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Wednesday, February 1, 2017

WINNING THE WAR ONE BATTLE AT A TIME

“Everything starts with an idea and goes from there.”


Since the dawn of electronic trading, starting in earnest around 2001 – 2002 when high speed internet started to become widely available, it has been all out war in the financial trading biz; there have been 3 sides in this war, 1) large multi-national banks [the world wide big TBTF institutions] that dominate financial trading in almost every market, 2) the exchanges, most notably the CME in Chicago that have tried and failed to keep the “status quo” for their own purpose, and 3) the retail & institutional trading community that every step of the way has been treated like pond scum by #1 & #2 above, and looked upon the way a parasite looks at a host.

And since day one, when I first laid eyes on an electronic trading screen and then quickly discovered the joke was on us, what with spreads and commissions that would make Vito Corleone blush, and realized and thought to myself, “OMG, there has to be a better way than this; this is [net cost] so far away from what I’m used to on the trading floor it borders on being criminal; there has to be something better before I get involved in this.”

 Sure enough, if memory serves me, along came Metatrader around 2003 – 2004 with the MT4 trading platform; at first created to serve the brokerage house community so that houses didn’t have to start from scratch in producing a viable trading app. But it wasn’t brokerage houses that demanded MT4, it was customers when they realized it could be “programmable” with your own proprietary computer code to host whatever algorithms and/or trading methods you wanted to use. In the beginning the brokerage houses didn’t like this because they wanted their own proprietary apps so that you couldn’t leave the house and go somewhere else to trade; if you did, the trading app you were used to wouldn’t go with you and you would be forced to learn something entirely new.

Well, guess what? Customers won, and now fast forwarding 10-15 years to present day, practically every house and bank in business uses MT4. But, problems remain from the early days, especially wide spreads, unreasonably high commissions and issues like stop running and slippage on market fills. Add it all up, and most retail traders are behind the proverbial “eight ball” right out of the entry gate on a position; winners get eaten alive with fees, and losers feel like you got mugged in an alley.

I have been screaming for years [and a lot of them at that] at anybody and everybody in the banking and brokerage house community that their best interests lay not in screwing customers, but in allowing the entire world institutional spreads and rates to trade; “You want more business? You want more trading? You want more money flowing into your brokerage house and/or through your bank trading department? You want clients who won’t leave because they know they are getting the very best in spreads, fills, and low commissions?” [Customer service isn’t included in this, because as everyone with an account anywhere knows after 5 minutes, no matter what they say, their CS sucks compared to what we really want, and they aren’t spending the money to get the right people to do the job; what we get are most likely low level rejects from telemarketing companies.]

And then they all shake their heads in agreement when you meet them or talk to them face-to-face, and say to you “Yes, certainly!”, and then turn right around when you leave and go back to habits and customs that show you they are total scumbags. If I had a Dollar for every brokerage house exec who has lied to me, I could buy one of Trump’s penthouse suites. 

In the face of this onslaught against our wallets, victories have been few and far between; only over the years has the bank/brokerage house community lowered spreads to the bottom of the acceptable [certainly not great] range … but here again, compared to what institutions pay we are collectively getting screwed, and while they brag on their websites about their “best spreads in the industry” [they aren’t], they don’t want to talk to you about the $7 or $8+ commission rate tacked onto everything you do … factor in some slippage, and the bottom line is you’re still paying 1.5  PIPS [best case scenario] to 3.0 PIPS [worst case scenario] net trading cost for the majors … and of course, it escalates from there when you get into the crosses where it can easily be 4 – 8 PIPS net cost to make a trade. Add all this up [which I have done on numerous occasions here on the blog] and you are giving the brokerage house and bank 10 – 20 times the size of your account every year in fees!


Just a couple of short years ago [2 to be exact], I remember Assts FX execs telling me what a great deal trading GBPNZD was at 6.8 PIPS spread + a $5.20 RT commission; add it all up and convert to Dollars from Kiwi and you’re looking at a 9 PIP spread; I told them, “you are out of your f-ing mind if you think I’m paying 9 PIPS to trade anything; save the speech for some rube from Finland”. [It was at that point I stopped receiving “Holiday Greetings” at Christmas time.] And so, the trading biz has had its “ups & downs” over the last several years, with a few won battles, and some disappointments as well.

Through it all, and I actually thought about forming my own offshore [meaning of course “NON” U.S. based] brokerage house about 5 years ago, I kept thinking that there has to be “somebody”, somewhere, who “gets it”; meaning, somebody who could do the legwork and get the institutions to go along and we could trade like a large hedge fund with minimal cost. It’s a “win-win” for everybody, but the industry remains stuck in the dark ages cuz they think we are all idiots and don’t care about trading costs.

The bottom line of all of this is that I have tentatively “struck a deal” with the PAMM, and things should move quickly from here in getting things set up and ready to trade; finally, after years, I get what I want. Please, for those of you interested in this, don’t send money anywhere or open additional accounts; until I get this finalized there isn’t anything to do, so just sit and relax. When the time comes, I will have full instructions even our head of security Butch can follow, so no need to do anything now but wait … like in a lot of business things, people change their minds, deals can fall apart, and companies can change business models. Until things are set in stone, nothing is set in stone, but as it stands right now you’re gonna like this a lot! Of course, I’ll have more details in the days to come as things get accomplished.

Turning to today’s trade … gold is acting like a meth addicted teenager … USDJPY subject to every rumor in the solar system with stops on both sides getting plundered and every 10 cent move in gold amplified in USDJPY by a factor of 5X … in other words, situation normal.


I want to highlight Cable today [GBPUSD for the uninitiated]; this market is as good as USDJPY, but without the cross asset hysterics associated with “risk on/ risk off”. As long as HVALUES & daily ranges can remain where they are generally at right now [which with Brexit uncertainty news every day, seems likely for a very long time], this is a very good market to trade. And with some surprises thrown in every week or two, this market will give you all you want and more in terms of volatility. Directly below, a series of GBPUSD scalper algo trades from today.


[Note; click to enlarge all charts]

There were 9 trades, 7 were winners and 2 were losers or scratches; by my math it looks like somewhere between 50 – 70 PIPS depending on execution when liquidating, and like I say, “you can be the absolute worst trader in the world getting out of a position; all it means is you get rich slower than others! Entry is 99% of a profitable trade; without proper entry you’re fighting the whole process … spread, commission, and your emotions. The scalper algorithm can be combined with the regular volatility algorithm and thus when you find yourself up on a trade immediately by 4 or 5 PIPS you can “free trade” it; meaning, let it continue to run in your profit direction until either exhaustion line or large spike since entry where you liquidate. Rinse, repeat, rake in the money”.

More than just about any other market, GBPUSD “spikes” near the end of moves; sometimes you get an RM=1 exhaustion move, sometimes you don’t. When you see this kind of action, red flags should start going up in your head that there is a good probability the move is ending shortly.

Another great day down here in Paradise … great weather, great beaches, great water, and some great golf as well. Until tomorrow … I’m so outta here.

Have a great day everybody!
-vegas


 

 

 

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