Here's an interesting video on how money is created. Very interesting to know, especially in these debt-filled times.
Technical Analysis of the Forex Spot Markets using Elliott Waves, Chart Patterns, Candlesticks and other tools. Disclaimer: None of the comments in this blog shall be construed as professional trading or investment advice.
Tuesday, September 30, 2008
Monday, September 29, 2008
Trading Thoughts : A Gambling Account
Here's a 2-part series/article by BKTrader which I thought is pretty interesting. I've provided the two articles below, and I'll comment on it in another entry. :) Meanwhile, read, enjoy, reflect and see what thoughs come about.
—————–Trading Thoughts-A Gambling Account—————
Part 1
Admit it. Despite the volatility or rather because of it last week was a great time to trade. Not a great time to make money - unless you had the reflexes of jungle cat - but definitely a fun time be in the currency market. 20 rounds per day? 30? By Friday I was doing 40 and did even realize it. Of course when the dust settled I was up only modestly because wide spreads, sudden spikes and massive turns in sentiment created as many stop outs as winners. Never mind, it was rush to play and I enjoyed every moment of it because I never truly put myself at risk.
Like many FX traders I have more than one account. Almost everyone who trades FX seriously, be they retail or institutional has several dealing relationships. In a deregulated, decentralized, dispersed market that’s a smart thing to do. You never want to rely on only one point of exit in order to control your risk. But as retail traders we are fortunate not only to have many choices, but to trade smaller relative size. Since everyone in the currency market offers mini lots, its easy to open a small account and experiment to your hearts content. In fact I believe its not only easy, but also quite advantageous for retail traders to create a “gambling” account where you can go to town with your speculative capital.
What is the single biggest sin in trading aside from not using stops? No doubt its over trading. Yet telling an FX trader not to over trade is akin to telling a guy not to stare at a woman in a skimpy dress. We know its impolite but few can resist the temptation. Discipline may be the key to success in trading but when it comes to human beings all of us are subject to our appetites. Eventually everyone loses control. Much better therefore to lose it in a controlled environment.
That’s why a gambling account is so vital to your trading health. The markets will always entice us to gamble. Better to do it with a small amount of money, rather than wreck your real account. Trading books are littered with examples of guys and gals who made small fortunes in the market only to give them all back in a wildl over trading binge that typically ended up in a margin call. If you are going to get blown out of the market, do it your gambling account.
Next week, I’ll tell you how you can turn vice into virtue by making the gambling account your own little trading lab.
Part 2
Last week I talked about the need for a separate gambling account to let off steam and allow our worst impulses run wild in a controlled and contained environment. This week I’d like to suggest that a gambling account is not merely a diversion for Vegas like entertainment but could in fact be a very useful tool in our arsenal as FX traders.
Perhaps the greatest problem facing many traders is the fear of losing. It is the primary reason so many trade without stops, postponing the day of reckoning in order to avoid the immediate pain of capital loss. In fact when trading a gambling account many traders do just that - they lay on a trade, leave no stop and hope for the best. But the “have a hunch bet a bunch” strategy inevitably ends in tears and a margin call.
On the other hand, if you actually practice safe trading by always using stops, a gambling account can be an incredibly liberating, educational experience. A gambling account when used with stops can be a source of experimentation and learning. You can experiment with a variety of strategies and money management approaches that you might never consider in your regular account.
Granted you could do all of these things on a demo, but your experience and sense of commitment would be completely different. Do you really think you would be checking quotes every 5 minutes on your Blackberry on your USDJPY position if it was done on e demo account? Hardly. Even if your are trading for just a $1 per point real money makes a difference and makes your trading much more meaningful.
For me one of the most useful lessons from trading a gambling account is the realization that just staying the course can often mean the difference between victory and defeat. Woody Allen one said that, “90% of life is just showing up.” In trading this can often be true. Trading in these wildly volatile markets this week, I often would find myself in a deep hole by the middle of the day, but by sticking to my plan and continuing to take trades that were part of my setup I was able to end up positive by the end of the day. Would I have had the courage to continue if this wasn’t my gambling account? I doubt it - that’s why the lessons I learned were worth far more than the pips that I earned.
—————–Trading Thoughts-A Gambling Account—————
Part 1
Admit it. Despite the volatility or rather because of it last week was a great time to trade. Not a great time to make money - unless you had the reflexes of jungle cat - but definitely a fun time be in the currency market. 20 rounds per day? 30? By Friday I was doing 40 and did even realize it. Of course when the dust settled I was up only modestly because wide spreads, sudden spikes and massive turns in sentiment created as many stop outs as winners. Never mind, it was rush to play and I enjoyed every moment of it because I never truly put myself at risk.
Like many FX traders I have more than one account. Almost everyone who trades FX seriously, be they retail or institutional has several dealing relationships. In a deregulated, decentralized, dispersed market that’s a smart thing to do. You never want to rely on only one point of exit in order to control your risk. But as retail traders we are fortunate not only to have many choices, but to trade smaller relative size. Since everyone in the currency market offers mini lots, its easy to open a small account and experiment to your hearts content. In fact I believe its not only easy, but also quite advantageous for retail traders to create a “gambling” account where you can go to town with your speculative capital.
What is the single biggest sin in trading aside from not using stops? No doubt its over trading. Yet telling an FX trader not to over trade is akin to telling a guy not to stare at a woman in a skimpy dress. We know its impolite but few can resist the temptation. Discipline may be the key to success in trading but when it comes to human beings all of us are subject to our appetites. Eventually everyone loses control. Much better therefore to lose it in a controlled environment.
That’s why a gambling account is so vital to your trading health. The markets will always entice us to gamble. Better to do it with a small amount of money, rather than wreck your real account. Trading books are littered with examples of guys and gals who made small fortunes in the market only to give them all back in a wildl over trading binge that typically ended up in a margin call. If you are going to get blown out of the market, do it your gambling account.
Next week, I’ll tell you how you can turn vice into virtue by making the gambling account your own little trading lab.
Part 2
Last week I talked about the need for a separate gambling account to let off steam and allow our worst impulses run wild in a controlled and contained environment. This week I’d like to suggest that a gambling account is not merely a diversion for Vegas like entertainment but could in fact be a very useful tool in our arsenal as FX traders.
Perhaps the greatest problem facing many traders is the fear of losing. It is the primary reason so many trade without stops, postponing the day of reckoning in order to avoid the immediate pain of capital loss. In fact when trading a gambling account many traders do just that - they lay on a trade, leave no stop and hope for the best. But the “have a hunch bet a bunch” strategy inevitably ends in tears and a margin call.
On the other hand, if you actually practice safe trading by always using stops, a gambling account can be an incredibly liberating, educational experience. A gambling account when used with stops can be a source of experimentation and learning. You can experiment with a variety of strategies and money management approaches that you might never consider in your regular account.
Granted you could do all of these things on a demo, but your experience and sense of commitment would be completely different. Do you really think you would be checking quotes every 5 minutes on your Blackberry on your USDJPY position if it was done on e demo account? Hardly. Even if your are trading for just a $1 per point real money makes a difference and makes your trading much more meaningful.
For me one of the most useful lessons from trading a gambling account is the realization that just staying the course can often mean the difference between victory and defeat. Woody Allen one said that, “90% of life is just showing up.” In trading this can often be true. Trading in these wildly volatile markets this week, I often would find myself in a deep hole by the middle of the day, but by sticking to my plan and continuing to take trades that were part of my setup I was able to end up positive by the end of the day. Would I have had the courage to continue if this wasn’t my gambling account? I doubt it - that’s why the lessons I learned were worth far more than the pips that I earned.
News Laden Morning, and wild week ahread
There's a huge amount of financial news this morning, and I've shared them on the panel on the right. But I thought I'd just share my thoughts. :)
Bradford & Bingley to be nationalized: reports
Looks like shortly after Freddy and Fannie have been nationalised in US, Bradford and Bingley are being nationalised in UK. (What's with this same first letter alphabet thingie for these firms? Perhaps I should come up with a W&W or A&A... haha)
Either I hadn't been kept up to date on UK news, or there hadn't been as much interest in B&B as there was in F&F. I'm not sure of the impact of this new on the GBP, but it would certainly be good to take this into consideration. Perhaps with its nationalisation, banks in UK are more comfortable with lending and liquidity issues are lessened.
There are a few items on the bailout bill:
Text of economic rescue bill official summary
Rescue bill released
Basically, the bill will be passed, and Paulson will have the authority to manage $250 billion upfront instead of his intended $700 billion. It doesn't say what has to happen or when he can use the rest of the $700 billion. I suppose some checks and oversights out in place is a good thing, because I'd be worried if he did dump all $700 billion at one shot. So perhaps, $250 billion as a first tranche is good enough for now.
The most important question would be how the markets are reacting to this. Perhaps some short-lived joy on the improved liquidity, followed by the realisation that markets are still on its way down.
Why do I say that? Well, the Fed had been pumping in loads of cash, cutting rates like mad, all in efforts to stablise the markets. This $700 billion bill (enough to wage a full fledge war) is almost a final resort after seeing all else had failed. I do think it is necessary for the Fed to act, but I think it serves to cushion the impact of the market correction, or prevent it.
That's all for now. Good luck with your trading!
Bradford & Bingley to be nationalized: reports
Looks like shortly after Freddy and Fannie have been nationalised in US, Bradford and Bingley are being nationalised in UK. (What's with this same first letter alphabet thingie for these firms? Perhaps I should come up with a W&W or A&A... haha)
Either I hadn't been kept up to date on UK news, or there hadn't been as much interest in B&B as there was in F&F. I'm not sure of the impact of this new on the GBP, but it would certainly be good to take this into consideration. Perhaps with its nationalisation, banks in UK are more comfortable with lending and liquidity issues are lessened.
There are a few items on the bailout bill:
Text of economic rescue bill official summary
Rescue bill released
Basically, the bill will be passed, and Paulson will have the authority to manage $250 billion upfront instead of his intended $700 billion. It doesn't say what has to happen or when he can use the rest of the $700 billion. I suppose some checks and oversights out in place is a good thing, because I'd be worried if he did dump all $700 billion at one shot. So perhaps, $250 billion as a first tranche is good enough for now.
The most important question would be how the markets are reacting to this. Perhaps some short-lived joy on the improved liquidity, followed by the realisation that markets are still on its way down.
Why do I say that? Well, the Fed had been pumping in loads of cash, cutting rates like mad, all in efforts to stablise the markets. This $700 billion bill (enough to wage a full fledge war) is almost a final resort after seeing all else had failed. I do think it is necessary for the Fed to act, but I think it serves to cushion the impact of the market correction, or prevent it.
That's all for now. Good luck with your trading!
Sunday, September 28, 2008
Elliott Wave Summary Tool
I come up with an excel spreadsheet once to tabulate my preferred and alternate wavecounts for a variety of currency pairs. It really takes time and discipline to use it constantly, but for a start, it can help provide some overview as to what's happening in the markets.
Feel free to take and use it if you find the spreadsheet useful.
Feel free to take and use it if you find the spreadsheet useful.
Saturday, September 27, 2008
AUDUSD Forecast (27 Sep 08) - Correction
My friend told me that his wavecount was different from mine.... so I went back a took a second look at how I did mine. And I realised.... my wavecount was wrong.
While I said that a Wave b of B was underway, my charts actually labelled wave b of C. What's wrong with that? Well.... Wave C sub-divides into 5 waves, not 3. So if I label a-b-c, I'd be wrong. Unless of course, Wave C is a diagonal and subdivides into 3-3-3-3-3. That's one possibility, but its too early to tell.
Another possibility is that, instead of a A-B-C. What I have is a W-X-Y. Tada!! Each in itself can be a contained 3-waves. And if that's true, then we can look for alternation between Waves X and Y.
Overall, I must say that this chart isn't very easy to label for me. Haha... and here's my revised chart with the W-X-Y count.
.jpg)
There's a reason why I'm still counting it as a corrective move. Overall, wave structure takes precedent. And the waves I've labelled W-X-Y all look corrective to me.
So in summary, I still think that at the 4h chart its either a
A) A-B-C Expanded Flat Correction with C wave as a Diagonal.
B) W-X-Y Correction (that still looks like an expanded flat?? haha)
I thought we'll take a look at other people's count as well. I've taken this from DailyFX, and its a chart by Jamie Saettele.
If I look at the significant low, I agree with her that the move up looks corrective and warrants an a-b-c count. The only thing that I disagree with is the labelling of wave v. Which doesn't look implusive nor look like a diagonal to me. Since interpretation of the charts are subjective, I suggest you pull up your own charts and make-up your own opinion. Her chart could very well be the correct one.
Looking at Fundamentals next week.... Markets could well be consolidating while waiting for non-farm payroll on Friday. Before that, Aussie has quite a number of news events too. It'll be a busy week... keep a close watch if you can!
Alright, that's it for now. Pretty long post compared to yesterday's. I hope I can find another chart with a clearer wave count.
While I said that a Wave b of B was underway, my charts actually labelled wave b of C. What's wrong with that? Well.... Wave C sub-divides into 5 waves, not 3. So if I label a-b-c, I'd be wrong. Unless of course, Wave C is a diagonal and subdivides into 3-3-3-3-3. That's one possibility, but its too early to tell.
Another possibility is that, instead of a A-B-C. What I have is a W-X-Y. Tada!! Each in itself can be a contained 3-waves. And if that's true, then we can look for alternation between Waves X and Y.
Overall, I must say that this chart isn't very easy to label for me. Haha... and here's my revised chart with the W-X-Y count.
.jpg)
There's a reason why I'm still counting it as a corrective move. Overall, wave structure takes precedent. And the waves I've labelled W-X-Y all look corrective to me.
So in summary, I still think that at the 4h chart its either a
A) A-B-C Expanded Flat Correction with C wave as a Diagonal.
B) W-X-Y Correction (that still looks like an expanded flat?? haha)
I thought we'll take a look at other people's count as well. I've taken this from DailyFX, and its a chart by Jamie Saettele.
If I look at the significant low, I agree with her that the move up looks corrective and warrants an a-b-c count. The only thing that I disagree with is the labelling of wave v. Which doesn't look implusive nor look like a diagonal to me. Since interpretation of the charts are subjective, I suggest you pull up your own charts and make-up your own opinion. Her chart could very well be the correct one.
Looking at Fundamentals next week.... Markets could well be consolidating while waiting for non-farm payroll on Friday. Before that, Aussie has quite a number of news events too. It'll be a busy week... keep a close watch if you can!
Alright, that's it for now. Pretty long post compared to yesterday's. I hope I can find another chart with a clearer wave count.
Friday, September 26, 2008
AUDUSD Forecast (26 Sep 08)
Looks like AUDUSD is headed way way down, and my count on the AUDUSD is shown below.
.jpg)
In a nutshell, I'm counting it as a wave 4 (I used roman numerals in the chart) expanded flat retracement. On the daily chart, I'm expecting price to move further up for shorting opportunities. Fundamentally speaking, with all the chaos on the bailout proposal, I think no one knows where the dollar is really headed. So I'm sticking to technicals.
Lets look at the 4h charts.
.jpg)
I think its currently in its b of B wave. So I'm looking for a long opportunity around .8080, Stop .7790, and take profit around .8500. Because of the strong support/resistance level there, it'll probably bounce off that level and I may make another long trade if the opportunity arises. Alternatively, if you have a large enough position size, you can take your first profit at .8500 and let the remaining run to about .8770 (that's 1.616 of the A wave). I still think it will probably bounce off the .8500 level though.
Well, that's it for this short post. Good luck with your trading!
.jpg)
In a nutshell, I'm counting it as a wave 4 (I used roman numerals in the chart) expanded flat retracement. On the daily chart, I'm expecting price to move further up for shorting opportunities. Fundamentally speaking, with all the chaos on the bailout proposal, I think no one knows where the dollar is really headed. So I'm sticking to technicals.
Lets look at the 4h charts.
.jpg)
I think its currently in its b of B wave. So I'm looking for a long opportunity around .8080, Stop .7790, and take profit around .8500. Because of the strong support/resistance level there, it'll probably bounce off that level and I may make another long trade if the opportunity arises. Alternatively, if you have a large enough position size, you can take your first profit at .8500 and let the remaining run to about .8770 (that's 1.616 of the A wave). I still think it will probably bounce off the .8500 level though.
Well, that's it for this short post. Good luck with your trading!
Thursday, September 25, 2008
Investor Superconverence '08
There's an upcoming Investors' Superconference in Oct 08. For an early bird price of $399 for 2 days worth of talks by some pretty renown people, I think its a pretty good deal. Note that I'm not receiving any benefits for writing about this event... I just think that based on the speakers, its a pretty interesting talk.
I've listed the 5 speakers below for easy reference. Actually, looking at their expertise and the topics covered, I wonder why they didn't call it a traders' superconference instead...
------------------------
Speakers for Investor Superconference '08
Ron Ianieri
Chief Market Strategist, Options Unversity
Trainer of Today’s Top Wall Street Floor Traders & Regularly seen on CNBC Asia, Fox Business News, Bloomberg Asia
John Person
President of Nationalfutures.com
Master of Candlesticks, Pivot Point Pioneer and Best Selling Author
David “Firstwave” Elliott
Technical Analysis Wizard
Twice Voted World’s #1 Market Timer!
Tom Sosnoff
Founder, thinkorswim
20 years Market Maker on CBOE and featured in publications like Wall Street Journal and Barron’s
Price Headley
Founder, Bigtrends.com
Top 10 Stock Market Timer, Best Selling Author featured on CNBC, Fox News and Bloomberg Television
Tuesday, September 16, 2008
Fickle-Minded Markets
You know by now that I'm hardly trade based on Fundamental News or Expectations. But I do look at news to
- Keep updated on the economy
- Identify market psychology/sentiment
- Identify possible market-moving news
Ok... The 3rd one does sound like I trade the news, so it needs alittle elaboration. Basically, markets love to wait for news to move, many times in a direction that it intends to move anyway - this includes both reversals and continuation. What does this mean? If I got a really good technical set-up, with good risk-reward ratios and a proper stop-loss, I'd likely keep my trades and expect the news to move my trades in my direction. :)
Back to the topic of news, this post also serves as a reminder to myself. Just some weeks back, people thought that US Markets had bottomed out and the worst was behind. Several tropical storms, like Gustas and Ike, threatening to impact oil production and cause further dollar weakness. But the dollar continued to rally, and oil continued to drop as the storms one by one passed without any long-term significant impact on oil production. Naturally, factors impacting oil prices are many and goes beyond just oil-production, but that's another topic in itself.
So the dollar rallied, markets became hawkish, and here's what I think was interesting - People were starting to expect the Fed to hike rates! Personally, I agree with what Buffet and Sorros and expressed sometime during this entire Sub-prime saga - The housing market is weak and may continue to weaken, and this is likely to continue for quite sometime still.
But look at how quickly the market turns! Just a couple of weeks back, people were expecting rate-hikes, and how people are looking at possible rate-cuts.
People might say - "Hey! No one expected Lehman to file for bankrupcy, and why did the Fed suddenly stop bailing out companies now? This is an unexpected development!" So suddenly, expectations have switched.
That's one reason why I remind myself not to be too caught up with the crowd psychology, and while news is important to know, it really should never be the key/only deciding factor for your trades.
Alright... just ranting. The markets never cease to amaze me.
[P.S. The article above was written based on memory, for actual opinions expressed by Buffet and Sorros, do a google search. =) ]
Sunday, September 14, 2008
News Sharing
While I'm a technical trader, there is still a need to keep updated on the current affairs which would affect the market, or at least market sentiments. To do so, I subscribe to various news feeds via Google Reader.
I've just realised that Blogger now allows me to share interesting news bits that I read on Google Reader, and I've just added the widget to do so. Look to the right side, and there's a segment that says "Alex's shared items", and those are news items that I think are interesting bits to be shared. Hope you enjoy this new feature!
I've just realised that Blogger now allows me to share interesting news bits that I read on Google Reader, and I've just added the widget to do so. Look to the right side, and there's a segment that says "Alex's shared items", and those are news items that I think are interesting bits to be shared. Hope you enjoy this new feature!
Chartered Market Technician (CMT)
While studying for my Chartered Financial Analyst (CFA) exam, I came across a new (new to me at least) designation called the Chartered Market Technician (CMT). I thought I had previously written about it, but it appears I hadn't.
The CMT is mainly for technical traders and shows that a market technician has both broad-base and in-depth knowledge on technical aspects of the markets. It is something that I will consider going for in future, but since I'm already working on my CFA I'll leave it for another time. Somehow though, I think the CMT exam is somewhat easier to tackle if you have a keen interest in technicals and have already been reading books on the subject extensively. If you take a look at the recommended readings, you will find that these are common TA books in the markets.
Well, anyone interested to give it a shot? :)
More info via the Market Technicians Association website.
The CMT is mainly for technical traders and shows that a market technician has both broad-base and in-depth knowledge on technical aspects of the markets. It is something that I will consider going for in future, but since I'm already working on my CFA I'll leave it for another time. Somehow though, I think the CMT exam is somewhat easier to tackle if you have a keen interest in technicals and have already been reading books on the subject extensively. If you take a look at the recommended readings, you will find that these are common TA books in the markets.
Well, anyone interested to give it a shot? :)
More info via the Market Technicians Association website.
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