July 5 – Enquiries

BarroMetrics Views: July 5 – Enquiries

I was planning to post this on Monday, June 19. But, I received quite a few emails asking how to register, so I’m posting the entry today. The link for registration will be posted on June 19.

The main email question raised was: how is July 5 different? It’s different because I’m attempting to synthesise live trading with supporting content.

If you have attended a live trading presentation, you’ll probably have shared the same reaction: how boring!

  • The presenter rattles on about what he plans to do;
  • The market does its thing, taking its own sweet time. In the meantime, the presenter has to somehow fill the empty minutes. You know the ones, the minutes spent waiting for the trade to setup and follow-through!

That’s what I wanted to avoid. So, on July 5, the real-time trading will be used as a context to a process. Follow the process you ensure you are taking a high-quality trade:

  • One with the appropriate reward: risk ratio, and
  • One with the pre-planning that prevents the 3Fs (fight, flight, or fear) from kidnapping our neo-cortex. As a result, you’ll eliminate most of your impulse trades.

Also, each registrant will receive:

  • A mechanical trend-trading method
  • An equity journal spreadsheet that calculates the essential trading stats (retail USD 130.00 to USD 225.00); and
  • A template for the psych journal.

The second question raised was: will the presentation be made available to those living ex-Singapore?

That will depend on the registrations. We’ll need around 30 to justify the costs of streaming. Also, the time is a factor for overseas traders. The presentation takes place between 19:15 to 21:15:

  • In Sydney, that’s 21:15 to 23:15
  • In New York, that’s 7:15 to 9:15 and
  • In London, that’s 12:00 to 14:00

The takeaways:

  1. You’ll have a professional model for analysing the markets
  2. You’ll have a process for skirting the three major mistakes made by 90% of traders.
  3. You’ll receive high-quality attendance gifts.

Stayed tuned for Monday’s post. And no, I won’t release the rego link before June 19.

Image credits: iqoption

Nassim Taleb’s Interesting Ideas

BarroMetrics Views: Nassim Taleb’s Interesting Ideas 

I’ve been focused on creating the material for a July 5 three-hour presentation in Singapore. The format will be different to anything I have ever done so it’s taking quite a chunk of my time. The good news is I’ll have all done by tonight.

In the meantime, here’s an interesting piece by Dr Wealth on Nassim Tableb.

Nassim Taleb – A Contrarian Investor and his Unorthodox Ideas

Image Credits: flckr.com

Hung Parliament!

BarroMetrics Views: Hung Parliament!

Well, folks, it’s confirmed, the UK has a hung Parliament.  What does that mean?

In the UK, a party that has 326 is said to have a majority – it can pass legislation with the support of other parties. A hung parliament occurs when a party captures less than 326 seats. The options for the Conservatives are:

  • Form a minority government (May will need the support of a minor party for each piece of legislation) or
  • Form a coalition (there will be a formal agreement with a minor party for support

Only the Democratic Unionist have professed support for May. The problem is the DUP won only 10 seats. So even with their total support, the Tories have only 315+10 = 325 i.e. one short of the needed 326.

What about the Liberal Democrats? It did form a coalition with the Tories in 2010.  I just can’t see Tim Farron working with May. Sure, politics form strange bedfellows. But, in this case, I think it highly unlikely – especially with May’s refusal to resign.

The conundrum that the Tories are in means there is only one other solution: another election. And, another election will bring more uncertainty into the marketplace. You know how markets abhor uncertainty!

For the trader, the problems stemming from the election produce a simple strategy. Find the appropriate GBP pair, look for a place to institute a trade and go short!

 

MASTERY – A Post Mortem

(through the courtesy of orozcode sign studio)

BarroMetrics Views: MASTERY – A Post Mortem

We completed Mastery last week. Undoubtedly is was the comprehensive and mentally exhausting course I have held – at least so far as I’m concerned.

How would I rate its success?

For me, a mixed bag: from incredible, unexpected results to disappointing. ‘Incredible’ because a couple of attendees made significant breakthroughs; ‘disappointing’ because some could have done much better. 

What was the difference between the two groups?

The ‘success’ group gave it their all. Right from the start, I could see they were committed to living up to their highest potential – no matter what. They attended all the sessions and did all the assigned work irrespective of what was happening in their lives. Also, the quality of the assigned work showed they had put in time and effort.

The ‘failure’ group attended most of the meetings and did most of the assigned work – with the key distinctions being ‘all’ and ‘most’. Also, the ‘failure’ group’s quality of assigned was poor. The work resembled a hurriedly constructed piece with little thought.

So, what’s the takeaway? You want to succeed in the markets? Do the work! Commit to your own success without excuses and with a ‘whatever it takes‘. Come into trading with a determination less than that, and you’ll fail – not ‘if’ or ‘perhaps’ but ‘will’.

UK Elections June 8

BarroMetrics Views: UK Elections June 8

Not so long ago, the result was a ho-hum affair with the Tories expected to increase their majority. Now? Not so easy because there are some complications.

Firstly, without a doubt, Labour has pulled back ground. The question is how much?

This leads to the second complication: the reliability of the polls.

After Brexit showed UK’s polling methods suspect, we are seeing a host of new, untried approaches. The result is the UK polls are all over the place. For example:

  • The Telegraph has the Tories ahead, with Labour breathing down their necks. (Figure 1)
  • On May 31, YouGov produces a poll showing a hung parliament! in their latest poll, YouGov has the Tories at 42% (304 seats) and Labour at 36% (266 seats).
  • The polls using the ‘old’ methods have the conservatives ahead- but within the margin of error i.e. too close to call.

From a trader’s point of view, the GBP pairs, especially the GBPUSD, will move down unless the Tories retain at least 330 seats.

Let’s see what happens.

FIGURE 1 Telegraph Poll Averages

FIGURE 2 Parliamentary Seats

HK Property Bubble? US Stock Market?

Housing bubble

BarroMetrics Views: HK Property Bubble? US Stock Market?

I’m starting to see signs of the late stages of a HK housing bubble: it’s a sign when the man in the street says: ‘Damn the prices! They’ll never come down’.

On Saturday (June 3), the SCMP reported that sales of flats at Ocean Pride were fetching record prices. HK authorities were concerned enough to sound a warning that a property bubble may burst (Norman Lam, CEO HK Monetary Authority). The public’s response?

“Home prices have always been high,” said Alice Shun, one of the hundreds of buyers in the queue for Ocean Pride. “I don’t think it can really ever go down from here”. (emphasis mine)

Another sign is when pundits join the cry.

In the same SCMP edition, Jan Ver Kamp, a popular columnist concluded:

“Mortgage interest rate is the biggest single affordability factor in an affordability ratio, and it has now fallen to levels never believed possible in 1981 or 1997.” (The prior two property slumps).

After tracing the reason for the downward spiral in interest rates, he goes on to say: “And now the people responsible for this folly have to admit they don’t know how to undo it and that their political masters do not really want them to do so.”.

In short, this time it’s different ….. until it’s not.

I’m seeing the same ‘must buy’ sentiment in the US stock market but not quite to the same extent. Last week we saw the stock market move up on poorer than expected Non-Farm payrolls. We’re again starting to see the stock market’s desire to move up irrespective of fundamentals.

Figure 1 shows the last three 18-day impulse swings compared to the current one. Note we are beginning to see a decline in the average true range and average volume. True, it’s early days. But, if I see:

  • the average range drop below 13 points and
  • the average volume drop 300,000

as the market moves into my time and price targets: July – August 2017 and 2560 to 2640  I’ll have the evidence I need to suggest a top is at hand. In the meantime, the bull is alive.

FIGURE 1 S&P 18-day Swing

(chart through the courtesy of Optuma)

The Trading Mind 2

BarroMetrics Views: The Trading Mind 2

When I last left off, we had just completed a consideration of the Reptilian Brain (Unconscious Mind).

We saw that it’s the oldest of the three brains and controls out biological functions and instinctive reactions. It’s designed to keep us safe, and it does this by looking to control outcomes. The problem is it was designed for a bygone era. Many of its solutions are out of place when it comes to trading. For example:

One of the hallmarks of trading is an uncertain outcome on a trade-by-trade basis. Seeking to control this outcome is doomed to failure.

Turning now to the Limbic System (Subconscious Mind)….

Its functions are well set out in the diagram above. I’ve also attached the image as a pdf file.

The unconscious and subconscious brains seek only the best for us. But, in their attempts to ensure our survival and to adopt the ‘right’ course, they prove to be a barrier to trading success. Our main adversaries are:

  • The desire to be right,
  • To stay with our within our comfort zone, and
  • The flight, fight or freeze response

Traditionally, in looking to defeat our nemeses, we have sought to control and reframe the impulses. In my experience, this approach has met with a distinct lack of success. Our most modern brain, the Neocortex (Conscious Mind), can’t control the other two, nor does it want to if it could. It needs to partner them for optimal results.

ACT (acceptance and commitment therapy) offers this option. I have written extensively about ACT in this blog.  (For past ACT articles, in my blog, do a search for ‘ACT’ and ‘Acceptance and Commitment Therapy’). 

Like anything else, the ACT processes need awareness and dedication until we integrate them. Once the processes become ingrained, they become part of us. Even better, we’ll see the results reflected in our trading bottom line.

Theory-of-the-Mind-Revised

The Theory of Mind (through the courtesy of Gemma Stone)

Breakout? Buy?

BarroMetrics Views: Breakout?

Today, the S&P appears to have formed a valid breakout (Figure 1):

  • The range is normal for the current conditions.
  • The estimated volume also appears normal. I stress estimated because my data sources’ final volume will not be available until 9:00 PM EST. Sometimes there is a discernible difference between the preliminary and the final volume.

Let’s assume the breakout is genuine, what now?

I use three filters to confirm a breakout:

  1. Time: Whole Point Count (borrowed from Joseph Hart’s Trend Dynamics)
  2. Price: The Maximum Extension. In this case bullish acceptance above 2418 (we have that).
  3. Momentum (what I call the LCC): three consecutive days of new highs (excluding inside days). In this context, we need to see another day that forms a higher high and higher low.

I don’t normally buy breakouts. I prefer to wait for confirmation of the breakout and enter on a retest – provided I see what I call an FTP form just before, or just after, the breakout.

An FTP is a congestion pattern seen on a 1-period swing on the daily chart or a 5-period swing on the 240-min (for the S&P).

Figure 2 shows the 240-min swing. Clearly, we have one.  The problem is part of the swing pattern was formed on Memorial Day. The support and resistance formed by patterns that occurred on public holidays tend to be less reliable.

Early days yet, let’s see what develops between now and July 7 (Non-Farm Payrolls).

One final point, if valid retest does occur, my price and time targets will be: July 15 to August 11 around the 2560 to 2640 zone.

FIGURE 1 Daily S&P 18-day Swing

FIGURE 2 290-min 5-period Swing

The Trading Mind

BarroMetrics Views: The Trading Mind

As my most recent course, Mastery, comes to an end, today, I looked to review the successes and failures. All of the attendees could be said to be driven to succeed. Yet some did, and some didn’t. By that I mean, over the course, some changed their behaviour, and some did not. For those that did change, I saw the changes in their trading results. For those where there was little or no behavioural change, I saw little change in their results. You can’t keep doing the same thing over and over again and expect to attain a different outcome.

So why do we do it? Why spend countless hours and countless dollars giving lip service to change but failing to follow through.

The answer I believe lies in our brain’s hard-wiring.

The Triune Brain model has been around for a while. Traders would do well to become acquainted with it.  Figure 1 has a summary and attachment 2, has a more in-depth explanation. Let’s see how the hard-wiring affects our trading.

The oldest brain is the Reptilian (unconscious). Our impulses and instincts reside here. Like the subconscious, its primary job is to protect us. Unfortunately. its hasn’t been updated for aeons. As a result, what it treats as ‘life-threatening’ (e.g. losses) isn’t so. It’s solution to our problems is to seek to control the outcome. But that’s not possible when trading – so the fight, flight or freeze response kicks in to deliver the losses we fear may happen.

Its partner in crime is the subconscious but more on this tomorrow.

FIGURE 1

The Reptilian Brain

Attachment 2

Paradigm Shift

BarroMetrics Views: Paradigm Shift

Of Mice and Men generated some emails. I was surprised; I didn’t anticipate the response.

I’ll look to answer the questions raised.  One batch was similar to Omran’s – why change when the process is making money? Because as traders we need to improve – you can bet our competitors won’t and if we don’t change and get better, they will leave us behind. Tudor Jones, for example, is now embracing AI. At one point, Tudor believed that men were better than machines. But over time, his views have changed.

Another theme was the difference between the two approaches.

In one sense, there was no difference: my first principle is ‘protection of capital’. That idea runs true for both approaches. The difference is, with that achieved, how do we go about producing superior returns.

There is a direct relationship between timeframe and size of return. The shorter the timeframe, the smaller the average win. Consequently, we need a high win rate.

The major difference between the two is found in that idea. In short-term timeframes, we need to:

  • Take profits more quickly and
  • Be more aggressive when managing our trades – to ensure that once in profit, we don’t let the trade turn into a loss.
  • The above ensures a high win-rate.

For example, in the EURUSD entry I failed to take, I’d have been stopped out after having exited some positions at the first target. Still, the result for the trade would have been a gain of 64 pips for every 600K taken. That’s a reasonable return when you consider that the trade failed to get to the 2nd target – the one I call the ‘core profit’ exit.

The final difference between the two styles is the amount of time spent in front of the screen. Undoubtedly, the shorter timeframe is more exhausting. I am going to have to lose weight and exercise more!