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Thursday, April 26, 2018

MUSICAL CHAIRS & MONEY

“When the Cable music stops, it turns ugly quickly!”

OK, got the “Google Sheets” spreadsheet working again last night … need some 
time to get it all loaded into the document, so what I’m gonna do, is do it this 
weekend, and post it along with the GBPUSD algorithm on Sunday night ...this 
gives me time to get it done so I don’t screw it up, and also gives me more time 
to get the GBPUSD algorithm finished before Sunday night as well. 

More than any other group of markets, the FX pairs turn faster and more 
vicious “when the music stops”, and momentum turns to the other direction 
… and while not all the time vicious and quick, most of the time you aren’t 
gonna get a second or third chance ...and leading that cabal of volatile markets 
is Cable, which most of the time makes other Dollar pairs look tame by relative
comparison. Don’t misunderstand, I said “relative” … none of these pairs are 
“oat spreads”, and every one of them has their “moments” of insanity where 
“stupid shit” can get you carried out the door “toes up” at room temperature.

And while I may sometimes [not always to be sure], early in the trading day, 
look for a scalp from either side on straight up/down action, latter in the day 
when the range for the day is better established, I won’t go near trying to buy 
near the low or sell near the high … why not? Simple; “you have no idea the 
amount or scope of the stops that are ready to be taken out in the next 
nanosecond, and therefore cannot put any kind of risk evaluation into your trade 
… in other words, you're flying at night, with no instruments, in the mountains 
with zero visibility … what could possibly go wrong”?

Which incidentally, brings us to 15:30 server time today in GBPUSD, where 
price is hugging 1.39250 … and then BOOM! … and just like that, the spike 
down to 1.39024 [the days low at 1.38949], where if you were thinking of 
maybe being long with a stop at 19 or 20, you got filled at 1.39024 absolutely 
guaranteed. Directly below, the M1, with the 15:30 minute under the aqua 
arrow.


Ditto on the way up, before the Super Mario ECB presser, when the market 
was making new highs … if you continued to “get short” the 5 times it made 
new highs for the day up here, using reversal patterns to establish short 
positions, all 5 times within a minute or two you were covering for losses.  
“How many times are you willing to do this and get it stuffed up your nose”? 
Finally, as the market approaches and looks certain to bust through 1.40000 
and set off a new wave of buy stops to bury you, you cover and admit defeat, 
and then go long. Directly below, here’s the action I’m referring to, where the 
aqua arrows are the short positions, and the white arrow is the capitulation 
and then getting long at the high of the day, where it promptly goes  
“Thelma & Louise” a lot faster than you thought possible.


My point here is simple: “can you tell me, in either situation, what your risk is 
beforehand”? … SHORT ANSWER: “No, not a clue, cuz nobody knows … not 
you nor anybody else has any idea the level of panic on the other side … is it large 
or small? … will the stops gap this stuff or will it be orderly”? And so, it’s not a 
question of “IF”, it’s only a question of “WHEN”, where at some point it’s 
gonna be large like the Pacific Ocean and tsunami your donkey … “you can’t 
play Russian Roulette an infinite number of times with a loaded six-shooter and 
expect to live”!

I bring this up today, cuz I got a few emails from people, who ask “don’t you 
just sell the rally, and when it drops cover for profit, or BTFD and liquidate on 
top”? [OMG! If only I had thought of that … what’s wrong with me?] MY 
RESPONSE: “Are you Bill Gates or Jeff Bezos? Do you have unlimited capital? 
Can you just blow through an account and shrug it off, like lint on your pants, 
and then go raid the seat cushions in the den sofa for an extra $100 K and try it 
again? The devil is always in the details, and without a rigid risk parameter 
mechanism, your career as a trader will be very short lived. How many of the 2 
examples, just from today’s action, do you need to see to realize that in FX, 
especially something like Cable, this is the dictionary definition of “stupid shit” 
… so don’t do it”.

Turning to today’s GBPUSD market … I’m beginning to believe that ECB 
interest rate decision days, especially when Super Mario has a presser, are on a 
par with NFP Friday’s, as my least favorite trading days of all time. It’s no 
secret in the biz, that Super Mario is a “loose cannon” … his history of  
“foot & mouth” disease with financial markets is legendary, and goes back 
years, as time after time he ends up “sandbagging” markets with torrential 
volatility. And while he represents The ECB and not the BOE, make no 
mistake GBPUSD will also be profoundly affected through the EURGBP cross 
… why should today be any different from this assclown? “And viola! … he 
doesn’t disappoint, now does he”? To say I’m not fond of Super Mario days is a 
gross understatement!

Coming into today’s market action, I’m very leery of selling GBPUSD right out 
of the 06:00 server time gate … selling a market “in the hole” [meaning as it’s 
going down with no rally] does you no favors, even though sometimes it works 
… I would remind people, everything has to work eventually, so what does that 
prove? In any event, looking at the daily candlestick here at 18:00, it looks like 
a nondescript “doji” day with a slight negative [red] bias … a little up, a little 
down, ho hum another day. “Oh, did I forget to mention the 50 PIP break, 
immediately followed by the 100 PIP rally, immediately followed by the 95 PIP 
break, immediately followed by the 30 PIP rally to the middle? Oh yes, a trend 
followers dream NOT”! 

And all this simply a “prelude” to tomorrow’s “release the Kraken!” moment 
with U.K. GDP numbers at 08:30 server time, followed 5 ½ hours later with the 
BOE’s Carney giving a speech at 10:00 A.M. EST. The fear index of what could 
go wrong here is off the charts mi amigos.

EURUSD had a “double reversal” today with sizeable range … the last time this 
happened, was I believe back in December 2015, when Super Mario reversed 
himself mid-presser and “sandbagged” both the DAX30 and EURUSD. Cable, 
for its part almost had a “double reversal”, and somebody sure as hell tried to  
“get ‘r done” @15:30 from the chart above. And while I would love to release 
the volume hounds and let millions fly with the eagles, I’m not crazy about 
double digit percentage losses a real possibility when Apparatchik Pie Holes 
start talking and change the direction of markets in a nanosecond. 

A bunch of trades today … PAMM up slightly, but nothing significant. 

I tried being short on the leg up, and had to cover as Cable came back and 
rallied from very short breaks … I tried to be long as it was going down, but 
had to liquidate as it fell back from higher levels. In short, for an almost  
“double reversal” day, I never got really caught, just liquidated when I had to 
cuz it simply wouldn’t move in the desired profit direction during this crazy 
ass day … it was only about a 104 PIP range day, but felt triple that, given the 
roller coaster ride courtesy of the ECB. Overall, happy with the fills and 
execution today, although one long trade filled me almost a PIP higher which I 
promptly liquidated at a slight profit … granted only 1 PIP, and I’m not 
complaining, simply saying I expected a better fill and didn’t get it … and when 
it didn’t move much more in my profit direction, I liquidated it.

I had planned on writing today more about the GBPUSD “ONLY” algorithm 
… I decided to save that for tomorrow, so people can see it over the weekend as 
the most recent blog post. Just as a short summary, it’s structurally very simple 
to understand and implement … there are portions of it, that I know for a total 
fact, scumbag LP bank trading prop desks [that would be their proprietary 
accounts traders trade for the bank] use religiously [outside the U.S., they can 
do this] … I have always added a “filter” which takes away some profit, but 
almost eliminates daily risk of loss [I said “almost”]. I’ve “modified” the 
original algorithm cuz we now trade electronically 24/5, versus pit trading 
days when the U.S. ruled the world and controlled 99% of the daily action. It 
worked to perfection back-in-the-day, when minimum ticks in the Pound 
futures was 2 ½ PIPS, 1 lot = 62,500 British Pounds, the daily ranges were on 
the order of 200 - 350+ PIPS. and they called it on the floor “The Widow Maker” 
 for a reason.

Many readers are probably wondering why I haven’t brought this algorithm 
up before, and why now? The reason is simple: up until very recently, like last 
year when Turnkey went live around January 2017, Cable spreads have always 
been notoriously high; 5 PIPS for most of the time between 2000 - 2014, and as 
recently as 2015, when I was trading through ASSETS FX [Finland], their 
Cable spread was down to approximately 2 ½ - 3 PIPS, with another half PIP 
added for round turn [RT] commissions … sorry, that ain’t gonna get me to 
trade it, cuz it’s still too high versus other FX pairs, and when the market slows 
down, you can’t get the damn thing to get out of the spread! Now, of course, 
our “net” cost to trade Cable is approximately 0.6 - 0.8 PIPS, which makes a 
helluva difference.

It most definitely isn’t cuz I forgot about it, or wasn’t interested in it. Since a 
couple of months before “Brexit”, up until the end of 2016, not only was the 
spread still too high, but the market was full of daily “Brexit” rumors that 
buffeted this stuff around like a ping pong ball … add to that the nightmare of 
October 6, 2016, where minutes before the Asian session open, in one M1, the 
scumbag LP banks took Cable from the 1.26000 level, down to the 1.16000 level, 
and then right back up like nothing had happened. A move of 1,000 PIPS lower 
and then immediately 1,000 PIPS right back up, and in the process destroyed a 
shipload of accounts. That brings us to 2017, and the daily rumor mill didn’t 
stop, culminating in December 2017 with some days that were truly “off the 
charts” in terms of “stupid shit” trading action. Thankfully, we seem to be over 
it now here in 2018, and Cable can go back to being its normal crazy self … as 
today demonstrates, it sure doesn’t need any help!

Tomorrow should see some heavy action, and it remains to be seen what 
Carney will say come 10 A.M., and how that affects GBPUSD. The “bar” is set 
pretty low for U.K. Q1 2018 GDP, as the consensus for YOY growth of 
1.4% - 1.5%, and for QOQ of 0.3% - 0.4%. Anything deviating substantially 
from this, and we could see some very sharp moves. If the numbers are “hot”
does that mean an interest rate increase in on the table for May 10th? If the 
numbers “disappoint”, how can you raise rates with such anemic growth and 
not expect to kill the economy? Anybody but me see the problem here for the 
BOE? And more importantly, if you raise rates, is this the only bullet in your 
gun for a long while down the road, and we end up seeing “buy the rumor, sell 
the fact”?

In any event, it won’t make any difference to me cuz I’m trading based on the 
algorithm and nothing else. All told, I didn’t expect much from “Super Mario 
Day”, cuz either it’s bat shit crazy and you can’t get in to your advantage, or 
people yawn and say, “see, I told you he was an idiot” and nothing happens 
waiting for tomorrow’s GDP & Carney speech … either way, not an optimum 
situation, but something we just deal with and move on to tomorrow. I’m outta 
here … until tomorrow mi amigos … Onward & Upward!!

Have a great day everybody!

-vegas

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