Well, it seems I was off a day; today a whole gaggle
of FED Pie Holes take to various podiums all over the fruited plain in the
afternoon, no doubt to get another freebie chicken dinner, and totally reassure
us all as to the need to raise interest rates into a lackluster, sagging economy
and just how much “everything is F-ing
AWESOME baby”!
So once again, the entire financial world is on hold
as everybody gets to “hurry up & wait” for the soothing words of ChairSatan
Yellen & and various other members of the Keystone Cops that no doubt will
comfort all of us in thinking that they know what they’re doing; if anybody can
stay awake deciphering this pile of steaming BS without needing psychological
counseling afterwards, a 6 digit gig at a wall street brokerage house awaits.
Once again, except for gold, where it appears Asian
traders got the email that U.S. rates are rising, the dollar is rallying, and
that holding their favorite pet yellow rock might not be such a good idea right
now from $20+ higher, they just didn’t want to wait any longer and simply sold
last night; everywhere else it’s … crickets!
European capital flows and European trading having
simply vanished this week … get ready for more of this to come as it looks like
the financial elites of Europe are in “Full Metal Jacket” panic at the thought
of Gert Wilders being PM of the Netherlands … an amazing coincidence that the
Fed meets to raise rates [“we’ve all been
told this now, so it’s a “done deal” right?”] at the same time the
Netherlands have their election; and if Gert wins [he’s ahead in the polls for
what it’s worth] you can kiss the Euro goodbye at the same time rates are
raised in the U.S. … “Wonderful timing
Fed, simply wonderful”! I can only assume that if Gert wins, the Russians
are behind it; after all, what sane person wants “borders, language, &
culture” when you can have unchecked refugee immigration and E.U. Apparatchiks telling
you how big your toilet seats can and must be? “And if Gert wins, do I really have to tell you how much momentum that
would give the French, who just a few weeks later have their elections, to
maybe elect Le Pen, and if that happens what happens to EURUSD and the
financial makeup of Europe”?
So, hang onto your hats, because as quiet as it is now
… going forward into next week and after, things are likely to go to DEFCON 1
on the financial “trade-O-meter” … where gold goes I haven’t a clue … however,
USDJPY is a different story, and the action here will see a dramatic increase
in daily HVALUES, daily ranges, Asian & European trading, and most
importantly intraday volatility. Things are about to “heat up”.
Ok, here at the NY open, after watching paint dry for
5 hours, USDJPY has a 28 PIP HVALUE … no comment necessary as I’m thinkin’ you
know what I’m thinking”! … again, no action cuz everybody’s waiting and
wondering … PMI due out at 11 NY time, but quite frankly until Yellen &
Fischer start speaking “in tongues” to the anointed Fed watchers whose job it
is to tell big money what they mean, most likely “hands will be placed under
butts” and not punch order tickets.
And gold here at the NY open? Well, after the Asian
traders decided “no mas”, and Mrs.
Wantanabe made the liquidation phone call at or near the Asian close, it’s been
… “crickets”. And really, since that
time, gold has been in its familiar “let’s screw everybody” mode with shots up,
shots down, back up, back down, in a $2 range with dealers handing out 60 cent
off the market fills to all comers; “thank
you, come again”! However, just let me remind you of what usually happens
when Asia sells gold off … “that’s right,
New York at some point puts in a good rally that makes them all look like
chumps at the poker table. If it wasn’t for Asia, I’m wondering if the New York bullion banks
could survive”.
I think today would be a good time for some
definitions and historical perspective for Newbies to the website and those
who’ve been readers/clients for a short while. First, the definition of HVALUE
[high value] & LVALUE [low value]; HVALUE = THE HIGHER OF 2 VALUES; either
1) [Days OPEN – Days LOW] or [Days HIGH – Days OPEN]. And, therefore the LVALUE
= THE LOWER OF THESE 2 VALUES.
Second is the “Profit Ratio”; Profit Ratio [PR] =
HVALUE / LVALUE. What this ratio represents is how theoretically profitable a
market is, represented by a number, in moving in a trend direction for a day so
that we can capture profits; the higher the number, the better the market for
algorithm purposes because it is trending [up/down] and giving us good trading
signals we can take advantage of and make money in that [up/down] direction for
that day.
So, to put all of this into perspective, I can compare
markets across asset classes, and using the PR, I can tell which markets are
good to trade, and which ones to avoid; over
the years and decades, USDJPY has the highest PR of any market, with an
approximate long term average of 4.3. In addition to that, the historical data
for USDJPY says that approximately 78% - 80% of all trading days have an LVALUE
of less than 40 PIPS. This is the reason for our first algorithm rule of
“no trading” until the HVALUE = 40 PIPS or greater. What this means is that
since we know the HVALUE = 40 +, if the market reverses course and puts in a
reversal day, that HVALUE will then become the new LVALUE, and that only
happens roughly 20% of the time; why get caught up in figuring out which way
it’s going to go when the probabilities so clearly tell you? This is why PR’s
are so important, because the higher the number the truer the trend for the
day. So, if you were a time traveler and came back to today and only told me that
tomorrow USDJPY is going to have a PR ratio of 7.2, I would make a fortune
trading this market tomorrow. Likewise, you tell me it’s going to be 1.4, and
I’ll stay in bed. And when we get this type of normal trending PR day in the
version 3 volatility algorithm, the PAMM/MAM is going to be doing very well.
And as I have stated before, the data is clear; when
the HVALUE for the day in USDJPY is less than 40 PIPS, historically the PR =
approximately 1.6; when the HVALUE for the day in USDJPY = +40 PIPS, the
historical PR = approximately 4.3. Now, you tell me why you would want to do
anything on days when the HVALUE is less than 40 PIPS? Most often times, these
days will cluster and they come bunched together around Holidays and important
trading events like central bank meetings, etc.
Ok, taking a look at the calendar, we got a gaggle of
loose lips Fed speakers today, Fed meeting and elections in Europe in 2 weeks that
will change the entire continent if they go a certain way; we also got Trump
and all that comes with his Presidency, and a stock market that has no clue
what gravity looks like; “what could
possibly go wrong here”? Is it any wonder “big money” [especially after
getting burned so badly a couple of days ago] doesn’t really want to make a
“statement” here and start taking large positions and moving USDJPY?
Having said all of this, of course there will be
exceptions to the rule, and you can find days sprinkled over the course of 4
decades of USDJPY trading where fading the rules would have put some good money
in your pocket; what you need to know is that you most definitely need these
days to offset the complete and utter destruction you’ve experienced in trading
in all the other days to just have an account left to trade; not a very good
trade off in my humble opinion.
When I meet people, or when they email me looking for
some trading answers, and ask me about my most “memorable” trading days of
“killing” the market, or about the crash of ’87, or anything else related to
making money, while interesting I guess, it misses the point; the days I’m most
proud of, and the days I recall the easiest are the days in which I actually
lost some money trading [small amounts, never large]. Everybody knows, every
dog has his day; all traders know there’s a bullet out there in a gun aimed at
their head, and the question is, is it my day to be in the “crosshairs” of the
trading Gods? Not if, but when that day comes, how you gonna handle it and what
are you going to do about it; can you handle the truth and stare into “the
abyss” and figure out what the problem is or was?
Having a career as a professional trader is about failing successfully; surviving the
“learning curve” to be able to treat failure as vital information worth more
than money. So the question becomes, did I fail because I did “stupid poo
poo” or is there a problem with my trading model and/or approach to the market?
More often than not “stupid poo poo” wins in a landslide.
What you learn very quickly in this business [cuz if
you don’t you won’t be around very long], is to make failure cheap and inexpensive relative to the information about
the failure; it doesn’t do you much good to wipe out an account and then
look back and say after you’ve returned to the “Pudding Business”, “gee, if I hadn’t lost that 20K on that
Tuesday I think I could still be there doing it”, cuz you ain’t there
anymore and there isn’t a free 20K laying around under the seat cushions in
your couch to get it back.
When I first started trading the PAMM about 9 days
ago, in a metaphorical sense, that “abyss” was tapping me on the shoulder while
I was staring at losses that shouldn’t have been there; my probability model
says it shouldn’t have happened and that it was a “fluke” of extreme “not gonna
happen in 100 years of trading” kind of
thing. And I’m sitting there and thinking [correctly], “no, it isn’t tail risk hitting, the model is faulty and needs to be
scrapped, fixed, or changed to reflect profit reality”. And it dawned on me
pretty quickly what the problem was, cuz the failed trades pointed it out to me
in spades; I mean, the math was literally screaming at me! The few hundred
bucks it cost is meaningless; the information gained is priceless. Now, don’t
anybody get the wrong idea here; back in the day when I had $15 million in a
trading account, and I literally would lose a $1.98 on the day, I wasn’t
exactly pleasant to be around until the next day. I would spend some time
analyzing what went wrong [usually “stupid poo poo”], and once in a while I
would have to make a minor algorithm fix. I frickin’ hate losing; but I put it
into perspective as a necessary evil that has to be confronted in order for
there to be a gain. Without the potential of the former, there can’t be the
latter; the universe doesn’t give you something for nothing, and if I have to
have a loss I want it to give me back many times over valuable information that
is far greater than the few bucks I donated for continuing education in
trading.
So, for you Newbie traders and veterans alike,
understand that going through your career trading, and I’m assuming you want it
to be longer than a Johnny Depp relationship, your first priority in trading
your model or algorithm has to be to avoid losses of any significance to your
account’s capital; losses are inevitable, but they have to be relatively cheap
and inexpensive. Learn from losses, and come to the correct solution if
necessary, realizing most of the time you are at fault, but have the moral
courage to “look into the mirror” and admit failure of your model and then fix
the problem if that’s the issue. Now, you can set your sights on profits!
I spend the vast majority of my trading day analyzing
where the “land mines” are out on the trading battlefield; what’s important and
what isn’t; where are the spikes most likely to come if they come and I’m in a
position; where are the stops to help me and where are they located that could
hurt me, etc. All of this is about risk avoidance; avoid losing money of any
significance, and it doesn’t take very long to “escape to success”.
All of this taken together can be highlighted into
today’s USDJPY trading; an HVALUE = 34, LVALUE = 28, & a PR = approximately
1.2 as I write; maybe Fed Pie Holes can wake the market up, but I doubt it.
When I go into a day, my goal isn’t to make 120 trades for a PIP; this is
suicide, cuz some of those you’ll get caught up in spikes and take 15 – 20 PIP
losses. As you will see when I post the new manual on Sunday night for the
version 3 volatility algorithm, there is no need for a scalping algorithm cuz
that can be incorporated into the signals of the version 3.
What I want to do, and what makes sense from a trading
perspective is to assume the least risk possible while capturing a decent sized
move in the market; if the market forces me to scalp, so be it, but that’s not
my primary objective. What eventually tells us by the end of the day [Europe
& U.S.] if it was a good trading day is the PR, the higher the better, and
generally speaking the lower the worse the trading conditions for making money.
Looking at today’s PR=1.2 and you really don’t need to know anything else about
today other than it was/is crap, full of dips, spikes, stop hunts, and most
likely a ton of scratch trades. Thanks, I’ll stay put and watch the carnage.
Low PR’s don’t automatically mean you lost money, just
that opportunity for extended moves weren’t there if the HVALUE was below 40.
On huge reversal days, where the HVALUE could be 150 PIPS and the LVALUE COULD
BE 100 PIPS, the PR would be somewhat misleading, but this happens in USDJPY
< 1% of all trading days. So, it’s a very good indicator of daily money
making opportunity.
Ok, Fed Watchers got Yellen’s prepared comments at 1
P.M. New York time, and after throwing some chicken bones against a wall somewhere
for guidance [aka “research”], some saw a special “horse & squirrel
formation” from the displaced bones and went gaga about buying, while other “research”
department USDJPY experts saw the dreaded “one legged dragon” version from the
mess and decided to sell. FX dealers, quick to please everyone, took it up to
new highs for the day to fill the longs, and then in 3 minutes filled the sells
40 PIPS lower as well. “I just love it
when everybody can get their wishes fulfilled at the same time”!
Well, it’s officially 3 P.M. in New York, and looking at the stat sheets,
unless somebody does something really stupid [quite possible] going into the
close, we’re gonna end up with a 39.7 HVALUE for the day, along with an LVALUE
= 28.2, for a PR = approximately 1.41.
In any event no matter what they do, this is now the
time to “pull the plug” on USDJPY today with no trades; with 2 hours to the close, there’s nothing
here but trouble. Once again, the volatility algorithm rules save me from a day
of pure heartburn … and if you traded gold today by chance, you have my
condolences in advance of knowing anything that you did.
There are some major lessons from today everyone
should be cognizant; 1) I don’t violate algorithm rules, 2) when it’s time “to
sit”, I sit, and when it’s time “to trade”, I’ll trade, but I don’t ever
gamble, and 3) the only inmate here at Traderzoo that “wins” in the long run is
“Patient Bear” below.
Patient Bear is patient, and sits and waits for his
honey; he has discipline and doesn’t like it when markets get messed up, but
understands that’s part of the process and realizes to get his honey and “escape to success”, following algorithm
rules is the only way. Tomorrow is another day; opportunity is infinite, capital is finite.
End of week PAMM spreadsheet directly below.
The dog loves me again today, the beach beckons, and
it’s a Chamber of Commerce day down here in Paradise,
so what’s not to like about I’m so outta here? I’m sooooooo outta here … new
manual Sunday night … until Monday mi
amigos!
Have a great weekend everybody!
-vegas
OUR ‘TURNKEY FOREX’ PAMM/MAM
IS NOW OPEN AND OPERATIONAL; SEE “PAMM/MAM MANAGED MONEY PROGRAM” IN
“DOWNLOAD LINKS” SECTION IN RIGHT HAND COLUMN FOR DETAILS [VIEW ONLINE AND/OR
DOWNLOAD] AND START YOUR JOURNEY FROM WHERE YOU ARE AT TO “ESCAPE TO SUCCESS”!
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