tell people about trading and investing, including the life lessons  I’ve learned along the way to get to where I am today.

Both newcomers to trading-investing and seasoned pros will find a lot of information that will make you a more profitable trader-investor in this book.

So where do you find the book? Here is the link: http://amzn.to/2d7cgwZ

Oh, almost forget Some of you may not have heard of Brodi. So, here’s a short description:

Bill used to work on Wall Street as a research analyst and knows his stuff as to what works, what doesn’t and what to ask.

Success: Single Most Important Ingredient!

  • On BarroMetrics Views: Success: Single Most Important Ingredient!

“By the students, the educator is taught.”

Modern research is unequivocal – success comes from developing our ‘inner voice’. And developing that inner voice is to ensure compatibility between a trader’s Method and his MIND.

By that I mean to trade successfully you need to melding your intellect and intuition.

For example, for the discretionary trader, he is constantly drawing a line between being wrong and losing money on the one hand, and on the other, missing out and leaving money on the table.

To resolve the conflicting fears, we need both our intellect and intuition.

The tools we use are:

  • Intellectually: stats – MAE ( Maximum Adverse Excursion), Positive Expectancy Return, etc.
  • Emotionally – learning from our experiences to accept outcomes outside our control, e.g. the result of any individual trade.

The resulting experience provides insights into our behaviour – insights essential to our trading success.

The problem most newbies encounter is this: they are unawareness of the role of the MIND. They tend to jump from method to method, looking for the success that eludes them – not realising that part of the solution is within.

If you aren’t experiencing the success, your skill and knowledge deserve, perhaps you have not developed your Inner Voice?

FTP: A Breakout Filter


BarroMetrics Views: FTP: A Breakout Filter

Breakout systems have a win rate of around 30% to 35%: one of the reasons I prefer to be a responsive trader (sell corrective highs, buy corrective lows).

But, Bob Volman in his book, Understanding Price Action suggests a filter which raises the breakout win rate considerably. He calls his price action pattern, ‘False, Teaser, Proper’ (I call it FTP).

What’s an FTP?

A: Congestion price action occurring at different price levels in a congestion market. The ‘False’ (F) occurs at the other end of the boundary of congestion to a breakout, the ‘Teaser’ (T) around mid-range, and the ‘Proper’ (P) around the Primary Zone or just beyond it.

Proper patterns show a struggle between the buyer and the seller which, if resolved in favour of the dominant trend, create directional pressures that increase the odds of success. In addition, the opposite extreme of the congestion to the breakout direction provides a key reference point to anchor an initial stop.

I’ve added a couple of wrinkles. For example, Bob focuses on 5-minute patterns. I’ve found that FTPs are effective in any timeframe. They can be observed in the Second Lower Timeframe.

For example:

Brexit was accompanied by a downside breakout of the GBPUSD from a sideways pattern that began in 1985.

Figure 1 shows the 13-week swing and a lower timeframe FTP forming between 1.3480 and 1.2964. Within the larger FTP, we see a smaller on.

Figure 2 shows, nesting within the larger FTP, a smaller one. So, now we have 3 FTPs:

  • One clearly visible in the weekly
  • One, in the weekly, needing clarification. The Daily confirms this FTP.
  • One, in the daily, needing clarification which the 290-min provides.
  • The 290-min draws our attention to a 15-min FTP.

Why is this important? Because it allows us to lower our risk. The weekly FTP proves a risk of 534 pips; the 15-min FTP allows for a risk of 50 pips.

What the FTP has done, in this case, is not only increase the probability of success but also the return on ROI.











BarroMetrics Views: Hibernation?

The attached article from 52.patterns.com sets out the quandary in which the FED has found itself: ’52’ is correct – despite the trillion of dollars the US economy is still in an anaemic condition.

But the article fails to consider two points:

  1. What is the FED going to do if economic conditions deteriorate? There seems little left in the tank of goodies that will provide a remedy.
  2. The FED’s main hold on the markets is its credibility. Lose that and all the QE in the world won’t mean a jot.

For both these reasons, I expect an interest rate hike in December.

In the meantime, both the FX and US stock markets have continued with their choppy, non-directional trading.

I’m going to have to learn to day trade or get another job!


Preparation and Prevention

BarroMetrics Views: Preparation and Prevention


Yesterday again proved the value of in-depth preparation for a trade.

I had been stalking the AUDUSD for around 10-days. Finally, the AUDUSD moved into my sell zone with momentum divergence on a 60-minute chart.  I also had determined the lowest price I was prepared to initiate the trade, where my stop and first exit target was going to be.

I turned to the 5-minute for my setup and entry. And just as my entry bar appeared to be forming, my home PC dies!

I had to:

  • Boot up my IPad Pro
  • Connect to the office PC via GoToMyPC (needed the AccuStrength service)
  • Logged in to my entry platforms (first time on Ipad Pro).

Luckily, the pair had not moved too far from my theoretical entry. So, I executed. Only problem?

I had set up the Dec AUDUSD CFD and not the FX pair!

Now Dec is an illiquid month. So, I immediately exited Dec (loss $250.00) and re-entered an FX position at .7674 (optimal entry .7684). The whole exercise cost me about 11 pips.

The point is that but for knowing my levels, especially the minimum price I was prepared to accept, the boo-boo with Dec may have cost me so much more.

The moral of the story: I ask the attendees to my courses to spend some time visualizing their trades:

  • Where they will be entering.
  • Stop placement
  • Target exit, if any.
  • What can go wrong? Plan and see their response.
  • What can go right? Plan and see their response.

Most times, the visualization does not come into play. But sometimes, like yesterday, it proves its worth. How about you? How do you prepare for your trades?