FOREX IS RANDOM

Have You ever had the perfect trade set-up, the perfect time and the perfect indicator reading and the market still went against You? What most traders don't understand is that forex is a random game of chance where You are constantly seeking an edge. The edge when your set-up fails is to CUT!

The same trade set-up that bought You the fancy car and the great house the last time may move sharply against You this time. Pros cut bad trades all of the time, because they understand that this is a game of chance. In order for my trade to work out just right, I have to have some bigger players agree with my analysis or loads of other people to see the opportunity that I see and jump aboard with their hard earned cash. If the majority of the money doesn't agree, the market will move against me; that is why it is so important to protect your profits when your set-up fails because it will.

The advantage of the pro is the discipline it takes to be consistently profitable. I might see a set-up and think I have reached the bottom and buy, but the bank with $700,000,000,000 may think, the market can drop another 70 pips. Who do you think the market is going to respond to??????????

In a situation like the one above, most traders will try to re-analysis the set-up, go to higher, lower time frames, and find reasons why they are right, while the market continues to move against them. Before the day's end they have a margin call or they are so far down they don't dare cut; then that sickening uneasy feeling creeps in. That feeling that says, 'I can't afford to lose this money, I have to pay my mortgage'. The wise trader says 'Oh hell, this ship in sinking fast, I'd better jump and swim ashore and wait for the next ship" At the end of the day the bank that started out with $700,000,000,000 ends the day with $700,067,893,972, because so many traders refused to except the fact that THERE ARE NO ABSOLUTES IN TRADING! The people in the bank end the week with fat paychecks, take nice trips, and live the lives most only dream about. They live these lavish lifestyles because so many traders 'who have to be right all of the time' are constantly contributing into their wealth pool. It is true that the rich keep getting richer, and it is especially true in forex. QUIT CONTRIBUTING TO THEIR FAT, FANCY LIFESTYLES AND START CONTRIBUTING TO YOUR OWN!!!!!

Imagine if You will that at the top You have big banks and mega traders who have the power to influence the market in ways that You and I can't imagine doing. Now imagine that these same people have vacuum cleaners in the average traders pockets. They lead traders like sheep to the slaughter with what seem to be good trade set-ups, then they turn the vacuum on and that's it. The traders who didn't cut the bad trades are now broke and miserable, while the banks and mega traders are fat, rich and happy.

Trading is not a right and wrong game, it is a shopping game. You have to spend money to find the best deals. If the deal fails, stop your money flow into it and look to buy a better deal. No man in his right mind would continue to send someone $100.00 every month to get the grass cut, when the grass man never shows up, yet traders pay good money for positions that are not serving them.
QUIT PAYING TO BE WRONG AND BROKE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Your positions should be making You fat, rich and happy!

All You can really do in forex is look for the odds that give You an advantage and grab'em. If You grab and find that Your hand is full of air instead of paper, You'd better cut that trade and follow the money trail. The discipline to follow good trading rules will give You the advantage in forex!

YOU CAN DO THIS (^_^)!!!!!

On Scary Corrections

Catch up

Record prices spawn new wave of China gold bugs: "More investors are moving into paper gold because of the lower capital costs. The prospect of making big and quick bucks by betting on gold's ascent is beginning to look like a fairly easy way to make money." Keep this in mind to temper they hype the next time you hear how China is going to be a huge physical market. One could argue that the gambling like nature of Leverage would have more appeal in the East than the West.

More than 2.8m tonnes of hidden copper stocks: "...how much copper is being stored ‘off market’ in private inventories..." Guess what, there is a lot of off market (in that we don't know who and where) gold and silver. At least we know the overall stock figure is circa 160,000t. When you have that much overhang relative to new mine flow, "...sudden and violent liquidation could pose a major threat to market fundamentals..." Of course a sudden and violent flow of dollars into gold could cause the same problem.

Another Lawsuit Filed Against JP Morgan For Silver Price Manipulation: I nearly fell off my chair reading this from Zero Hedge - "a lot of the content in the filing is regurgitated filler" and "at time reads like a diary of a conspiracy nutjob, and unfortunately that is how the conflicted legal system will see it". What happened to their usual goldbug ra ra ra? BTW, not much in the 100+ page filing and it wasn't very convincing for me.

Dutch Socialist Party puts gold questions to treasury secretary: Note that the Reserve Bank of Australia, in contrast to most central banks, answers these two questions in its past annual reports -

"2) Why are gold and gold loans stated as one line item in the annual report 2010 instead of mentioned as two separate items?
3) Can you give an overview of the yearly yields of the gold loans during the past years?"

If the RBA can disclose this information, why not the other central banks? Interestingly, the RBA has wound back all of its gold leasing. Would you take counterparty exposure to a bullion bank for 10 or 20 basis points return?

ALGORITHMIC TRADING (GUEST BLOG)

What is algorithmic trading?

Trading with an algorithm is where traders take their trading strategy and put it into code, allowing a computer to execute that code 24 hours a day while the market is open. By default, trading manually is restricted to waking hours (often aided by the use of Red Bull, in my case), and is limited to the number of charts and currencies the trader can watch.

Naturally, the amount a single person can watch, monitor and trade is quite finite. But by utilizing an algorithm traders can have computers do in microseconds what would take humans hours to manually, thereby opening up a new supply of trading opportunities (not all of them being good opportunities, mind you).

Meta4 trading platform allows traders to create their own automated forex trading programs in what is called an “Expert Advisor.” The use of the software is free for all traders - demo and live.

The rise of the algorithm

According to my research, in 2004 a whopping 98% of trading in the foreign exchange market (or forex for short) was manual trading; but by 2010 only 55% of trading volume came from a human. The forex market is a fast moving market that is open 24 hours a day, and I think this huge influx in algorithmic trading is traders trying to capitalize on these factors.

Some exchanges here in the States have tried to embrace algorithmic trading, but have met resistance. My research concluded that forex has been more friendly to algorithms simply because the market has no central exchange to regulate where a trade comes from.

The Pros and Cons

One of the benefits of algorithmic trading in any market is the increase of liquidity. Algorithmic trading typically places more trades than a human naturally would, which opens up more liquidity for everyone: human and machine alike. But with this comes a change in volatility. An increase in volume naturally leads to increased volatility. But some suggest algorithmic trading might actually lower market volatility as algorithms aim for optimal execution at minimum cost.

What’s on the horizon?

One very important lesson from my college years is this: the more we learn, the more we learn we don’t know. My research into algorithmic trading has answered some questions, but seems to have opened up even more. For instance, what is the future of algorithmic trading, and how will it impact my trading? I’m currently researching this topic, and plan on releasing another infographic soon with my findings. Stay tuned: more good stuff is on the way!

For more information on Algorithmic trading, Here is a programming link: http://www.ibfx.com/Education/Programming, or You may contact Adam at <adam.evans@interbankfx.com>

Once Upon a Time

A Fofoarain take on the swiss move

The Swiss National Bank press release: "The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development."

The Fofoarian rephrase: "Too many people are trying to store value in our currency, which is distorting it's role as a medium of exchange. We'd rather you save your wealth in something whose price increase won't impact the economy because it has minimal industrial/productive use but which many people still think is valuable anyway. Hey, I know, how about gold?"

Don't know what I'm talking about? Have a look at this picture and then read this.



Eric, Catherine and Kid

I forgot to mention I'd left some comments/speculation to this excellent article that looks at the Sprott three months to get my silver story, which includes some graphics of what 600t of silver looks like.

I also liked this blog post by Catherine Austin Fitts, keeping things in perspective:

"Gold is a metal.

If everyone takes all their money out of operating enterprises and puts it in gold and pays people to watch their gold or dig up the earth to get more gold, the economy will stop.

The top guys bubbled real estate and used the money to buy up gold and silver cheap while imploding the emerging markets and forcing their way into big real estate and equity positions there. Now they will allow gold and silver to rise and shift their money back into real estate and land. The emerging markets will continue to rise. And of course there will be interim pumps and dumps along with the way. And technology, including of weaponry, is the wildcard. Our current economy is operating on 50-100 year old technology.

Of course, without law, that which can be stolen and protected rises in value. Operating enterprises require the rule of law or expensive private armies to retain value when times are lawless.

Hence, there is no one answer, no magic bullet. If there is a core, it is certainly not a metal. It is, rather, intelligence both human and divine.

“Happy is the man that findeth wisdom, and the man that getteth understanding. For the merchandise of it is better than the merchandise of silver, and the gain thereof than fine gold.”

Great economies are raised one healthy child at a time. Sound currency certainly helps."

Kid Dynamite's post on the Gallup finding that "Thirty-four percent of Americans say gold is the best long-term investment" is also worth a read along with Adrian Ash's take on it, where he notes "that the gold bubble comes far more in media coverage than in actual investment decisions to date".

Physical v Paper & PAGE discussion on FOFOA

Below is a cut and paste of some of my comments on this issue at FOFOA's latest post. Also see here for some comments on the GBI system which was the focus of the FOFOA post, in particular the "fully insured" claim, which many operators imply they have.

mortymer: “You will maybe find this one interesting”

I had seen the SNA papers and tend to agree with Paul I's "egghead" analysis- in the end there is no forced requirement to split out physical gold from unallocated from leased out, so they can continue to play their games.

Kid Dynamite: “How do you have true allocated storage of any bullion less than a full bar? Ie, yes: bars have numbers that you can put on the statement. Coins do not.”

I've posted on this issue here. In my view "true" allocated can only be for full bars and coins. Bar numbers help in trusting the custodian, but can still achieve the same with unnumbered bars and coins by marking them (eg texta). One way to really test if allocated is being offered is to ask if you can view your metal and if there will be any problem if you mark your coins and bars.

Blondie: “The interview with Ned Naylor-Leyland describing PAGE is a must watch IMO, as I agree that this has the potential to be a real game-changer.”

I'm underwhelemed by PAGE. So there may be a "fully allocated spot gold contract". Guess what, we sell the 300t of physical gold we refine each year at spot in the OTC market - the buyers can be totally private. I don't think we will see much trading moving to PAGE beyond what bullion banks will feed it to meet local demand as other buyers aren't going to want their activities out in the public and visible to the benevolent Chinese Govt.

The Giants are going to continue to deal with the bullion banks in the OTC market where they can wade about without anyone knowing.

Blondie: "The significance I see in PAGE is as a physical gold price discovery market. If it is fully allocated contracts that create the spot fix, then I see an arb developing between the existing (paper-based) exchanges and PAGE where the contracts are backed by physical."

Just to be clear, in the wholesale markets the price of paper unallocated gold with a bullion bank in London and physical gold are the same. Tonnes and tonnes of physical deals (as well as paper) are priced off the London Fixes. The Giants don't need PAGE as a "physical gold price discovery market" - it already exists in the OTC market. There already are arbitragers between paper futures exchange and "contracts backed by physical" ie allocated and spot physical deals.

This is not to say it will always be like this, but right now paper price = physical price. Through all the ups and downs of the past five years and all the rumors of imminent market failure I have not seen paper and physical diverge.

As to PAGE being a way to get renminbi exposure, well that will be interesting to watch but note what Victor said "long the allocated contract at the PAGE and short gold in US$" - the end result is no impact on the gold price because the long cancels the short.