Taking a Loss
Is there a better feeling in a trader’s day then taking a loss? Yes, I said a BETTER FEELING! I know that losses are the major thing that a trader attempts to prevent, but taking a loss and moving on frees a mind and allows you to look for the next opportunity. This may surprise you but I have had to take a loss from time to time. I have also struggled for days and at times weeks “massaging” a trade in the hopes of being right. Whenever this happens I always ask myself “Why”? I know the position is wrong, I can feel it in my belly and still I try to “Prove” that I am correct. This to me, is the single biggest problem holding traders back from being successful.
An EGO (and a really big one at that) is one of the most common traits that I have come across in most really successful traders (some really unsuccessful ones also!). Being able to control the Ego is what will separate the best ones from the crowd. After fighting a market for a while, trying to come up with a winning strategy, I find the ability to cut the trade, (the LOSS) so relaxing.
This brings us to this past week. WOW, what a week. The Dollar looked like it was riding a never ending roller coaster. Up, Down and back up again. Stocks are looking quite shaky and Emerging Markets on the edge. Wednesday saw Usd/Inr get paid at 47.80 only to get sold down to 46.80 on Thursday (for those who don’t know this is a Huge move). On Friday, we were right back testing the highs at 47.50. You do not have to be a genius to figure out that a lot of people were caught in these moves.
Yesterday was the last gasp for many traders. Before the weekend (long weekend for many Latin American countries…Mexico, Brazil and Colombia) it seemed to me that a lot of people through in the towel. Stocks were on a steady decline and after an initial attempt to continue the EM rally from Thursday the market collapsed under its own weight. On Friday, I got a bit lucky. Although I went home short a considerable amount of Dollars on Thursday, I sensed when I arrived on Friday that the markets were feeling….troubled. Stocks were slightly down overnight and the European markets were beginning to gain downside momentum. With the long weekend, I felt that traders would keep a close leash on positions and lets not forget it was month end and fiscal year end for a lot of fiscal institutions. I took back most of my shorts and was running a basket:
Short
Usd/Cop
Usd/Mxn
Usd/Ars (as usual)
Usd/Brl
Long
Usd/Clp
Usd/Eur
This is where the “Lucky” part comes in. A sales person asked me to sell a “decent” amount of Usd/Brl into the market. I began to execute the order just as stocks broke lower. I stopped selling and filled the order, running the balance. My neutral basket went to a long Dollar position, and in my stomach was a felling of calm. I realized that I had been fighting the market and I was now going with the flow rather then swimming upstream. The Dollar continued to climb the rest of the day and it was clear from the price action that short Dollar positions were getting squeezed. I sat watching the market holding my Long Dollars the entire day, and continue to hold them over the weekend. It was a pleasant feeling. This was more reinforcement to me to remember to TAKE A LOSS when necessary. I do not think I would have flipped my position if I did not get that order. The order took me from a small up day to a “decent” day. Lucky is important, very important, but being able to hold your hand up and say you are wrong is the most important part of being a successful trader.
Good Luck and Good Forex Trading
End of Month
End of Month and the end of the year for many institutions (Canadian Banks). As such there is big potential for profit taking and squaring up. Stay on the sidelines as much as possible and lay low.
Good Luck and Good Forex Trading.
The Week in Review
Stock’s up, Dollar down….does this sound familiar? As the old saying goes, If it ain’t broke don’t fix it. The market is flush with cash, earnings are up and there are still quite a few people who have not “caught the market”. These people will be piling in. I have substantially cut down on my risk as I find it harder and harder to sell Dollars down here. My P/L shows this with less “P” then in previous months. The one thing about these markets is opportunity. There is plenty out there. From new regulations in Brazil to a new Debt Agreement in Argentina, there is plenty to keep the markets going. The Mexican budget was front and center this week as the Government tries to put in place a tax plan that will keep a downgrade away (I am not so sure it will work).
One thing is pretty clear, every time that the Dollar rally’s or rates move up, there is a strong force in the market to beat it back. POSITIVE CARRY is ruling the day. Is it prudent to continue with these positions? Probably yes, the “Trend is your friend” and my “Triad theory” (for those who don’t know it, e-mail me to find out what it is) say this is the only way to be. BUT, I do not think you should be limit up. If this was April 2009 with totally different valuations I would disagree but now staying with the trend, but with a more conservative position seems appropriate.
Positions
Short Usd/Ars
Short Usd/Cop
Short Eur/Usd (ugh)
Receiver Mexican Rates
Receiver Argentina Rates (very small)
Good Luck and Good Forex Trading
Brazil places restrictions
The long rumoured move by the Central Bank to impose a Tax on Foreign Imports was announced today after the close. Finance Minister Guido Mantega said
The measures are being taken “to avoid an excess speculation in the stock market and in capital markets”. The Government has been concerned about the strength of the Rial for a while now. On May 8 they started buying Dollars again, first in an effort to replenish reserves and secondly to slow the pace of appreciation of the currency. These efforts were only marginally successful and the Government were continually looking for another method to address their currency concerns. This Tax should have a real impact. RBC has already moved the currency to “underweight” from “overweight”. Since this was announced only after the close of the BMF, the only trading occurred offshore. The reaction is one I think we will see continued tomorrow. At the close we the front contract at the BMF was trading at 1.7220 but the same date on the offshore 1 hour later was trading at 1.7450. I think once the entire market gets to digest this news they will see that continued large inflows will probably be slowed. Weak shorts will be squeezed. The Colombian Peso is also under pressure. Today weakening about 2%. The President has been very vocal about wanting the currency weaker. Last week the Central Bank began buying Dollars daily. There is also talk that the CB will reduce reserve requirements for banks therefore adding Peso’s to the system. Many economist feel that Colombia is a “little Brazil”. Talking to many in the market the magic number seems to be 1900. above this level the local economy is competitive, below there they are not and the President is a very people friendly politician. As such look for the Peso to weaken in coming sessions.
As I wrote yesterday I cut all of my Dollar positions. My pockets were just not deep enough to stay with the trade. I do however feel good that I was on the right track and I was only a day or so away from “hitting one in the gap”. Luckily tomorrow is another day to play.
Good Luck and Good Forex Trading
Latin America
Brazil: There is a story circulating that the Government plans on reviving a tax on capital inflows to curtain the recent strengthening of the currency. This was reported in a Brazilian newspaper on Saturday. President Lula denied this but it is rumored that the Finance Minister Guido Mantega has convinced him that it is the right course of action. So far today I have not heard any official news on this.
Colombia: Last week the Central Bank came out and announced they would begin entering the market to buy Dollars in an effort to slow the pace of currency strength and build reserves. Since then the Dollar has only moved up.
It seems a general theme that Latin American Central Bank’s are unhappy at the amount of strength their currencies are currently experiencing. I have squared all of my spot positions as I do not like being short Dollars at these levels.
Big Ben talking at 11.00 am New York Time. I will post on his comments later.
Good Luck and Good Forex Trading
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