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Friday, April 27, 2018

THE CERTAINTY OF CHAOTIC UNCERTAINTY

“Behold, the mind of the perfect trader!”

Before I get into today’s Cable market action, I want to explain a little bit 
about the origins and premise behind the GBPUSD algorithm I’m gonna be 
posting Sunday night. You first have to reset your head right and go back to 
the dawn of modern financial derivatives trading, and that puts you in the mid 
1970’s, where a novel concept emerged from the CME, and that was currency 
futures. Up until that time, all trading was either grains, livestock, foodstuffs, 
or products like lumber & cotton. Older, veteran traders were used to  
“muscling” markets around and imposing their will upon a trading pit. Now 
comes currency trading, and “wet behind the ears”, 21 year old pit brokers are 
slinging numbers for financial institutions that are mind boggling … the two 
groups are gonna clash, and it ain’t the brokers or the financial institutions 
that end up going out the door “toes up”.

Sure, there were droughts and famines that drove markets every few years, but 
there wasn’t anything that prepared the industry for the coming volatility in 
currencies, and right up there at the top was GBPUSD. Fact is, this thing was so 
volatile, the futures contract is/was half the size of all the others, and as I 
alluded yesterday, it’s nickname of “The Widow Maker” was well deserved.

And the reason a guy like Bluto Blutarsky is a perfect allegorical metaphor for 
the perfect trader, is the fact he only knows, cares about, and concentrates on 
things that are right in front of him, right frickin’ now … forget fuzzy 
intellectual concepts, perceived “fun-der-mentals” of a market … all that is 
“chum” for the dumbass masses … “all I give a shit about when I’m here, is can 
I buy it at “1” and sell it at “3” or vice versa … Yes? … great count me in, and 
leave me the hell alone while I’m “money changing”, here at the temple”. And if 
you’re “smart”, you’ll pay some attention to guys like these, cuz not only do 
they have more experience than you, but they are rooted in “right now” … and 
with it, the attendant deep philosophical question of, “hey, am I makin’ money 
or what”?

When I first started trading Pound futures, the scope of the volumes being 
traded, the lightning fast moves it made, the wide daily ranges, and the pure 
unbridled fear & greed on display was truly frightening … this stuff scared the 
shit out of me … and every day was a new and wonderful trading day in pure 
terror or “lifestyles of the rich & famous” … and it was through other trading 
veterans, plus my own experiences, that I put together this trading model for 
GBPUSD … and it worked extremely well, but not so great in other FX dollar 
pairs, cuz they didn’t have the same characteristics as Cable. Meanwhile, other 
pairs began to dominate FX, and the “hot money” flowed to Swiss Franc 
futures, where volumes exploded, and the pit action was more reasonable and 
tame … I still traded Cable, but I started to concentrate solely in Swissy.

Fast forward to today … the Swiss government has ruined trading in the Swiss 
Franc; today it’s a poor reflection of EURUSD, and about the only action it 
receives is through the EURCHF cross, which is as dull as you might expect. 
Cable, though, still the “Dragon” beast it always has been. So, what I’ve done is 
“modify” the algorithm for todays 24/5 market environment, but other than 
that, there aren’t any changes.

The premise is simple: it’s “momo” based, meaning short term market 
 momentum is the key to success … and as volatile as this stuff is, it’s still hard 
for this stuff to “sit” for any length of time; it just doesn’t consistently do it, 
and when it feels like it maybe might do it, you look at the ranges and realize 
they are still very good. 

There are 2 critically important concepts, though, that you have to master; 
1) you can’t think, you just “do it”, and 2) the algorithm is very flexible to 
adapt to your style of trading, and therefore can fit into anybody’s “game plan” 
… once you’ve figured out what that is, you have to consistently treat all 
market events the same and not deviate. For example, I don’t trade important 
market moving “news” … nor will I ever … I trade, I don’t gamble … also, I 
don’t ever take anything home over a weekend or Holiday period where the 
markets are closed … these 2 concepts I’ve never deviated from, and that 
decision has always been a good one.

For others, as just one other example among many, if you’re a short term 
trader, a scalper if you will, you don’t wake up one morning and say to 
yourself, “hey, today I’m holding a position all day, cuz this is the biggest bull 
market in history and it’s got no place to go but up even more than it has … screw 
everything else, this shit’s going higher, I just know it”! So, you stop scalping, 
ignore the signals to get out, and as we all know, they carry this guy straight to 
the “Trader’s Graveyard”, when it all falls apart. As I said, you simply “do it” 
cuz it’s right in front of you Bluto! ... you don’t think about it.

For many of you, you will immediately recognize a very familiar momentum 
concept I have always used, since my days learning the biz under my old dear 
mentor Bert many years ago … one of the very first things he had tattooed 
under my eyelids, so I could see it even in my sleep, was that “you don’t jump 
onto the train tracks to slow down or stop the runaway freight train coming down 
the mountain, and hold your hand out and say “stop”, cuz you want it to go the 
other way” … only an idiot would do this, and yet the graveyard is filled to 
capacity with those who’ve tried and got run over in the process.

The “rules” are straightforward and not complicated … some rules you have 
choices to make, and those choices depend on the kind of trader you are; 
again, not complicated, just commonsensical, cuz I’m most definitely NOT 
trying to fit round pegs into square holes and force somebody into trading a 
style that doesn’t work for them. Other rules are rigid, and if you break them, 
expect at some point to pay the consequences of doing “stupid shit”.

One more thing: I know for a fact, many banks in Europe & Asia use a version 
of my Cable algorithm in trading their own prop accounts; while I don’t know 
if some of the people I trained decades ago, who worked at banks on their FX 
cash Cable desks are still there, I know the process of the trading model lives 
on with entirely new generations of savvy traders. Over the years, and at the 
start of the MT4 electronic trading paradigm around the 2000 - 2004 era, I 
used to get a chuckle out of those who were trying to sell some version of the 
algorithm on the internet, as though they just discovered “sliced bread”. 

Sunday night, I’ll post over in the right-hand column under “Download Links”, 
“GBPUSD SCALPER TRADING ALGORITHM PDF”, along with the 
supporting M30 GBPUSD candlestick charts starting with August 1, 2017, and 
that file is called, “GBPUSD M30 HISTORICAL CHARTS PDF”. Here, for 
archive purposes over time, you’ll be able to quickly see any day in the past for 
GBPUSD and “size up” the opportunities for trading that day, before you even 
get to the M1. For newer traders especially, over time, this will be an 
encyclopedia of Cable information you simply can’t get anywhere else, unless 
you have a very large account at one of the TBTF banks and they share it with 
you … good luck with that, though, cuz they’d probably want to get paid to 
boot!

Turning to today’s GBPUSD market … “well, that escalated quickly to the 
downside, didn’t it”? … nothing like a “multiple sigma miss” on QoQ Q1 2018 
GDP @ 4:30 A.M. EST., to gap 70 PIPS lower in a “Thelma & Louise” 
nanosecond … not to be outdone, later U.S. GDP @ 08:30 A.M. EST., came in 
higher than expected QoQ, and “whoosh” again … but wait, there’s more, cuz 
you can’t NOT let the shorts go pain free into the weekend  … approximately 
45 PIPS in 11 minutes via panic buying into Carney’s BOE speech 
@ 10:00 A.M. EST. did the trick, which of course promptly fizzled, and very 
quickly the “lights went off” in dealer trading venues, cuz their customers got 
no money left to trade.

And while the range today was almost 200 PIPS, you can’t really trade before 
the U.K. GDP data, and adding up the “gaps” lower comes to approximately 90 
PIPS on news when it broke ...  subtracting that from the range after the U.K. 
data, and you’re left with about a 50 - 60 PIP range, on a crazy ass day 
separated by 3 distinct event risks at different times. Add to that, yesterday’s 
ECB clusterfark that segmented that day, and the 2 most active days of the 
week severely distorted by news events that you are wise not to have traded.

A bunch of short trades today … PAMM up a few bucks shy of 0.1%.

Every “Hoover Dam” time I got short today in Cable, the market either  
“dribbed & drabbed” lower by tenths of a PIP, or just sat there laughing at me 
… [“seriously, looking at my screen, I could see it laughing … OK, I can take a 
hint”!] I then liquidate, the market rallies, and I rinse and repeat. And of 
course, when I’m flat it then tanks … “meh”!

Even with increased intraday volatility today, fills on orders right on the 
bid/offer at entry and liquidation … can’t ask for better than that. Because of 
the nature of the segmented day, and having to sidestep three different event 
risks that posed potential price gaps over about a 6 hour period, I dropped my 
volumes down and backed away from the Carney event, simply cuz there’s no 
way for me to accurately gauge when the market dies … it seemed to me the 
prudent thing to do considering it’s Friday, along with constricted trading 
times not usually seen before everything goes “dark” and people head for the 
exit.

It was somewhat unfortunate that yesterday and today saw a confluence of 
major reported event risk … it is what it is, and there’s nothing we can do 
about it of course, cuz it’s the calendar and it’s part of the market structure. In 
talking with management at Turnkey, I’m very happy with the group of LP’s 
they are using in GBPUSD, and we shouldn’t have any problems with liquidity 
or pricing going forward.

And I want people to realize, that liquidity and pricing is extremely important 
as the PAMM moves forward … I have to have the ability to trade 10 - 20 
million notional without getting gouged and held up at gunpoint at the 7-11 
… so when I’m trying to trade the DOW30 [CFD], GBPCAD, or GBPJPY, 
and they rip us to shreds on fills, it’s not the actual cash value of the rip that 
“frosts my cupcake”, it’s the premise of “what the hell would that have looked 
like if I had 20 million notional on”? And I can sure as hell tell you, if the small 
stuff gets ripped and they just snicker and laugh at you, guess who the idiot is 
when they do it and I got 20 million notional riding?

Now, I know some of you may then say, “well, just trade futures then 
… problem solved”. MY RESPONSE: “No, you don’t understand the way the 
entire managed money industry is set up and regulated … no PAMM and/or 
MAM can split futures contracts among its participants; it’s considered 
“prearranged trading” and is forbidden everywhere there are futures exchanges 
without exception … what that means is that the PAMM manager has to 
manually allocate at least 1 futures contract to each account, regardless it’s size 
of equity … well, what if I have 635 accounts? Who gets what, and what happens 
when the market gives you different fills for your order of 800 contracts? Who 
determines this, and what do you suppose happens when the smallest account gets 
shafted by $0.01? The only way to get around these rules, is to set up your own 
hedge fund offshore, and people actually give the manager the money, and the 
hedge fund, as a single legal entity, can trade whatever it wants … well, 3 big 
problems here; 1) I don’t want possession of anybody’s money for even a second, 
cuz it means very costly regulation, 2) I’m not spending $250,000 to set this up, 
and 3) I’m not spending $100K per year to lawyers and CPA’s to manage the 
legal and accounting on a continual basis. My cost structure with the PAMM is 
ZERO! Turnkey does everything, so why would anybody in their right mind want 
to change any of that”? 

The way I see things right now, there are only 4 markets I can trade; 
EURUSD, USDCAD, USDJPY, & GBPUSD. Any of the other U.S. Dollar 
pairs either aren’t consistently volatile enough, or there are liquidity concerns 
at higher volumes. USDJPY is its own “asset class”, as well as the denominator 
carry cross against everything FX has to offer, and has become a gigantic mess 
of cross currents, and is the premiere “risk on / risk off” trade with the stock 
indices and gold … quite frankly, it’s morphed into a nightmare to trade on its 
own. CAD & EUR are Ok, but again it’s an intraday volatility issue; I don’t 
like the “dry spells” they go through, nor do I like the “feast or famine”, 40 PIP 
range one day, 130 PIP range the next, and then back to 40 PIPS each day for 
the next 3 weeks.

The one pair that is consistently volatile, and meets all our needs is GBPUSD, 
and it’s the reason I’m now trading it, and sticking with it “come hell or high 
water” going forward. If I want to trade 30 million notional at a whack, I’m 
confident I can get good pricing whenever I need it, realizing that ain’t gonna 
be 15 seconds after an NFP report. I fully realize, a lot of time and effort has 
“come and gone” on other markets, and believe me it’s OK if you trade them, 
just that I can’t with higher notional volumes that are coming, and we all  
“live & learn” when dealing with LP’s, cuz many of them wouldn’t know the 
truth if it bit them in the ass, but I’m now confident going forward that 1) we 
have the “right market” to trade in GBPUSD (finally), 2) we have a good open 
line of communication with the brokerage house and LP’s, 3) they can handle 
any trade up to about 35 - 50 million in GBPUSD without disrupting the 
market, which if I ever get there the free beer is on me, and most importantly 
4) they aren’t gonna rob us on fills.

As I said earlier, this week was “back ended” with risk events that made 
trading difficult, without blowing out risk. Come next week, the sky is clear up 
to May 10 out of the U.K., where that Thursday is their central bank meeting 
[BOE] on QE & interest rates. Of course, we got the usual gaggle of U.S. data 
that comes out, and we deal with that when it comes, but the coast is clear to up 
volumes come Monday and trade normally for about 2 weeks into May 10th.

So, GBPUSD algorithm & supporting M30 data posted Sunday night, and I’ll 
also have the PAMM spreadsheet updated as well. All told, I’m happy with 
where we’re at now, and am looking forward to the start of next week and 
getting into a normal routine with GBPUSD, and boosting PAMM volumes 
& performance. Buckle up, it’s gonna be fun! And with that, I’m outta here 
… until Sunday night mi amigos … Onward & Upward!!

Have a great weekend everybody!

-vegas

OUR TURNKEY FOREX “PAMM/MAM” IS NOW OPEN AND
OPERATIONAL; SEE “PAMM/MAM 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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