website header 2

website header 2

Friday, March 3, 2017


“Sadly, your country died a long time ago Tom.”

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!

No comments:

Post a Comment