Currency Trading Soars
Lead article in todays WSJ is about the increased volumes from trading in the currency markets. According to the article the amount of daily volume has hit $4 trillion a day. WOW! I think this is quite interesting and possibly concerning. Clearly with further globalization investors are going to look for returns where they can find them. As such the hedging of currency exposure is a very important part of that return. But more important is the role the indivdual trader plays in this daily volume. With more and more people out of work, people are looking for a way to get income. Day Traders have emerged as a way (well at least people initially think so) to easily make money. We have all seen the informercials talking about trading systems. “Three green lights and you buy, two red lights you sell”. For anyone who has actually tried to do this for a living they know this does not work. If it were that simple everyone would do it. I have never looked at these systems but I am quite sure they are trend following systems. Repeat after me “There is no Holy Grail”. I do believe in systems but they must be developed yourself and back tested tirelessly. This way you have confidence that it works. I am concerned that a certain percentage of this increased volume comes from these day traders most of whom are probably desperate people looking far a last ditch event to save them. This always ends in failure. I have never day traded ( in the sense that it was my only source of income) myself and I have great respect for those who do it and do it well. But I can tell you from the experience of some of my friends who have tried. It ain’t that easy! These are traders who have spent years Proprietary trading for large institution who when they venture out on their own struggle. The point to this post is to warn people who see the article that although it is a large and growing market it is very difficult for the individual to be successful.
Click Here to read the article from the WSJ and Click Here to get a free down load if Reminiscences of a Stock Operator one of my favorite books on trading.
Good Luck and Good Currency Trading
Roger Clemens and Trading
Roger Clemens hit the news again this week. He was officially indicted on perjury charges for lying in front of Congress. As Earl Ward, lawyer for Brian McNamee (Clemens trainer) said this “is vindication for Brian. It says that you can’t demand a hearing, get up in front of Congress, lie, and then head back to Texas. It was arrogance that led to this.”
I cannot help but agree. We saw this type of arrogance on display during Game Six of the 1986 World Series when Clemens went into the locker room late in the game and came out clean shaven. This as it looked like Boston would win the series and the Boston players would be on TV getting interviewed. Disclaimer: I am a Met Fan. It Didn’t Happen! Now of course Roger Clemens is innocent until proven guilty and if he is innocent he should fight till then end to clear his name, but as I always say, where there is smoke there is fire, and lets face it there is a lot of smoke. His trainer has said he provided Clemens with HGH and steroids. The trainer, Brian McNamee has provided used syringes and gauze to investigators and finally Clemens good (Best?) friend Andy Pettitte told investigators that Clemens told him that he used HGH. Clemens claims Pettitte “misremembered” and that rather it was really his wife that received the injections.
So how does this relate to trading? EGO! Ego is the quickest way to to failure. Never think you are bigger then the market. Lets face it, when things are going well you feel invincible. Confidence, an essential factor in trading, is over flowing and you might take a chance or two that you might not usually take. There is no thing wrong with that. It is normal and necessary. But when adding to risk it is also important to stay alert. Take the same precautions that you would when things are going poorly. Although you may risk a little more capital you should be disciplined and not let one position take you out of the game. Remember the market is bigger then any one trader and if you are wrong cut the position and move on. There is always another trade, if you still have capital.
As for Roger, I was never a big fan but I clearly recognize the talent that the man possessed. He was dominant and made every team that he played on a contender for a title. It just seems to me that in this instance he spoke before thinking (and didn’t take the advice of council), or maybe he thought his fame and recognition would allow his bold statements to go uncontested. Either way he is in for a battle and one that if guilty could prevent him from one day entering the Hall of Fame.
Good Luck and Good Forex Trading
Dollar Weakness, The Reasons it Continues
Dollar weakness is the theme. The Euro, has bounced off its lows and been in a steady climb for weeks. I think most traders felt that the market was to negative on it and even though I called for 1.2000 the move happened much quicker then I envisioned. After reaching my target, I thought we were heading to sub 1.0000 which never happened and doesn’t look in the near term cards. But why, why the total turn around? Of course I do not have the definite answers but I do have opinions so here we go,
1. The market was totally over sold. With Europe staggering under the weight of defaults and downgrades did anyone want to hold the Euro? We saw the beginnings of the undoing of the European Union (if you listened to some commentators) and if that materialized there would have been a big mess. Of course none of this occurred. People realized how foolish those thoughts were and the Euro rebounded.
2. U.S. Economic numbers are not improving. Traders and Economists go through periods of time when they look at numbers with a slant. For a while every number coming out was skewed toward the positive, now the gleam has vanished and the market is looking at things a bit more realistically. Look at U.S. Treasury yields, they are at (almost) record lows. That was the leading indicator here, Definitely. The Fed sees the problem with the growth scenario and it will not be raising rates anytime soon.
3. Corporate Profits. I actually look at these numbers and see realistic improvement. The problem here is that Corporations in the past have turned improved profits into increased hiring and improved infrastructure. To me, (and rightly so) they are increasing cash reserve in the event the economy moves toward a double dip.
4. Yield. Traders need to make money. This year (I know this for a fact in many banks) trading profits are behind budget. Hedge Fund profits are lagging and eventually everyone looks at the numbers and says “We need to do something”. This is where I think we are now (or pretty close to it). Traders need to put numbers on the books. A few weeks back I was constantly looking for the breakout. It never occurred and it cost me plenty. A trend with a positive carry is the best one to have.
5. Positions are light. So many people were chopped up in markets the past 6-8 weeks. Therefore there are no large positions on. Couple this with vacations and positions are light. Traders behind budget will be afraid of missing this move and jump in. It doesn’t have to be big, they just have to get in, and they will. The vast majority of traders are sheep, following the market rather then leading (on the desk we call them Muppets).
These are a few of my thoughts, check back later for the remainder of them.
Good Luck and Good Forex Trading.
Focusing on the Big Picture
For the last few weeks I have been on Garden Leave as I am in the process of switching jobs. During this time I have seen the markets from a different angle. I have always considered myself a fundamental trader. As I have said many times in the past economies do not turn on a dime (except usually during a crisis) rather they are like ocean liners requiring an extended time to stop and start. I always couple this approach to the market with an open mind and try to get the daily “feel” for the market to attempt to scalp a few points throughout a day. Occasionally catching a reversal/profit taking against the overriding direction of the market. Since I am not on a trading desk now, the “feel” trade does not exist and I can see why independent traders use technical analysis as a major source of making decisions. Technical trading has never been something that I have been successful at. I have tried many times to incorporate it into my trading as I am a numbers guy and think that there is definite benefit from approaching the market this way. Unfortunately I have just not hit on the correct formula (for me) yet. But I continue to try! This brings me to the point of this post FOCUSING ONTHE BIG PICTURE.
I have become more convinced during my time off that the Economy is turning. Things are getting better. Sure employment is lagging but it has always been a lagging indicator and will continue to be that way. Stocks are very bid and people afraid of missing the boat will jump in. Financials are a big play in my mind. I have been long CitiBank for a while and am going to hold. Bank of America, Allied Irish and Met Life are also part of my holdings (unfortunately half are from pre credit crisis and half post) as well as Freddie Mac and Frannie Mae (although I am seriously rethinking these). Although these holding have not been overly profitable (yet) I truely believe that they will benefit strongly during this recovery.
As for currencies lets start with the Euro. It has rallied in my face the last couple of weeks and I have been wrong but I maintain my opinion that it is overvalued and will be lower (1.2000ish) by the end of the summer. Yes it is easy to sit back and say this with no position but I think the point is if you have the overall direction of the market correct (based on fundamentals) and your pockets are deep enough then you can ride out these storms. When I first started trading I was questioning an older trader on how to be successful. He said you need to maintain your chips (a poker reference). You cannot win a poker game unless you have chips to bet. Made a lot of sense to me. On a trading desk you have a stop loss for the day and the month. If you trigger it your manager will usually ask you to pare back trading (possible cut you off totally). This is the same for an individual trader except that it is your own money dictating the levels where you need to stop. Maintain your chips and you always have a chance. Positions should be big enough to achieve your goals but realistic based on the amount of capital you have. Sure everyone wants to make 300-400k per year but if your capital base is 10k is it realistic? Probable not. I think it is more useful to look at rate of return and not actual profits. As for FOCUSING ON THE BIG PICTURE it is pretty clear to me. The Economy is doing better and as such so will the Dollar. As America does well so does Emerging Markets so selling the Euro against EM is the play!! Selling against Asia with the Singapore Reval and a Chinese Reval constantly being speculated seems like a win but you will need time and patience (and make sure your pockets are deep enough).
Let me know what you think
Good Luck and Good Forex Trading
Signs Employment is turning?
Just finishing up this month’s Money Magazine and came across something called, “How you’ll know employment is on the upswing.” Although I strongly feel the employment is a lagging indicator know when the employment picture has turned is a very good predictor of rate rises. So here is their quick points:
When jobless claims fall below 400,000 (Job cuts must be low enough that newly created positions will exceed them. The most accurate figure is the four-week moving average of initial claims)
When small businesses plan to expand (as they add jobs quicker)
When the average workweek steadily grows (companies will feel pressured to hire new heads when their current employees’ hours increase over several consecutive months)
Short and simple and to the point (the way I like it).
Good Luck and Good Forex Trading and please let me know when you are thinking.
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