USDJPY Update: I was wrong

So despite all my analysis and banging on the door with my thesis, I have to not hide. or pretend. I made a wrong call.

We hit SL at half our usual risk, which is smaller but still a loss.

It was what it was, a hawkish stance. Now to be hawkish means simply, to be careful of inflation. This means that the FOMC is likely seeing the new presidential regime as one that is going to promote a high amount of growth.

As I have established before, I do not think this is likely.

 Source: http://i.dailymail.co.uk/i/pix/2016/09/11/01/382E9DB700000578-0-image-a-23_1473552962361.jpg

While this does present certain opportunities over the long run, I shall not digress from today's topic.

Recalling all the incidents and information, I would not have made a different decision. Given the facts I had at the time, it was a good bet with asymmetrical risk.

I am moving on and today is a new day. Traders have short memories. But it is important for me to say, I was wrong on this one.

(USDJPY) One Last Case for a fall

Source: http://www.financetwitter.com/wp-content/uploads/2016/05/Donald-Trump-and-Janet-Yellen-You-Are-Fired.jpg

While my order part of my initial thesis failed. But there is still reason for a drop here.

One reason that I perhaps did not consider but is compelling is the tension between Trump and Yellen.

Your new boss accuses you of keeping rates low, you want to keep your job. What will you do?

It is said that regulators are almost always dovish, in this case, it is being dovish and being able to keep your job two very good reasons for a hike?

I am not so sure, but I am excited for today. 

USDJPY - Looking at Exits, when to tap out?

We covered in depth the reason why I wanted to enter this trade. But like Soros mantra goes, he is always looking for proof that he is wrong. We shall do the same.

In Jujitsu and MMA if we do not tap, we lose conciousness, in trading this means losing money.

This weekend has been sobering for me since the 115.10 failed to produce a significant movement, only a tiny reversal. Depending on what Japan trading does in a few hours, this failure of resistance shows that perhaps the order bias we were expecting was wrong.

If so, when can I accept that I was wrong? And if I am correct, but sentiment hits me, how much further are we willing to accept before we tap?

Source: http://images.performgroup.com/di/library/sporting_news/e6/16/mcgregor-diaz-getty-ftr-030516jpg_1l105d2hoi4kd121my11xeox19.jpg?t=1248185451&w=960&quality=70

1) Technical Analysis

This section will not make any sense.

- All indicators we are looking at show overbought.

- Support and Resistance levels have been broken without much effect

- On the 4hr chart, 1-day Chart as well as the weekly chart, we saw exhaustion on all the timeframes but the slowing momentum failed to produce a reversal.

To try and analyze this via technical data will not produce results.

Thesis holds wrong. Initially, i was counting on resistance levels and hoping there was exhaustion, it did not hold.

2) History

One of the voices in my head is that the USDJPY tends to moves consistently in a unilateral direction.

One only needs to go back to October 2014 to see an equally meteoric rise.

However, upon analysis, I am not willing to accept this as a reasonable explanation as in those moments we had paradigm shifts in the economy. Abenomics produced "helicopter money" and in turn saw a rapid increase in price.

These shifts are justified and with reason. Our current Trump rally makes no sense.

Thesis holds true.

3) Fundamentals

While i have always said that the USDJPY has been too low and a recovery is necessary for the Japanese economy, this rise has been a bit too quick.

With no real paradigm shifts such as that mentioned above, there is no reason why the sudden optimism of USD or otherwise for JPY.

As mentioned in my initial post, Trump is good for the economy in the short run via tax cuts. But I think his extended policies going further into his term will be negative.

And with questions on the validity of Trumps election because of the supposed cyber attacks, does this reaction by the USDJPY justified? I think not.

Thesis holds true.

4) Wednesday's Rate Decision

Finally, the main bit that i have been waiting so anxiously for, rate decision. 

There are two parts to the Fed decision coming up

a) Are they going to increase?

b) how many times in 2017?

Most people believe that Wednesday will call for an increase in Fed interest rate, and some are saying what is more interesting is how many for 2017. The FED has set indication at 2 hikes, but an indication of more is said to cause this cross to crash as risk aversion sets in.

Do I think they will signal more than 2? Nope, regulators are always Dovish always. It is part of their vested interest.

With that said, market may think differently just like the election. And honestly this is probably my only indication to prove my thesis is wrong, a strong move in either direction. However, we have to EXTREMELY careful with the initial reaction, the market almost always reacts in opposite to what the true direction is.

This again goes back to my post on broker interest (read here)

A comfortable gap for me will be 100pip defense, tiny compared to the 400 pip movement we saw during the Trump rally. If we do not have this before the rate decision, we may either move the SL or get out of my trade

Thesis failure possible depending on Price Action on Wednesday.

5) Conclusion

I do not have a good sense of why the cross has gone higher, but the thesis is not wrong as yet.

I will not hold on to this if we hit SL, we don’t want the USDJPY becoming like the Japanese bonds (aka widow maker, not kidding look it up)

Even if I am right, though, we have to take the risk that I can be wrong because of volatility.

My only comfort is our risk is half of what we usually risk.

USDJPY: The Trade I hope to be wrong

Summary, i am doing an uncanny short

- not within any system of mine, just a good thesis with excellent risk reward

- Market could possibly be semi-manipulated (and humans are greedy beyond what is respectable?) if we will win on this trade

- i hope i lose

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I hate losing money, i always want to win.

But this time, i hope to lose because it attacks the very foundations of the free markets.

Maybe it is because of the latest book i have been reading called "The Road to Ruin" by James Rickarads.

I love the book, it is an excellent exercise in questioning some basics of finance. Usage of recursive models vs. dynamic models, thinking about the fiat currency structure, looking to the next global bailout, currency wars etc.

But one of the recurring thoughts that i have when reading this is, human beings are greedy and the rich get richer because of an inner circle and people are taking advantage of whatever they can. To date, this book has probably taken me the longest to get through just because i need to stop listening to look out the window and make sure the world is not too dark and gloomy.

That brings me to this new thesis, it is a short-lived one, 4 weeks max, but one which is tradable nonetheless. It is rooted in conspiracy theories over market behavior but given the circumstances, the stars may line up.

Although i usually trade shorter time frames and do not trade a 15min chart, this is an exception.

Short USDJPY at114.90, SL at 116.85 (-195 pips) TP: 108.20 (+670 pips).

Risk taken (1/2 risk or 1%)

Yes peeps, the risk reward ratio is insane for this, but hear me out.

I start with the two most common factors:

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1) Technicals

Fibonacci retracements are one of my favorite technical indicators, it merely forms a basis of how 'pretty" a chart looks. If Fibbs are not met, to traders, the chart looks off.

Myself included, i instinctively want to short this currency because it has taken such a big run up since the Trump rally. If the whole world feels the same way and shorts the market, it will come down to where it looks pretty. But yet, it has not come down to where we would like to see it. Instead, we  are stuck in a range, only looking to get higher.

2) Fundamentals

Similar to the SPX, this just keeps going up & up. Is the Trump rally so strong? My opinion, NO. Is the rally deserving, Yes! Net positive for US.

But he will force onshore production and the likely increase in the cost of production, and decrease in overseas sales. Tax cuts can only get one so far. 

We will probably enter a period of slow growth.

Lately, Fundamental news has not stopped the rally, good or bad. Just like the SPX this cross keeps going up & up & consolidates & consolidates. 

Also given the FOMC rate increase, the JPY provides the lowest form of borrowing, returning to the carry trading fundamentals.

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So if we are set to go lower, why haven't we? Maybe it is from reading too much into Rickhards book, but i suspect the powers at be(banks/brokers/big boys etc) are waiting, waiting to increase their bonus checks. 

Here a some more less conventional factors that could affect this trade

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3) Probable cause

So if the two above do not make sense and we should in theory be headed lower, why haven't we? Maybe we need a catalyst. FOMC anyone? After all the last rate hike last December did cause a dip in the USDJPY.

Since sudden moves are frowned upon and are investigated (see GBPUSD), FOMC provides a perfect cover. 

This fundamentally makes little sense as recent prices already moved with the interest rate hike in mind. Consensus on the street is near 100% that a rate hike is happening, but a move down allows the big boys to blame the market for adverse movement. 

4) Order Book

There is a huge amount of orders at 115.00 if price is hit. (See Forexlive.com), what better way to make money then to hit peoples SL (or barrier options) and drive the price downwards?

5) Usual pullback

But also you have to imagine that before the Trump rally happened, we must have had a lot of derivatives that were used to hedge the USDJPY. This is one of the basis of my old 4hr trading system, there is too much derivatives, special party interest and human behaviours to allow for a unilateral move in one direction without correction.

For this cross, it is likely we have not yet seen the unwinding of the positions, especially if so not prices would have not going up so fast and furiously. A simultaneous unwind should send the cross lower and fast.

6) COT report

This one is tricky, but according to http://humbletraders.com/commitments-of-traders-for-forex-trader/ it is a very telling sign.

1) Commercial Traders are net long, for the first time since last December and like we mentioned, last year the cross fell in December

2)  If "Open interest increases with falling price, the bear market is strong." While not falling, price has significantly slowed down. 

3) Only speculators behaviours are not with us as they are trend followers and would be most bullish at the end of the bull market and most bearish at the end of a bear market. 

The speculators have just turned from positive to negative. Perhaps indicating there is more upside to go.

7) TOM 

Turn-of-the-month is a simple concept that is rooted in behavioral finance. It states that due to accounting reporting periods, revenue is artificially propped up to ensure the stated reporting period looks better. 

In this case, if a bank would like to have a stellar year and a bigger fatter bonus check, making sure the unprofitable positions are closed and speculative bets are positive is a sure fire way to do so.

FOMC is about 2 weeks away from December end, a big reporting close for many companies. This gives the cross plenty of time to go lower and allow big boys to unwind.

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In trading, there is a concept that is thrown around a lot. It is called "confluence" if all the different indicators add up then it is a high probability bet. Although used mostly in the technical analysis, i think the term is apt here.

Right now, the thesis and confluence of factors would lead me to believe that the big boys have a real shot at making a lot of money. However, if this trade is successful, it confirms a well-known secret, the markets are not really "free" as the powers-at-be would have you believe, but manipulated ones where big boys have an advantage. (and maybe the world is run by greedy, power hungry people?)

I am trading this because all facts point me in a certain direction plus the risk reward is too good to ignore. But for the sake of all that is good, i hope that i am wrong.

Oil Update & The Unfair Advantage

Hi all,

I am at heart and by training and circumstances am a technical analyst.

     - When i first picked up trading, this was what i learnt,

- for the first few years of trading this is what i used,

       - most books that i have read preach technicals

- when i was working part-time for a fund, it was based on technicals.

 Credits: https://www.colourbox.com/image/young-man-showing-poker-cards-image-4253145

In trying to find a way to trade oil, i ultimately found out the technicals did not hold in certain periods (e.g. Jan - Mid Feb 2016).

The recent Trump victory scenario is one period where technicals and fundamentals did not apply and some traders lost money (including myself). Yet as eToro traders we have one thing that gives us an advantage over all hedge funds and mutual funds out there.

The ability to walk away and not play the game.

I liken this to playing poker, if we have a bad hand instead of folding or staying or whatever, we can just walk away. If you are a large fund manager, it is difficult to liquidate large positions without adversely affecting your portfolio, transaction costs, move the market, scare your brokers, not to mention regulations and things like that.

But for us, if we have a bad hand, we walk. We do not need to keep positions open, nor do we need to have capital invested at all times.

We do not have a liquidity problem or have issues entering or exiting the market.

Many of you know i was thinking of entering the oil trade, but i have decided not to. The OPEC meeting looking back at the past few months is nothing better than a coin flip with reasons no more compelling than the last. So while my thesis holds true, and i believe in it, without having someone who specialises in oil giving this a review i will not pretend to fully understand all the powers at work. 

Maybe next week once speculation has died down. But in the meantime, I am walking away from the poker table.

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Vlog & November withdrawal: ~$1,200

Sorry New Peeps!

Trading Trump: Part 2 - Oil

Trading Trump: Part 2 - Oil 

Investments in the Eagle Ford shale of south Texas on average need a Brent crude price of $48 a barrel to break even, on Wood Mackenzie’s calculations, while projects in the Wolfcamp formation in the Permian Basin in west Texas need $39.

“There are more opportunities to invest in the US, and that’s where the investment will take place,” said Mr Flowers.

“If your investment options are in deep water, you’ve got quite a task on your hands. You might be asking: ‘Should we be getting into tight [shale] oil?’”

-          Taken from the FT.com (https://www.ft.com/content/0a7a817a-4863-11e6-8d68-72e9211e86ab)

.

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In the book i mentioned in my Vlog, Great Again: How to Fix Our Crippled America, Trump has laid out plans to depend on the onshore production of oil, if need be. 

His personal view on the oil producing countries is that some of them are funding terrorists. 

With Oil production cost so low in the middle eastern country, it was always speculated that OPEC wanted to suffocate the growing Shale oil market. 

However, with Trump at the helm of one of the largest oil consuming economies and wanting to keep profits in America (keeping terrorist broke?) it is not likely that he will allow American oil companies to suffer at the hands of OPEC much longer. 

It is a long shot, but an increase in the tariffs for oil produced outside the US could possibly achieve this objective, although the increase prices will upset citizens.

This could explain the sudden cooperation between the various countries as they realize that Trump is not to be trifled with and the time that they have as an oligopoly power has likely come to an end. The bigger bully steps into the ring!

If the number for the Financial Times is correct, the breakeven point of the oil producers for US producers plus a little margin should represent an upper limit to how high prices can go. So approximately $55-60 would be the absolute upper limit of oil.

Lower limit stands at the previous lows at $39+ level.

With a positive risk reward, it might be interesting to explore on a longer term trade, in the meantime we have about $10 to go and we have some exploiting to do especially if OPEC is unable to reach a deal at the coming meeting.

I am going to test a few technical systems to see if  i can exploit this going forward, however, I have strict criteria for what qualifies to meet the monthly income requirements. Do not want another JPM experiment gone wrong.

More updates on my Blog coming soon!

Trading Trump Part 1 - Financials

Summary:

- Short Financial stocks, selected, only JPM at the moment

- Look for breakout

There was a good amount of movement in the Spider (Trader talk for the SPX500) during the election period. The initial price factored into the market was initially for a Hillary win, proceeded by the market selling off in fears of Trump winning, proceeded by a rally to an all-time high after the Trump indeed did win, erasing all fears of the Trump win.

To this effect, does the recent movement post-election make any sense? It is hard to say.

Looking at the spider for a broad view of the sentiment of the market might not be the most accurate given that it is a market weighted average http://www.investopedia.com/terms/p/priceweightedindex.asp) index and is weighted more heavily to the bigger companies.

Another way to take one step deeper is to look at the heat map (as seen below), this breakdown the various sectors and gives us a good look at the sectors that have benefited from this election.

Part 1 Financials - Overall Short position but not willing to risk

Repeal the Dodd-Frank and Jamie Dimon was considered for the post of the FED chairperson. This caused an understandable rally in the financial stocks.

However, after reading the book "Makers and Takers" & "Why We Want You to Be Rich: Two Men, One Message" plus watching some of Donald Trump's interviews, this may really be a question of credit availability to the regular man in the street.

Dodd-Frank was designed to reduce the risky lending practices that use to exist, I believe Trump, coming from a real estate background sees this as a bad thing because he sees first hand in his business the freeze in credit to the regular joe. This was elaborated in one of his older interviews with Pierce Morgan, he said he does not understand why people with actual income cannot get a proper loan.

Therefore it is important for us to differentiate the two aspects of Dodd-Frank

1) Relaxing the credit structure and requirements to reduce risky lending

2) Reduce the financialization of assets, this is in the realm where derivatives lie and where the Mortgage Backed Securities were birthed from.

One such crazy example of this financialization is not allowing the banks to speculate or hold on to metals like aluminum. There is this huge issue where JP morgan held so much that a report emerged alleging JP Morgan Chase & Co. owned over half of the aluminum traded on the London Metal Exchange

All this to make money. This affected companies such as Coke and Pepsi who actually require these raw materials for which were being speculated on.

Will Trump dismantle Dodd-Frank to this point? Unlikely. One of his first marketing points for his campaign was that he was not in involved with the large banks. Unlike Hillary.

Given this scenario, share prices may have rallied erroneously to reflect an expected increase in derivative income.

While there will be an increase in loan income, it is best then to look at banks with a differential between loan and derivative income to best reflect this thesis.

Looking at the Comptroller of the Currency report on Derivatives, JPM seems to have benefited the most in the last quarter from Derivatives making a total of US$2.8 bil in 2Q2016 in relation to net income reported by the bank' total Net income applicable to common stockholders at $5.7 bil (representing over half of possible income).

It is easy to see why the expected increase in derivative income would have such a significant effect.

Unless we see a significant increase in commercial banking lending as well as consumer & community target, this coupled with increasing yields, it is unlikely for JPM to return the increased relative P/E expected of this spike in price. 

Target: JPM a minimum reversion back to initial pre-election prices, at $67.70, a $9 correction over today's price.

Thesis likely to be realized on clarification of the Dodd-Frank or earning announcement reports.

GBP/USD Have we found the bottom?

Source: http://www.gannett-cdn.com/

Trading one currency against another is a matter of relative value. The Pound vs US Dollar has taken an absolute beating recently; can we conclude that the GBPUSD has reached the peak of its decline? The last time the currency pair reached this low was far back at 1985.

Are we experiencing the same thing? Or is this time different?

Taking inference from the book "This tine is different" by Carmen Reinhart and Kenneth Rogof; the phrase is worth contemplating. Let us consider the 1985 precedence and see if we can draw any inference from the two scenarios

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1985

For the UK the 1985 was the Thatcherism era where shoulder pads and Neoliberal policies dominated the United Kingdom policy.

The policies enacted by the "iron lady" increased unemployment and low income manufacturing jobs were fizzled out. Consequently, citizens were encouraged to purchase homes and invest in the stock market. The economy grew worse and as a last resort, companies like companies like British Telecom (1984), British Leyland (1984), Rolls-Royce (1987), and British Steel Corporation (1988) had to be taken over by the public sector. Things actually got a lot worse in the UK before they ultimately became better.

At that time, the economy in the US was an exact opposite when Ronald Reagan was in power; The GDP growth was good; unemployment at a record low and economy buoyant.

As of 1984, GDP growth in the UK was only 2.26% compared to 7.26% in the US. Pertaining Debt to GDP, US was just starting to mount up credit; rising from 38.4% to 41.7% while UK lowering from 43.5% to 43.4% is not enviable at all. As par unemployment, the US experienced a considerable decline from 7,6% to 7.2% while unemployment rate in the UK rises to record high of above 11%.

(numbers courtesy of FRED, Office of Nation Statistics(UK) and World Bank)

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Today

Fast forward to the present, the US economy seems to have limited prospect for improvement while at the same time, there is no reason to anticipate a decline. According to Ray Dalio analysis, we might have reached a state where we are "pushing on strings" a situation which he said an "asymmetrical risk to the downside" may likely occur.

GDP growth for both countries stand modestly at 2%-2.5% and unemployment for the two nations is relatively low - just above 5%. Debt to GDP ratio in the UK is relatively low compared to the US, standing at 84.4% while that of the US is at an all-time high above 100% mark.

The difference between the two giant economies can only be described as marginal; with the US having a higher downside risk due to GDP to debt ratio and elections for the POTUS just round the corner.

With Brexit coming to reality, it is no longer news that the UK is not a part of EU anymore. But, how it will be implemented is presently uncertain. Whether it will be a soft or hard Brexit remains a mystery.

Bear in mind that one of the reason why UK decided to leave the EU is to restrict other EU citizens from living and working in their country; this will negatively impact the stance of London as a financial hub in the sub region. Also, due to the fact that the services sector form the bulk part of the GDP, the country may be at the verge of decline to the old times.

The Brexit minister David Davies did promise during the negotiation for Britain exit that the British government will do whatever is required to uphold the good standing of the markets and financial sector.

Although Prime Minister Theresa May is in consent and would prefer to have the financial industry maintain a status quo; the possibility for other countries such as Germany taking over the role as the nucleus of the EU financial sector is quite tempting. One may be safe to assume that quite a number of countries will be interested in taking over the role erstwhile occupied by Britain.

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Conclusion

In event that a hard Brexit occurs, the major driving factors of the UK GDP will be negatively imparted and a recession with the potency decline leading to the 1985 economy disparity between the two countries may be inevitable.

The fact that we are heading back to the 1985 economic discrepancies between the US and the UK cannot be overruled. But till that event happens, it is more likely for us to see a recovery as the discrepancy of outlook is not as bleak as it was in 1985.

Interpreting the possible sequel of events in financial terms; one could expect the GBP/ USD pair to recover slightly at least until the terms of Brexit are made clear. Technical analysis shows the pair standing at around 1.22000 with a downside of 1.0600 (close to the 1985 lows). A recovery to 61.8% Fibonacci level will reach an upside of 1.3900.

Evidently, the risk/reward ratio of trading the currency pair is in favor of the bull

Fundamentals say up, the USDJPY goes down?

So i have a USDJPY position open at the moment and it is nearly at my stop loss. All this despite positive news coming out of EU and China, plus last night, the Fed left rates the same.

**Too much technical info ahead**

 (See chart) Gold is the standard for fear, and this has a negative correlation to the USDJPY of about -0.75. But in the last 48 hours, the correlation is less strong, same with the TLT.

The dollar strength while dropping as can be seen by the green line representing the index, but similarly not at the rate we are seeing this cross drop.

Interestingly as well, notice how the drop this morning came out of nowhere and with little volume seen. Our friends in Japan aren't even open today.

While some news articles suspect the recent drop is due to a correction in the US Dollar index and some say it is fear due to the elections. I believe it is a combination of both, but there has been a divergence in what is normally expected out of the USD/JPY and what is actually happening.

Like i said last week, the best traders when it comes to currency all believe the most money is to be made when there is a divergence between what is truth and what is happening(reflexivity). But most do not like trading intraday due to the noise it generates, this is a good example. While fundamentals might suggest a risk-on sentiment in the last 48 hours, we have seen nothing but the opposite represented in the $USDJPY.

Conclusion

Trading is never a guaranteed thing, but it i helps to play probability. Since the initial thesis is not wrong, i will not lose any sleep if we hit Stop Loss, it is a risk i chose to accept when i decided to trade intraday movement. And i love it!

Stay safe everyone!

The game is rigged. Sorta!

It's truly amazing how things worked out. I left my position open last night due to Japanese numbers and a sense that market would move upwards. Closing the trade at the high would have made me about $200

It did, so i went back to sleep.

But when i woke up, i saw the notification on my phone that i hit my Stop Loss, this TRULY AMAZING pin bar as seen in the photo hit my stop levels. Not only did it hit, it went slightly below (closed at +$30 instead of +$50). After went that merry way back up.

To all the new traders out there. It happens, short-term traders are exposed to the big market makers in the industry. (Read the book
"Beat the Forex Dealer: An Insider's Look Into Trading Today's Foreign Exchange" by Agustin Silvani))

One of the benefits of trading with Etoro is it is a Level 2 ECN clearing system so the terrible broker problems like this much reduced (to all the haters! please stop complaining about the spreads, it is a worthwhile payoff!). But things can still happen when you play with the larger market. Pins like this is really the big boys taking your lunch money pushing prices down to hit you where there is a volume of stops.

This is one of the reasons why short-term trading is hard, even when you make the right call, it does not always work out, market sentiment, bigger players then you etc. 

It is like the system is rigged.

But this is why i love the market! Knowing the pitfalls, the intricacies, and all the problems but still taking it head on where others give up.

Stay safe people!

Being Honest: Its not Enough

Honesty

My goals for Etoro have changed. My singular focus of this trading account is to provide monthly income, and in doing so, help others achieve financial freedom.

Since I have joined the popular investor program, I promise, to be honest, and transparent.

With that said.

It is NOT good enough

The past 2 months the USDJPY system has been great for me! Till last week where my system didn't return anything for a week. And it lost me some money today.

So reality check, it is not enough for my goals of monthly income. I do not have all the answers and do not know everything there is to know.

I need to get better.

Dirty Secret of the industry

As a partial academic (I am perusing my masters in Finance), my understanding is different from most people when it comes to selecting managers.

Warren Buffet says it best (full article here):

Buffett begins by imagining a nationwide coin-flipping contest. Everyone in the country participates and calls the flip of a coin. Call correctly and move on to the next round, guess wrong and you're out.

After 20 days, about 215 lucky flippers will have correctly called 20 consecutive flips. They gloat in success, yet the nature of coin-flipping tells us they're just lucky. It's a game of random chance.

But what if all 215 flippers lived in the same town? What if they all hailed from the same school? The same fraternity? Then we'd get excited. The laws of probability suggest 215 winners after 20 days. But those same laws tell us that if all 215 belonged to an associated group, that almost certainly wouldn't be the product of random chance. These 215 flippers clearly would know something we don't.

The real flippers in Buffett speech are nine "superinvestors" -- himself included. All nine crushed the market averages over multiyear periods by between 8% and 22% per year.

In a world with millions of investors, such returns can occur by sheer luck -- just like the 215 coin-flippers appeared at first glance. But all nine superinvestors hailed from the investment school of Benjamin Graham and David Dodd -- Columbia professors now known as the fathers of value investing. That meant something big. It meant that their success wasn't the product of luck. It almost had to be attributable to the only common link they shared: the investing philosophy learned from Graham and Dodd. The "intellectual origin," as Buffett put it.

Credit: Photospin

Learning from the best:

I echo these thoughts and want to be part of the superinvestors. I have thus dedicated the basis of my trading on the best Macro traders and thinkers of our time and all of my systems have been based on these concepts.

Ray Dalio - Credit Cycle

Nassim Nicholas Taleb - failure of bell curve statistics and asymmetrical risk

Michael Marcus - Trinity of trades (Fundamentals, technical and sentiment)

George Soros - reflexivity

But for my 3 systems at the moment, they have to change because it isn't good enough to reach the goals.

I will choose hold on to nothing if it does not benefit this goal. And unfortunately, this includes my beloved 4hr system which has not failed me since I was doing my undergrad.

Rigorous Testing

Copiers and followers, do please know I do test my methods before applying and never risk capital to test anything. It either works or it does not.

I do not believe in eyeballing charts either, IT DOESN'T WORK! So anyone showing you past data with the benefit of knowing future movement. Like so many YouTube gurus. So please take it with a pinch of salt.

I have my own way of testing and if you would like to hear more, drop me a comment or write on my Etoro feed and I might do a blog post on it.

Stay safe people!

System 3: TOM

Really excited about my new system, it is the first one I have had in a while.

The academic principal for this system is called Turn-Of-The-Month.

I managed to test this against the Yahoo! Finance data, and optimize it against that, so really proud of the system as well.

Stop Loss: 5%

Take Profit: 10%

Entry will then use technical indicators to find entries and exits and a check against the fundamentals of the economy.

Indices that will be used will be ASX200, S&P500, Nikkei225.

Indices that were tested but do not work, China50(not profitable), FTSE100(no clean data found), DOW30(due to high correlation).

If you would like my dataset, just drop me a mail and i will be happy to share.

I love etoro: News Confusion and Interpretation

The headlines on the front page of the

Wall Street Journal

, front and center, read "Yellen Sends Strong Signal on Rates."

The Financial Times reported

, "Gold bugs initially breathed a sigh of relief after Fed chair Janet Yellen said the argument for a rate rise had 'strengthened' but stopped short of signaling that a move could come in September

Fed vice-chairman Stanley Fischer, who was interviewed on

CNBC

soon after the speech, played the interpreter role. Mr. Fischer made "some bullish remarks on the US economy" and then said that "Ms. Yellen's remarks were consistent with the possibility of a rate rise as early as next month."

These are the news sources, pay close attention, remember the markets make little sense and hindsight is 20/20. I was discussing this with a friend who does Options for a very large bank in Singapore.

For simplicity I shall use the USDJPY, as I am in it, as a proxy for our discussion. We were agreeing over the initial movement of the USDJPY market was correct from an academic economics perspective.

However, the market shortly reversed. The following day, I had another conversation with someone else on how the upward movement was academically correct given the circumstances.

So who is correct? The answer is not clear, nor black or white. A couple of students who study Finance is not a good proxy, neither are the popular news outlets WSJ, BT and CNBC.

When it comes to life, I end arguments on how the market should react with a lot of people with a simple statement. If you know the market, why don't you trade? After all smart, high profile traders such as Bill Gross use economic conditions and their track record shows what they are talking about.

Etoro makes a lot of sense because no matter what someone says, the proof is in their trading.

eToro AUS Capital Limited AFSL 491139. eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.

Stay safe people!

USD/JPY: Abenomics effect

So how far can the USD/JPY go? Let us take a stroll back in history and see what the USDJPY did.

I believe the Brexit caused a rush into USDJPY as a safe-haven currency due to its G3 status. This would nullify the effect of the QE somewhat and the BOJ would not like that. 

However, the BOJ may not have wanted to intervene in anticipation of the upper house election results  So now that it is over, and even though no concrete plans has been announced, Abe has spoken and he aims to continue to provide stimulus to the economy with a new round of QE.

One of the expected effects of classical and neoclassical economics is that currency will weaken upon the use of such fiscal policies that Japan has been using above. 

This in turn should stimulate the economy and help bring it out of deflationary territory and is the goal of "Abenomics". Abenomics has also traditionally been aggressive and I don’t expect it to stop with their next QE or QQE. 

Whatever the case, the last 2 day move was so strong it is truly incredible.  The moves over the last 2 days was greater than what was previously experienced by the market, i believe this is due to the economic backdrop of the Brexit and historical information can't help us here.

					3 Day	1 Week	1 Mth
Abe upper house election					4.87 (2 Day Move)	??	??
QE with Negative int rates					-0.7	-0.76	1.25
QE Expanded to 80 Trillion					1.27	2.21	6.06
BOJ Announces QE(60-70 trillion Yen)					3.02	3.34	2.69
10.3 Trillion Yen Stimulus Bill					-0.39	0.9	5.15
Average					1.30	2.15	4.63

I was already in the position before the elections expecting Abenomics, I will look to exit half my position before Friday as i expect profit taking. The other half will be put on a trailing stop and i hope it runs for another month.

Stay safe people!

Lesson Review: eToro with Alpesh Patel

So etoro held a podcast with Alpesh Patel and it was AWESOME! If you have not heard it you should at this link:

https://www.youtube.com/watch?v=3DSADTBhn7o 

I have learnt many things from this 55mins from a professional hedge fund manager of Alphesh Patel calibre. Here are my top 3 lessons:

1) Traders put in more risk for winners

So if the trade is going in their favour, they add to the position and "risk" losing some of their profits. So they risk profit not capital. 

2) Professionals only do about 25 trades a month

Importance of not being a "screen slave" and also not over-trading. We cannot stay at the computer the 

3) Even experts don't get it correct

He talks about how he depends on the data and judgement of the economist, and this is super understandable. 

Unfortunately the economists

 got it wrong. 

Hope we can get more of these talks! Learnt a lot more than just these 3 lessons.

eToro AUS Capital Limited AFSL 491139. eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.

Rules: Very Few High Risk Trades

New System: Very Few High Risk Trades

So from now on I will follow the system(link) and I will add the below rules in addition to the system.

Rule 1: Don't swing at every pitch

I learnt this from reading a book on Charlie Munger (link), we don't have to be in the market all the time. The goal will be 10-15 traders a year. YES in one year!

For instance, the past month, everyone is speculating on the Brexit, but we don't need to be involved because there is no educated guess on where this is going.

Rule 2: Bet BIG!

I believe I learnt this from an interview with Sorros. Test your theory with smaller positions, if it works, go BIG.

The system I have been using has been working for a while, losing positions closing at stop loss. Therefore each trade size stop loss will be 15-20% of the entire account. The amount we earn will depend on where the market is, but generally 1:1 risk reward is minimum.

Again there will be very few trades, and I expect them to be high percentage(see rule 1), so I am comfortable with exposure.

Rule 3: Respect the market

- Always respect the market, never move Stop Loss.

- Monitor every trade till it gets to green and TP moved to SL.

Rule 4: No correlated bets

If we are betting against USD strength, no taking another bet with the same consequence

GOLDEN RULE 5: No Averaging

Averaging works people! It works till it doesn't then you lose big.

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Rules on how to copy me will be up soon!

Going Back to Tradition: Trading on my own

So unfortunately, for those of you who have been following me I had this moment where because of a trader I was down over $4,000 of my $15,000 investment. Now this isn’t significant for some people, but for me it was for 2 reasons. It was the trader who did so made the most money for me thus far and I lost sleep because I had to manage it manually to ensure I didn’t lose more than I wanted.

I realised something really important, despite all my analysis, there still isn’t information sufficient enough to create a solid plan to trade profitably just by copying. 

I believe i can provide a value service to the community at etoro by being absolutely transparent and being a human being behind the numbers. But i can prove my system works!  

So I’m going to go back and try it on my own using the same system I publish previously. But I do want to improve the system as well and so I’ve been on a book binge to improve. 8 books down and i am happy to report i have learnt so much!

I will post more updates on the improved system soon.

My System: It really isn' complicated

The System

- Here is my system – setup, entries, exits

- I only play 4hr chart as I find it the most accurate

- Based on adaptation of 2 different strategies

- Must read book for all aspiring traders(Link)

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So lately i have been working a new "All Weather Strategy" but a good definition is, 1) Robust, 2) simple (taken from an excellent book available here)

I have tried pure technical and pure fundamentals what i have found is robustness works the best, fundamental truth backed by mathematical concepts.

Simple means not as many variables. Too many indicators does not equate to better results.

 I believe i have achieved that here. A simple countertrend strategy with no fancy indicators based on a mixture of 2 different strategies. Individually, they work, but in conjunction they produce really great results. 

This is not the only workable system, but i find it gives me asymmetrical risk returns and is high percentage!

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Setup - Indicators

EMA 10

4Hr chart

MACD - default settings 

Works on all currencies generally but i only use the following due to higher spreads on Etoro: 

EURUSD GBPUSD USDCAD USDJPY AUDUSD EURJPY 

If you are not on etoro, i used to trade 16 different crosses.

Part 1 - Finding an entry, adaptation of “Nanningbob 4h trading system(Link)”

If I see that price is moving beyond a point that has not been seen in a while that's my first criteria. This takes a bit of judgement but think about it as it passed the last major resistance/support level.

Underlying belief is that as long as nothing super major is happening fundamentally, currencies should not fall beyond what was seen previously without some kind of retracement first. Currencies falling rapidly without the digestion period can be dangerous (see 1997 financial crisis), also stop losses, bottom fishing, taking profits.

There are many reasons why retracement is necessary and in my opinion is the basis behind the Elliott wave principle

Part 2- finding a point, adaptation of "Bladerunner(Link)"

When prices run, they can run fast. Blind entry just based of levels can be dangerous.

I used to do blind entries till I traded the USDJPY in late 2012. There was no retracement,and I even averaged down so the loss balooned.  This is why I believe averaging down is poisonous.

Now to improve that I noted that I can enter only if I can see prices are stabilizing and getting ready to reverse.

I am using the bladerunner strategy to find a counterpoint. Retrace to the 10EMA & MACD shows momentum slowing beyond 20/80 point and if i am lucky some candles patterns as well.

Barricade - behind a strong resistance level (good principal no matter what system)

Now, doesn't mean all trades work out, we win some we lose some. I will always have a preset Stop Loss at the next support/resistance and give It a couple dozen basis points leeway.

I read this sometime back, if you need protection why not set it behind a barricade

Exit fibbo - Fibbos are one of the best retracement levels cause it gives us some sense of where we are going.

Since our system involves going beyond levels that haven't been seen in a while. Fibbos provide good levels.

Barricade – Profit taking

Going again with Fibbos

Sizing 

5-10% of invested amount. 

________________________________________________________________________

Notes:

Do i recommend the bladerunner itself on like the 5/15/30M chart? I used it previously to good effect at 15M, BUT I have not tested it throughout an economic cycle and don't know how it reacts to crisis events.

The true masters of trading I noted have traded throughout crises such as the GFC in 2008 they have come out alive, this is a must see this book for inspiring traders(Link).

On etoro I have met some who says they have successful from 2/3/4 years experience. The real experience is when you can say you have seen the economic boom and bust cycle.

And really does a system need to be so complicated? Follow my blog and my etoro feed for posting of my trades, copy me if you want an optimized portfolio!

Stay Safe People

Emotions of a trader

A - Looks good

Hmm.. that's within my setup, good high percentage trade. MONEY HERE I COME!!

B- Ah crap.. extend SL?

Crap it turned against me, *@!*%* knew I shouldn't have gone in there. Stupid impatient Zech.

Maybe I should extend the Stop Loss this can still work for me!

NO!! STICK TO SYSTEM! if it stops it stops out.

C - Phew.. looks good now

Back in the green, nice. Ok now wait for the profits to roll in.

D - YEA!!! I’m the man.. TP?

Wow, i'm like halfway to target! Maybe I should take profit and keep the pips

NO!! STICK TO SYSTEM! move stop loss to entry so wont lose money even if it turns. if makes more, great if it doesn't its fine.

E - Crap this just got real... 

Crap. Knew I should have taken profit, stupid stupid boy. Extend SL this can come back!??!

 NO !! STICK TO SYSTEM! leave it. It was a good entry, exit and we are fine. so chill.

Emotions can ruin you, many guru say keep this in check. But why not just have a system for trading? take the emotions out of it and we can concentrate on other things in life. That is what etoro is for isnt it?

Human behaviour has proven that we sell winners earlier and sell losers late. Its called prospect theory.

I agree you can take pips from the market in panics, but I don't presume all of us have low latency and have access to premium news services which allows us to react appropriately.

Even if its rudimentary like I think Facebook will go up 30% but if it drops 30% I am out. That's is a system.

Stay safe people!