Tuesday, 11 May 2010

Unhappy Man

In essence computers trading against computers decided at some point today to throw in the towel and not bid. Lovely, isn't it?

I have been waiting for this to happen and today it did. Supposedly, computer trading lowers volatility and bid/ask spreads for traders. Today we see that works until it doesn't.
By the way, this was not really a "black-swan" event. This was perfectly predictable although timing it was not. I have been discussing this scenario with a few friends for months.

Daily trading net revenue was $25 million or higher in all of the first quarter’s 63 trading days, New York-based Goldman Sachs reported in a filing with the U.S. Securities and Exchange Commission today. The firm reaped more than $100 million on 35 of the days, or more than half the time. Making $100 million a day for half the days in the quarter is quite a feat.
The only way I can possibly see that happening is if Goldman Sachs is front-running every "trade". If someone has another explanation, let's have it.

Mike Shedlock

Mike Shedlock is very unhappy because he lives in a world which is not right. The stock market defies the laws of Austrian School of Economics. The inflation is falling, although rising at the moment. 2010 had to be a year of big retracement, well...it's on the right track. And the bad banks are using computers for computer online trading.

A happy Mike's world would look like this:
Mike writes on his blog the stocks shouldn't rise because the economy looks very very bad. The investors and investment banks all read his blog so they refuse to buy stocks.
Mike writes on his blog the deflation should cause the prices to fall. The oil producers and farmers all read his blog so they lower their products prices right away, even if that means they will have no profit for the year.
Mike writes the computers shouldn't be used for computerised computer online trading. President Obama reads his blog so he announces the ban of computers. The banks refuse to use computers but keep the brainiest men in the trade, anyway they are as much good as computers.
Mike buys stocks and oil through his online trading platform (there must be exceptions) and writes on his blog: the economy looks good, the stocks should start to rise. The investors and banks are still skittish, but soon come to the same conclusion and the very big and real bull market begins. Mike now lives in an entirely happy world.

If someone has another explanation, let's have it.

The explanation is quite simple. You must be a real trader or investor who is better than the others - I assure you that Goldman Sachs have the very best.

Mike, you can be a trader, too. Here is how you start.
On S&P 1h chart whenever 20ma is heading lower and the price remains below it - sell, except when 3ma is heading higher towards 20ma, then wait till it turns south. Such simple strategy maybe won't provide you with all days in profit but you will surely make some money.

Sunday, 9 May 2010

Day trading for few chosen only

It makes no sense to give advice or teach how to trade - the most difficult job on the planet bar boxing or fighting the enemy on the front line. But here are some of my remarks and rules I follow in my technical approach. I day trade various markets, from General Dynamics to EUR/NOK, without paying attention to fundamentals. - Yes I consider myself a chartist.

-Every instrument and every time frame are different
-Do not try to trade too many markets, find the most suitable for you and use leverage
-Emotions are your enemy; yes be happy when you take profit, be sad when you lose, but entering trades out of excitement, anger or fear is a mistake
-Back test your method on a regular basis
-Hard work means nothing compared to good method
-Trade live as much as possible as opposed to entering trades and leaving them at the market's mercy
-Sell on extreme strength, buy on extreme weakness, otherwise NEVER trade against the trend
- Future probabilities =1, what's going on =2, past =3
-Always trade into wave along with the larger direction
-Trend reversals are rare and never bet you will catch it, you better go with the older trend instead
-Analyse your trades, eliminate the fault from the losers, develop your winners
-The stronger the move, the more you need to trade into its direction, you will surely make money before the wave reverses
-Create a method to lose money on your favourite instrument and back test it
-Adding to your winners is the most beautiful, difficult and most right thing to do
-Decrease weight on losing streak
-Skittishness doesn't pay
-Don't trade breakout in a range
-I am a good trader
-Take profit is good
-Orders to open are dangerous
-Bigger time frame is more important
-These tendencies should continue
-The most important area on the chart is the blank space to the right
-Remain confident, the opportunities will always be there
-Don't trade emotions or 'wish-waves', trade the real price action
-Never add to losers
-Market is like a woman, don't analyse it too much
-The biggest enemy of BBF CONT is a consolidation
-An error leads to emotional imbalance and further errors

As to my method (BBF CONT), it is quite simple - I buy when it goes up and sell when it goes down, which is not quite simple to do as the majority of schools, blogs and wannabe gurus teach the opposite because they all have an innate repulse to trend following for fear they would turn to be the last to buy or sell. Such a deep conviction is a result of lack of trading experience. As to charts, I use some on price indicators- Bollinger Bands 20.2 and moving averages (3,55,89), plus Stochastic and MACD below it.

USD/JPY - 5 min wave reversal

USD/JPY 1 hour bearish continuation

USD/JPY slide - add to your winners