"Predatory trading induces and/or exploits the need of other investors to reduce their positions."--Markus Brunnermeier, Professor of Economics at Princeton University
"Parasitic traders profit from trades that other traders make...They make money when they correctly anticipate how other traders (the Big Boys) will affect prices"--Lawrence Harris, Professor of Finance at USC and former Chief Economist at the Securities and Exchange Commission
"Parasitic traders use exposed information to profit at the expense of vulnerable traders"----Lawrence Harris, Professor of Finance at USC and former Chief Economist at the Securities and Exchange Commission
"In any market, as in any poker game, there is a fool. The astute investor Warren Buffett is fond of saying that any player unaware of the fool in the market probably is the fool in the market...Knowing about markets is knowing about other people's weaknesses."--Michael Lewis, Liar's Poker
My approach to trading is based on the premise that order flow can occasionally, and only occasionally, be anticipated. In other words, my trading approach is focused on exploiting the inefficiencies in market microstructure that force the Big Boys to enter, leave, or reposition themselves within the market.
Before I say more, let me begin by introducing myself and explaining my journey as a trader: I have been a university professor for 10 years, and I love my job. However, as a state employee, the current economic downturn has made it very clear that my economic prospects are too closely tied to my job, and the economy. Two years ago, my recognition of this led me to decide to start a business, and after coming up with a few great ideas, I kept running into the same hurdle: I don't want my success to be dependent upon someone else's ability to perform. Trading offers a great solution to this problem.
I became interested in trading during the Spring, 2010. Just at the Greek debt crisis began to unfold, Goldman Sachs was implicated in the debt cover up. A few days later, Warren Buffett, said that he believed that Goldman Sachs would successfully weather the storm. The next day, based solely upon Buffett's words, the Goldman's stock went up 8%. That incident demystified financial markets for me, and made me incredibly curious.
I initially started reading about the stock market, but somehow currency became my main focus. After graduating from Babypips, I began an intensive study of the two FF threads with the most participants at the time: James16 and Jacko. I was never able to profitably trade either approach.
After reading and unsuccessfully demo trading strategies from a number of threads based upon price action, chart patterns, I was about to give up. Then, I came across a post by someone who mentioned that they didn't use charts to trade. So I decided to see if I could trade without charts, or at least make them a supplemental tool.
I have read a number of books on trading strategies and trading psychology. To be honest, I think that I have put as much work into studying the foreign exchange market as I did into getting my Master's degree at UCLA. However, it was not until I started reading the academic literature on trading and foreign exchange microstructure that currency trading began to make sense to me. Now that I understand the academic fundamentals, I can tell when a popular book has relevant information.
Don't get me wrong, I don't think that the academics have it all figured out, but reading the academic literature has helped me make better decisions about which information sources can help me become a profitable trader, and which ones are using me to make their profit.
I am not going to lay out a trading plan now, but I will offer a syllabus. Of the numerous books and articles that I have read, the nine below are the ones that have been most helpful to me.
A. Market Microstructure, Macroeconomics, and Intermarket Analysis: Why do Markets exist? Who are the Big Boys? Are Markets efficient? How does the search for liquidity influence the market? Where are we in the Business Cycle? How do interest rates, inflation, GDP influence the currency markets? Is credit contracting or expanding? Risk Aversion or Risk Appetite? How are the markets interrelated?
1. Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris, Professor of Finance at USC and former Chief Economist for the Securities and Exchange Commission
2. A Concise Guide to Macroeconomics: What Managers, Executives, and Students Need to Know by David Moss, Professor of Business, Government, and the International Economy at Harvard University
3. Currency Trading and Intermarket Analysis: How to Profit from Shifting Currents in Global Markets by Ashraf Laidi
4. Trader Vic: Methods of a Wall Street Master by Victor Sperandeo (especially Chapter 10)
B. Case Studies: The first four texts can be quite abstract and academic. The next two books tell the stories of some of the most successful traders who have developed trading strategies based upon an understanding of market microstructure, macroeconomics, and intermarket analysis. If my goal is to base my trades on the big boys, I have to understand how they trade.
5. More Money Than God: Hedge Funds and the Making of a New Elite by Sebastian Mallaby
6. Reminiscences of a Stock Operator by Edwin Lefevre
C. Trading Psychology and Sentiment: How does hope, fear, and ego influence trading decisions? What's on the market's mind right now? How should sentiment influence our trading plans?
7. The Psychology of the Foreign Exchange Market by Thomas Oberlechner, Professor of Psychology at Webster University
8. The Way of the Dollar: Trading Currencies for Profit by John Percival
9. Research Papers by Carol Osler, Professor, Brandeis University International Business School: http://people.brandeis.edu/~cosler/
I chose my user name because it reflects my trading goals. In Market Wizards, Mark Weinstein referenced cheetahs to make a point: "Most people will not wait for an environment to tip itself off. They will walk into the forest when it is still dark, while I wait until it gets light. Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, preferably one that is sick or lame. Only then, when there is no chance it can lose it's prey, does it attack. That, to me, is the epitome of professional trading.”
This passage resonates with me because I believe that the shifts in order flow can be anticipated. And, it is my reponsibility to patiently wait for discrepancies between events and expectations to occur.
I have a good theoretical understanding of what I am attempting to do, now I need some market experience. That's why I've decided to start this journal. Here, I will chronicle my thoughts on what's moving the market, and how I am positioning myself to take advantage of market mispricings and inefficiencies.
Nothing posted in this journal should be taken as trading advice. Please trade your own analysis of the market.
Wish me luck
P.S. You might notice more grammatical and spelling errors than you'd expect from a professor. I can become quite anal about proofreading and editing. If I don't ignore it, I will spend too much time editing, and as a result, I will lose focus on the main purpose of my journal. Sorry!
"Parasitic traders profit from trades that other traders make...They make money when they correctly anticipate how other traders (the Big Boys) will affect prices"--Lawrence Harris, Professor of Finance at USC and former Chief Economist at the Securities and Exchange Commission
"Parasitic traders use exposed information to profit at the expense of vulnerable traders"----Lawrence Harris, Professor of Finance at USC and former Chief Economist at the Securities and Exchange Commission
"In any market, as in any poker game, there is a fool. The astute investor Warren Buffett is fond of saying that any player unaware of the fool in the market probably is the fool in the market...Knowing about markets is knowing about other people's weaknesses."--Michael Lewis, Liar's Poker
My approach to trading is based on the premise that order flow can occasionally, and only occasionally, be anticipated. In other words, my trading approach is focused on exploiting the inefficiencies in market microstructure that force the Big Boys to enter, leave, or reposition themselves within the market.
Before I say more, let me begin by introducing myself and explaining my journey as a trader: I have been a university professor for 10 years, and I love my job. However, as a state employee, the current economic downturn has made it very clear that my economic prospects are too closely tied to my job, and the economy. Two years ago, my recognition of this led me to decide to start a business, and after coming up with a few great ideas, I kept running into the same hurdle: I don't want my success to be dependent upon someone else's ability to perform. Trading offers a great solution to this problem.
I became interested in trading during the Spring, 2010. Just at the Greek debt crisis began to unfold, Goldman Sachs was implicated in the debt cover up. A few days later, Warren Buffett, said that he believed that Goldman Sachs would successfully weather the storm. The next day, based solely upon Buffett's words, the Goldman's stock went up 8%. That incident demystified financial markets for me, and made me incredibly curious.
I initially started reading about the stock market, but somehow currency became my main focus. After graduating from Babypips, I began an intensive study of the two FF threads with the most participants at the time: James16 and Jacko. I was never able to profitably trade either approach.
After reading and unsuccessfully demo trading strategies from a number of threads based upon price action, chart patterns, I was about to give up. Then, I came across a post by someone who mentioned that they didn't use charts to trade. So I decided to see if I could trade without charts, or at least make them a supplemental tool.
I have read a number of books on trading strategies and trading psychology. To be honest, I think that I have put as much work into studying the foreign exchange market as I did into getting my Master's degree at UCLA. However, it was not until I started reading the academic literature on trading and foreign exchange microstructure that currency trading began to make sense to me. Now that I understand the academic fundamentals, I can tell when a popular book has relevant information.
Don't get me wrong, I don't think that the academics have it all figured out, but reading the academic literature has helped me make better decisions about which information sources can help me become a profitable trader, and which ones are using me to make their profit.
I am not going to lay out a trading plan now, but I will offer a syllabus. Of the numerous books and articles that I have read, the nine below are the ones that have been most helpful to me.
A. Market Microstructure, Macroeconomics, and Intermarket Analysis: Why do Markets exist? Who are the Big Boys? Are Markets efficient? How does the search for liquidity influence the market? Where are we in the Business Cycle? How do interest rates, inflation, GDP influence the currency markets? Is credit contracting or expanding? Risk Aversion or Risk Appetite? How are the markets interrelated?
1. Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris, Professor of Finance at USC and former Chief Economist for the Securities and Exchange Commission
2. A Concise Guide to Macroeconomics: What Managers, Executives, and Students Need to Know by David Moss, Professor of Business, Government, and the International Economy at Harvard University
3. Currency Trading and Intermarket Analysis: How to Profit from Shifting Currents in Global Markets by Ashraf Laidi
4. Trader Vic: Methods of a Wall Street Master by Victor Sperandeo (especially Chapter 10)
B. Case Studies: The first four texts can be quite abstract and academic. The next two books tell the stories of some of the most successful traders who have developed trading strategies based upon an understanding of market microstructure, macroeconomics, and intermarket analysis. If my goal is to base my trades on the big boys, I have to understand how they trade.
5. More Money Than God: Hedge Funds and the Making of a New Elite by Sebastian Mallaby
6. Reminiscences of a Stock Operator by Edwin Lefevre
C. Trading Psychology and Sentiment: How does hope, fear, and ego influence trading decisions? What's on the market's mind right now? How should sentiment influence our trading plans?
7. The Psychology of the Foreign Exchange Market by Thomas Oberlechner, Professor of Psychology at Webster University
8. The Way of the Dollar: Trading Currencies for Profit by John Percival
9. Research Papers by Carol Osler, Professor, Brandeis University International Business School: http://people.brandeis.edu/~cosler/
I chose my user name because it reflects my trading goals. In Market Wizards, Mark Weinstein referenced cheetahs to make a point: "Most people will not wait for an environment to tip itself off. They will walk into the forest when it is still dark, while I wait until it gets light. Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, preferably one that is sick or lame. Only then, when there is no chance it can lose it's prey, does it attack. That, to me, is the epitome of professional trading.”
This passage resonates with me because I believe that the shifts in order flow can be anticipated. And, it is my reponsibility to patiently wait for discrepancies between events and expectations to occur.
I have a good theoretical understanding of what I am attempting to do, now I need some market experience. That's why I've decided to start this journal. Here, I will chronicle my thoughts on what's moving the market, and how I am positioning myself to take advantage of market mispricings and inefficiencies.
Nothing posted in this journal should be taken as trading advice. Please trade your own analysis of the market.
Wish me luck
P.S. You might notice more grammatical and spelling errors than you'd expect from a professor. I can become quite anal about proofreading and editing. If I don't ignore it, I will spend too much time editing, and as a result, I will lose focus on the main purpose of my journal. Sorry!