Experierence Counts

BarroMetrics Views: Expierence Counts

I have been watching the Australian Open, in particular I wanted to see how the young turks would fare against the seasoned warriors. Although the turks claimed one scalp – that of Roger Federer – they failed to rise to the challenge, at least at this stage. Murray dispatched Kyrgios, and Djokovic accounted for Roanic; Murray is into the finals; Djokovic will meet Wawrinka for the other finals berth – all seasoned warriors.

Watching the games, I could not help but notice that one, and probably the critical  difference (between the two sets of players), was experience. Time and again the young turks would play the wrong short at the wrong time – opting for outright winner (which resulted in an error) rather than a safer shot. That shot might or might not have ended the rally, but it was the one which had a higher probability of success.

It reminded me of the differences between successful and unsuccessful traders.

Successful traders first and foremost strive to protect their capital. In a trade where the reward:risk is highly attractive, but one where there may be more assessed risk than normal, the successful trader will reduce position size or bypass the trade; the unsuccessful trader loads up for bear. Successful traders identify high quality trades; unsuccessful ones don’t seem to know the difference. Or, if they do, fail to execute.

For example, since Dec 8 to Jan 29, the USDJPY has gone sideways, bounded by 121.84 and 115.56; whereas the AUDUSD (on a close basis) has gone from 0.8298 to .7890. The former is currently trading in the middle of the range and offering few attractive opportunities (at least on an 18-day swing basis); whereas the latter is in what I call a R2 downtrend i.e. a strong trend where there are few retracements.

To identify the opportunities offered, the trader needs to identify the type of trend in progress. The quicker he does this, the earlier he can decide on a strategy that will offer optimal results for his style of trading.

Successful traders know there is no certainty in the markets – the best we can hope for a reasoned guess. For this reason, we surround a trade with benchmarks of what the trade should look like if it is likely to be successful, and what it is likely to do if the reverse is true. In this regard, the successful trader opts for the right timeframe to manage a trade. I have seen unsuccessful traders seek to manage an 18-day swing trade with a 15-minute chart – then bemoan the fact that they exited a trade just before the market exploded in their direction.

So, is experience our only guide? Well, experience does count. But, as traders, we can give a not so gentle push by keeping a journal; then using the journal to learn from our successes and failures. The process will expedite our learning curve.

Speaking in Singapore

BarroMetrics Views: Speaking in Singapore

A heads up ……I’ll be speaking in Singapore on Feb 1, 3 and 4.

On Feb 1, I shall be a key note speaker (see Invest Carnival), and I’ll be asking the question ‘what is the difference that makes the difference?” In other words, what do long-term consistently profitable traders do that unsuccessful ones don’t, or are unwilling to do? If you are looking to improve your profitability, this is a must attend event. Loads of unique content.

Extra incentive…..not only great content; for the attendees, we’ll have a host of surprise giveaways.

If Invest Carnival follows previous years, you register for the talk at the event itself.

Feb 3 is a by invitation only; so I’ll leave it to the organisers to clue in their guests.

Feb 4 is an event sponsored by Macquarie Bank. I ask the questions:

  • What does 2015 have in store for equity traders? 
  • Where are the opportunities for equity traders? 
  • In the past couple of days, we have seen US stocks head south in the absence of any QE related news. Is it just possible, that we are starting to see an unwinding of the price distortions created by  QE? And if so,  
  • What does this mean for US and Singaporean stocks?

If you are looking for a strategic roadmap for 2015, this is the place to find it.To register go to: Is the 2014 year-end volatility a precursor for markets in 2015?

Looking forward to catching up with some familiar faces and meeting some new ones.

Quantic Traders Challenge

BarroMetrics Views: Quantic Traders Challenge

This came across my desk the other day:  http://www.directfx.com/en/quantic-traders-challenge/

I am always on the lookout for info that will assist my students who are looking to become fund managers. So, I registered for the webinar. If you are interested in having a squiz, I have uploaded it to:  https://dl.dropboxusercontent.com/u/10422981/quantic%20challenge.wmv

I didn’t learn too much from the webinar relating to the ‘challenge’.  For example, it didn’t tell me the preferred timeframe – though reading between the lines, the brokers seem to prefer a short term method; it didn’t tell me if the winner had to trade at the insto’s desk. I sent a post that said: “I notice you are in Sydney. If I win the competition, do I have to relocate to Sydney? I assume not; but am seeking confirmation”.

The reply was less than equivocal. It said, : “You will notice that is not listed in the rules, which you can find at the link below.

http://www.directfx.com/en/quantic-traders-challenge-rules/

Please review these or contact us if you have any questions or if there is anything we may be able to help you with”.

I had a squiz at the rules. Basically it allows the organisers to do whatever they want. So, the reply to my question would be: “It’s not mentioned in the rules, but after you have won it, we could require you to trade from Sydney” (!!!???)

I could not find too much on Direct FX except for comments on Forex Peace Army: http://www.forexpeacearmy.com/public/review/www.DirectFX.com. Not exactly favourable, but there are too few reviews (10) to form a firm conclusion. The attempted favaourable spam review is a worry.

Still, if the offer is genuine, and you have a hankering to try your hand at fund management, this would be one way to get in the door. For clarity’s sake: This is not to be taken as a recommendation. I know too little about the brokers involved. It’s strictly a case of buyer beware.

A Worthwhile Habit III

BarroMetrics Views: A Worthwhile Habit III 

Here are my notes on the European QE. The expected announcement is due out on Thursday, Jan 23 at 20:45 HK time. The following news conference at 21:30 (HK time) may also move the markets.

I am not expecting the excessive volatility that we saw in the CHF (unless the figure is above Euro 1T and I don’t expect this number); that said, we could see some wild gyrations if the numbers fail or exceed expectations.

What are expectations and what am I looking to do? See below. The USDCAD retest trade is still on; all today’s price action did was:

  • Move the controlling timeframe up from the 60-mins (60-mni retest only got to 1.2061) to the 290-min.
  • Increase the retest range to 1.20645 – 1.2030.

——-

[EVERNOTE Begins]

(eurozone QE)

Expectations that the ECB will tomorrow launch QE have driven up demand for government bonds in the Eurozone, pushing yields down to historic lows. Countries in the periphery of moves to take advantage by locking in the low rates.

The ECB is expected to make concessions to mollify German opposition to the QE plan. Draghi is expected to say that bonds bought will remain with national central banks. Previously, losses and profits were shared in accordance with the GDP of the country.

Other Eurozone countries, and the IMF, feared the concession would reduce QE’s effectiveness. 

It is important to note that in Germany, there is still strong opposition to the very idea of QE.

ASSESSMENT 

The expected number is around Euro 580B. A number of Euro 1 trillion has been floated. I think this is unlikely given German opposition. On the other hand, any number of below Euro 500 billion is likely to disappoint the market.

A number above Euro 800 billion should send the euro down strongly. And a number above Euro 1 trillion will cause the sort of move we saw in the CHF.

A number of below Euro 500 billion will probably cause the euro to rally on the basis that German opposition will stifle any serious QE program.

I expect a news on Thursday to be of the expected or surprise category. I cannot see any unexpected news event occurring that I would rate as unexpected.

ACTION

I’m prepared to buy the USDCAD on any dip to the 1.2032 to 1.2010. I do this on the basis that the 60 minute is the controlling timeframe and we would be pulling back within the 6 – 16 bar rule. Any unexpected news on the euro is unlikely to cause more than a intraday, though sharp, correction.

[EVERNOTE Ends]

A Worthwhile Habit II

BarroMetrics Views: A Worthwhile Habit II

Today I am going to show my thought processes on the SNB decision. The best way to do this is to reproduce some of the Evernote entries:

2014-12-05: Saw Mario’s interview. Seems clear that he is hell bent on a European QE. Question is whether the EC rules and Germany will acquiesce. Keep eye on this.

2014-31: assessment of Europe.

  • Germany seems OK but rest of Europe especially France and Italy are heading South. Given nature of economic thought, QE is on the cards.
  • What will this mean? Euro down. Greece force to toe the line? What about rise of left? Impact on CHF? Will the cap be too expensive? Not enough info but need to keep these questions in mind for 2015.
  • When will the case initiated on Oct 14 against QE be heard? Cannot find date for decision.

2015-01-17: It seems clear that Europe is in the grips of a major recession and that Draghi, politically, will be able to overcome the Germans objections. The only barrier will be the Euro Court decision. If he receives its approval then all systems go. What effect will this have?

Foreseeable – expected event: the EURUSD will fall.

Less foreseeable – unexpected event? If QE starts, this will place an enormous burden on the Swiss cap. I think it unlikely they will keep it in place. I would expect the CHF to rally against the USD and other currencies if the cap is removed.

Action: should I short the USDCHF? Too much of a risk for me. If the Courts rule against Draghi, the EUR will rally and may take the the CHF with it. If it rules in favour, the CHF will rally. Too much of a lottery for me. And since my AUDUSD is signaling the possible end of the R2 move, time to exit.

For new positions, will wait till after ECB’s meeting on Thurs  Jan 22.

—————-

I thought I’d end this blog with the headwinds  I see on the horizon:

  1. ECB’s plans for QE.
  2. China’s growth
  3. FACTA
  4. US Congress vs the President
  5. Islamic Terrorism, in particular Iran’s nuclear program.
  6. European Court of Justice decision on whether to ratify the decision by Pedro Cruz Villalón, a European Court of Justice (ECJ) advocate general. Note that the review is due in April to June 2015. And note that the advocate general provided an avenue for the Court to reverse his decision without appearing to do so. He said in his decision:

“The ECB must give a proper account of the reasons for adopting … the OMT programme, identifying clearly and precisely the extraordinary circumstances that justify the measure”.

The ECJ could merely say that the ECB had failed to discharge this duty and reverse Villalon.

I am not saying it will do this; in fact, the ECJ is expected to rubber stamp. But, in this exercise we are considering what is possible and its effects if it happens.

    Method and Money

    BarroMetrics Views:  Method and Money

    We goofed on the first registration for MIND.  As a result, even if you registered for MIND. you will need to re-register for METHOD & MONEY (only one registration needed for Method and Money).

    Here is the link for the registration:

    https://attendee.gotowebinar.com/register/8586317562661600770

    If the first webinar is anything to go, the series will be a huge hit. I hold these content-rich, free webinars one every two or three years. If you are thinking of attending, register and attend. We have space for only 100 attendees.  As one attendee said:

    I just sat through the first Breakthrough webinar and wanted to say how beneficial it was.

     

    My head is spinning from all the content!

     

    I suspect there is a lifetime of study in what you gave us.

     

    Could you please let me know the dates and times of the remaining webinars in this series, so that I may organise myself?

     

    Many thanks.”

    A Worthwhile Habit

    BarroMetrics Views: A Worthwhile Habit

    For those of whose who were not short the CHF, say a prayer of gratitude…we were lucky…we did not join so many others in financial devastation: ‘there but  for the grace of God, go I’. For those who were long the CHF, congrats on the result.

    Today, I am going to talk about a habit that has placed luck on my side…so far it has allowed me to escape the ravages of failed brokers – in some cases withdrawing my funds before the crash; in others, making a conscious decision to avoid the broker.

    The story starts long before I started trading; it starts, in fact, when I was in my teens. In those days, I was an avid fan of JFK. I read that he had taken the Evelyn Woods Reading Dynamics Course and that he read a number papers to start the day. So, I took the course, (still one of the best reading courses I have ever taken), and started reading the daily papers to start my day.

    Shortly after that became a habit, I read that cutting out articles of interest, and creating a scrapbook, was an ideal source of creativity. So, I added that to the habit.

    Fast forward twenty years later to a course on Market Profile taught by Pete Steidlmayer. Peter taught that there were three types of fundamentals:

    1. Expected events: events that are events known and correctly anticipated by market participants. As a result, the underlying structure (which he called value) and price moved in the same direction. This results in a congestion market.
    2. Surprise events: events that happen out of the blue, ‘acts of God’ if you will e.g. Chernobyl  Here price move away from value only to return to value once the crisis is over.
    3. Unexpected events: events that are available to market participants; but these events are either ignored or incorrectly interpreted. Value moves away from price. When the events are recognised for their true impact, price moves to value, usually in a dramatic manner.

    I added the lesson to my morning regime. So, the habit now is:

    • to read news events (this includes certain sites and email updates),
    • enter or snag a summary into Evernote (rather than cut and paste into a scrapbook), and
    • for each item of interest:
      1. rate the event as either expected, surprise or unexpected;
      2. ask what is the probable impact on currencies, gold, stock indices and interest rates; and
      3. assess the probability of the event’s occurrence.

        The process may sound like a lot of work, but so far, at least, it has kept me out of trouble. Tomorrow, I’ll show the process in action with the Swiss National Bank announcement.

        Trust You Are All OK

        A short note to say that I hope all of you have not been hurt by the Swiss move on Jan 15.

        So far two brokers have gone into liquidation:

        • Global Brokers NZ Ltd
        • Alpari Ltd (UK)

        FXCM was able to find an angel in Jeffries Group LLC to enable it to stave off liquidation.

        Huge losses have been sustained by HSBC, Citigroup, Barlays, and Oanda as a result of CHF moves following the SNB.

        For those who don’t trade FX….you may not understand why some brokers have found themselves in difficulties.

        Broker take a a safety deposit (margin) anywhere from 1% to 5%. A standard lot is 100,000. So, the  margin per lot range from $1,000 to $5,000.00 Now let’s look at Thursday’s move as a result of the Swiss announcement.

        Figure is a daily chart of the USDCHF. If you were trading a standard lot (100,000), the move from about 1.0200 to .8400, represented a loss (or gain) of US$ 100,000.00.  The margins collected would have been inadequate to cover the losses. And, depending on your money management, you could have easily been in serious financial difficulties had you been short the CHF.

        To those of us who were not in the CHF, that was a great new year’s present.

        usdchf-d-2015-01-17.png

        FIGURE 1 USDCHF

        A USDCAD Analysis

        BarroMetricsViews: A USDCAD Analysis

        Sorin raised a question (see his question in USD Topping?) whose answer may be of benefit to all.

        My answer:

        Here’s how my mind works. When I look at your chart (Figure 1), the first question that pops up is: what timeframe are you trading? 

        If the 13w, I’d look at the 12-m to place the price action into context.

        But, let’s say that the chart is all the info I have.

        Then, I’d still like to set the context; so, the next question: B has taken out the highs of the prior downtrend. So, what is the current structure?

        I’d label:

        1. A as a selling climax,
        2. B as the automatic reaction and
        3.  C as a test. 

        This analysis helps me identify the boundaries of congestion, (AB) which in turn helps me identify:

        • the Primary Buy and Primary Sell,
        • the maximum extensions,
        • the likely top and bottom of value and
        • the minimum targets 78.6% and 21.4% retracement zones. </p>

        Let’s now look at the smaller picture: I’d see the price action within the blue rectangle as showing the last shot at selling, and it fails. 

        So:

        • At (1 in Figure 1), we have a breakout and retest in the 18-d or 5d. The breakout is clue we are about to see a move to the PSZ; 
        • at (2) we have a 13-w breakout and retest, a confirmation we are probably seeing a move to the PSZ.

        Your chart does not show the possible value area. My black lines represent the two possible levels. Acceptance above the upper line, will suggest a minimum move to at least the 78.6% of AB and probably the PSZ.

        So, to answer your question:

        1. The current 13-w trend is probably SW (with the swing up at C). I would therefore be looking for a turn down at ‘D’ (still to be formed). 
        2. We are currently seeing an upmove to form ‘D’. 

        The tools not in Nature of Trend (NOT) that are critical to the analysis:

        • The development formula that provides clue on the duration of the SW move. 

        1. If the formula indicates that the SW move is ‘long in the tooth’, then I’d be less confident of a turn down at a potential ‘D’ – raising the prospect of an upside breakout. 
        2. If the formula suggests development is incomplete, then I’d be more confident that we’ll form ‘D’ and see a turn down from that level i.e. we’ll see a move to the PBZ.
        • Geometric Fann Angles: The current 13-w swing is in a R2 or R3 move. The GFA will provide the tools to warn if the directional move is losing its momentum, maintaining it or accelerating. 

        The info above helps in determining if we’ll see confirmation of the SW structure with a turn down at D; or we will see an upside breakout.

        • if we do see breakout then we need to determine whether the breakout will successful or not  – with a breakout, we are now in a different stage of the Wyckoff model.

        Hope this helps.

        analysis.png

        FIGURE 1

        USD Topping?

        BarroMetrics Views: USD Topping?

        I am starting to see signs that the US$ is topping, at least in the 18-day swing (monthly trend).

        SentimentTrader points out that the ‘smart money’ has established new-all time recored short positions, while the ‘dumb money are nearing record level long positions. In addition, against some of the minor crosses e.g. the AUDUSD we are seeing a stalling of momentum (possible H&S on 18-period 290-min chart, Figure 1 [in this case,  equivalent to the 3-day swing).

        And for those who receive the weekly video, the Ray Wave is making a case for a reversal on acceptance above .8238 on a 290-min basis.

        That doesn’t mean that a US$ change in trend has a high probability of happening – it does mean care needs to exercised if we take positions based on continuing US$ strength.

        audusd-18-p.jpg

        FIGURE 1 audusd 18-P