Sunday, January 18, 2015

Ka-Boom!!! The Swiss go to War on Currency - CHF

Recently I wrote a post looking at Leverage and Trading success that I came across, and the observation that the best performers limited their max drawdown percentage risk to less than 50%.  Further the greatest number of net profitable traders held less max drawdown percentage risk at around 30%.

"Humans have a great awareness of risk through survival instincts, but this does not seem to translate into the markets!"

I certainly didn't predict the move the SNB made to unpeg, but the observations seem to be borne true, especially when you consider that FXCM users owe FXCM over $300 Million, forcing FXCM itself to seek a bailout to satisfy their fiduciary obligations.

FXCM had even been one of the champions of allowing greater leverage use by traders to the US Commodity Futures Trading Commission review.

I had a bit of a loss on the USDCHF move, saved largely by stoplosses limiting my risk, but I also learnt a couple of lessons as a result of the "close-call."

1. I will from now on keep my option and any spot positions separate in another account.  Whilst I didn't suffer any option liquidations, I would have been VERY annoyed if those long term options had been closed on me.

2. EVERY Spot position needs a solid stop loss.  Fortunately I had that.  The danger with Risk, is that is is unknowable until you suffer its effects.

3. Forex options are a better alternative to Spot.  These are still alive at least, and not subject to leveraged margin calls.

4. Leverage must be watched like a Hawk, and controlled to levels that allow survival in surprise events, as proven in the chart of trading success and leverage above.


Thursday, January 8, 2015

Stock Market Noise and B-S.

It took me a few days to finally decide on my New Years Financial Resolution for 2015.

Just one, its pretty simple – “Avoid listening/reacting to all the Noise and BullS$@t.”

Jan 9th and the market is in an uptrend, booming strongly again, despite fears just days before in the media of the Greek Exit from the Euro (Grexit - stupid catchcry legitimizing media name for something that hasn’t ever happened), more of Putin’s games, unrest in the USA, Oil up or down a dollar today,  etc etc.

It doesn’t really matter if you think that the market is manipulated or not, but its very easy to believe that retail investors are heavily manipulated. 

“They”, whoever “they” are, those men in dark suits, the Fed, Politicians, Wall Street etc, have that mastered to an art form.  Washington DC and most political centers around the globe operate on a 24-hour news cycle.  That keeps the public listening to what the politicians have to say about how great they are doing.  It is of course no different in finance and the markets.

Short news cycles keep the investor herd running from side to side in a state of flurry, boosting commissions to Wall Street, and destroying investor long term trades, allowing Investment Professionals to keep all the bigger gains.

Buying where you think it’s low, and selling where you think it’s high, or at fear of going lower – essentially buying wrong and selling wrong.  Simple.

How can investors avoid this trap of Masterful Psychological Manipulation?

First, is refuse to participate.  If you are not a deliberate day trader, watching CNBC or Bloomberg is really not going to help, unless you have the discipline to not make ANY trade decision on what you see or hear.  Better to leave it off.

Second, is to not make a trade based on a stock pick.  If it’s on telly – it’s too late more often than not.

Thirdly, and I think most importantly – There seems to be long-term macroeconomic shifts at play.  These are the trades to make.  A strenghtening US dollar, the coming of increased interest rates, a stronger US economy, weaker emerging markets, and even longer term is a recovery In Europe.  None of these are affected in the long term by whatever they decide to sell you in the media today.

Remember the media’s only job is to get you to watch and read regularly, to view or click on the ads that appear – not provide ANY sound advice.  Even worse than that is that it can become addictive!  So well are we conditioned and targeted towards emotional responses, cultivating a fear of missing out (FOMO) need to continue watching even if it is to our disadvantage.

“Its just noise and B-S.”

“What’s just noise?”

“It ALL is.  Except for the part that is B-S!”