website header 2

website header 2

Tuesday, November 21, 2017


“… though, it doesn’t help much with financial markets!”

Directly below the M5 for GBPJPY today … “look & weep” as the classic “Flying Wedge of Death” [FWD] makes another appearance right before tomorrow’s big U.K. budget and MPC BOE meeting results [4:30 A.M. EST], and of course the Thanksgiving Holiday in the U.S., which will kill trading action on Thursday & Friday in New York.

This is day 7 of trading GBPJPY, and unless something “magical” happens with respect to price, today will mark the 6th out of 7 days where either the 8-hour range [08:00 – 16:00] is 30% - 50% less than normal, or the FWD has been spotted. Today offers a “classic” case of why the algorithm is structured the way it is, and why it is sooooooo easy for traders to get in serious trouble on days like this.

First warning flag up the pole is the daily range coming out of the Asian session; for a cross to have a day’s range in the 20’s [PIPS] is exceedingly small, and as a result of this reversals are easy to effectuate, with double reversals or the FWD definitely in the cards. It all starts innocently enough, with a small rally that runs out of steam about 30 PIPS higher; traders who want to “jump the gun” and buy the dip before the 5 & 9 cross, end up taking successive losses or “triple up” or worse. That all ends with their sell stop getting flushed to the low at 148.63 on the spike down, only to see a rally back over 149.00 within half an hour. “Now, here’s the $64,000 question; how do you make this back if you got whacked”? This is the conundrum of low volatility, and why all the statistics for the 6 markets are included [and will be updated as we move forward into the future]; it is to guide you through periods of high and low volatility, so you have some firm footing underneath your trading actions. If you don’t know what’s “high” or “low”, how do you expect to sidestep action that could potentially hurt you?

Everything in the algorithm is there for a reason, and especially when volatility drops [like now], not only from an intraday perspective, but from a daily & weekly candlestick chart perspective as well, everything collapses on top of each other and all it takes for changes in signals are very minute, often random, price changes. That leads to a significant drop in the statistical probability advantage the algorithm offers … basically everything becomes a “coin flip”! The 121 & 183 EMA’s point towards higher price momentum when prices fall, and point towards lower price momentum when prices rise; the 5 & 9 signal generator gets “gouged” with price spikes a high percentage of the time, and nothing goes anywhere … you’re lucky if you escape with a PIP before the market takes it away.

This, of course, shouldn’t be a surprise to anybody that has read and understands the algorithm manual; no matter your method of trading, you better understand, as my mentor Bert would say, “What’s the form of your destruction”?  And, if you somehow don’t think you have at least one … “well Skippy, you better head back to the demo and do some more research, cuz I’m here to tell you “straight up”, that whatever it or they are, they will manifest themselves soon enough and carve you a new donkey, simply cuz you don’t know what they are. How can you solve or sidestep losses if you don’t know what causes them”?

When you understand the math of the non-Dollar crosses [do some numerator and denominator “what ifs” to prove this], you quickly realize that “low volatility” is not a high probability over time for crosses… and sure, like everything else, simply cuz it has to happen eventually in a “bell curve” normal distribution probability environment, there will be times it comes up and rears its head for all the world to see … this is “tail risk”; whatever your method, you got it … understand what it is and how to deal with it, cuz when it comes to trading you most definitely don’t get your cake and get to eat it to.

Problem is for most traders, and especially Newbies to trading, nobody out there [well almost, cuz I talk and write about it] wants to talk about “tail risk”, reward/risk profiles, situational awareness, & scumbag LP’s [to name just a few “unmentionables”] … and then how to use all of them to your advantage when possible. What you end up hearing or reading is, “it’s all roses & sunshine”, and everybody makes millions trading … just send $595 to … yea, you know the rest, and we’ll just sweep the unpleasant shit under the rug for you to find out about after you get whacked, and blame it on “shit happens” in the marketplace and move on … and you sit there, and don’t have a clue about anything except you’re substantially poorer, and then come to the conclusion, “well, the Pudding Business sucks, but this biz is bullshit”. MY RESPONSE: “well Skippy, remember college? Remember all the “genius” classes with the “genius” professors? Then you went out and got a job … how many minutes [no wait … seconds] did it take that first day, for you to realize that college was/IS the biggest scam in the history of the world? A retarded kitten could do your first job in corporate America, and you knew it; yet, you played the “get the degree” game and now here you are. I’m betting it didn’t even take you ‘till lunch time to figure out who to “schmooze” to get promoted, and who to ignore … well, trading is the same, only everybody is invisible and you’re matching wits with others like me, and of course the scumbag LP’s, who spend every second of every day trying to figure out how to screw with your account to their benefit … trading is simple; I never have said it is easy … your biggest problem is the space between your ears, and the delusional reality most people create in their heads about markets and how they should perform … they don’t, and coming to grips with making money in a probabilistic world that operates in “wave functions”, that aren’t at all like a regular paycheck, is most troublesome for a lot of people cuz they can’t wrap their arms around the math … and then, of course, they dwell on the “sizzle of the steak”, not wanting to think about the cut of the meat … well, there comes a day [usually sooner than later], and markets being predatory like nothing earth has ever seen before or since, you get eaten for lunch and it’s all over … back to the “Pudding Business” wondering what happened and why”.

Today, that early “sell stop flush” [to the new low] was a classic “fill you at the bottom” no matter where your stop was placed … orchestrated by dealers and large hedge funds [no doubt about this in my mind] to get themselves out of all the short positions at the bottom from your order, and now “goose” it higher and make you bleed. When it happened, I could hear the cries of anguish all over the world, it was so loud. The only thing that prevented me from getting long on the flush, was the fact the day’s range is so small … it doesn’t even come close to the 120 PIP range necessary from the “special situations” section of the algorithm manual … just because it looks, feels, and smells like a FWD, doesn’t mean it can’t go lower still; you have to respect the probabilities of success on this [low] when the ranges are small and not get caught up in dealer LP bullshit.

Coming into today’s trading, looking at the calendar for the U.K., Japan, and the U.S. [cuz it affects everything], tomorrow’s U.K. MPC [Monetary Policy Meeting], and release of the new year’s budget take center stage … that is a very big “red flag” that Cable action will be “choppy” and mostly position squaring today going into the events … expect some fireworks from one or both. Japan has been relatively “dead” for days now, and while adding some volatility, hasn’t been the driver of the cross these last couple of weeks. So, what else would you expect for today, other than a high probability for a FWD and/or “Doji”?

Late morning New York, and the LP’s and large hedge funds can’t help themselves, they just got to run stops … EXIT QUESTION: “What happens when you hit a new low inside a day with a relatively tight range, and the market refuses to lurch lower within about 100 seconds? Well Skippy, everybody is short and asking, “hey, where are the sell orders?”, and since there aren’t any … whoosh! … it’s up and away within seconds”. As I stated before, in the volatile crosses, you got no time to think … thinking kills. If you were short, your thinking should be, “stops hit off, no selling, I’m gone!” Sadly, there just isn’t time to stop things so you can make up your mind.

And so, on that late morning New York low, the 121 & 183 EMA’s finally turn south; and yet, when the 5 & 9 give the sell signal twice soon after, they both go nowhere or lose a few PIPS. Why? Cuz the range is less than 70 PIPS, and trading action is constricted. So far, in 7 hours, we’ve seen a new high, a new low, almost back to the high, a new low, and now a rally back to the middle … welcome to dealer stop hunts and position squaring ahead of tomorrow’s key events in the U.K.

Quite frankly, about 2 hours into this clusterfark, after the new high, then new low on “vapors”, and a rally back above 149.00, it was evident to me this is a day to leave the hell alone; quite simply cuz if you lose there is almost no way to make it back combined with the distinct possibility of making things worse … keep the powder dry for when it matters, not on POS position squaring days ahead of a major reporting event. It is what it is.

I am in the process of finishing up the 8-hour & weekly data for the other 3 pairs [GBPCAD, EURGBP, & EURUSD]; it won’t be long, and I’ll have all the data for viewing and/or download over in the “Download Links” section of the website. I will say this: in my own account I’ve been trading all 6 pairs, and am most impressed with the signal generation of the algorithm in EURGBP and GBPCAD. And while EURGBP lags a little in terms of overall relative volatility compared to the other crosses, it has 3 things going for it that make a huge difference; 1) signals generated make moves that can be captured without large spikes [although they do occur, make no mistake], 2) PIPS are in GBP, which means they’re worth approximately $1.32 per 10,000 you trade; that’s over 40% higher than PIPS in GBPJPY, and 50% in GBPCAD, and 3) the spread is excellent, coming in around 2/10th’s to 3/10th’s of a PIP most of the time, and often lower than that at 1/10th of a PIP. So, when EURGBP has a 50 PIP range, that’s about equal to GBPCAD having a 100 PIP range, and the cost of doing business is a lot less … there’s more in EURGBP than meets the eye on first glance, and don’t be surprised to see me trade it in the days ahead, especially if GBPJPY continues to sit and waste away in tight ranges.

Late in the day, and maybe things change, but I doubt it … this day is simply a waste until tomorrow morning, when all hell breaks loose at 4:30 A.M. EST. I’m not prejudging anything, but the promise of higher rates, inflation, and robust economic activity for the U.K. is a “pipedream” … it’s gonna be a long time until they see that scenario. Nonetheless, if the trade is short, along with MPC comments on rate hile possibilities, Cable could take off. I dunno, we’ll see … all I want is more volatility, and to see expanded ranges into the norm for this pair.

I’m outta here … until tomorrow. Onward & Upward!! PAMM spreadsheet directly below.

Have a great day everybody!



No comments:

Post a Comment