(binned per thread starter’s request) CookieMonsta's Journey Into

Hi CookieMonsta

yes, E/U is in congestion --acc/dis-- at this point no telling which way it may go, need price to lead/show legs, the stops are another very good clue as to what they are maybe intending to do, you are correct for anyone to buy or sell in the market there MUST be someone on the other side to take the trade, understanding this help get into the big boys and MM's mindset of what they HAVE to do to process the bigger trades.

we can see there has been some profit taking in the USD index too, then what may be a stop run to offload the rest of the trade??? too early to tell if a game changer yet.



regards

Phil.

This I definitely agree with.

Also there are words on the ground about the 4th rate hike and the new fed chief, so not sure if markets are spooked by these too. And are unsure what is the direction the new fed chief might pursue.

I also noticed that they took 2 levels out, from the chart you highlighted, they are definitely running stops to square down after a long campaign. But they could continue hunting more stops if they could not get rid of enough of their position.

Hi CookieMonsta

we can never know as retail traders how big 'their' orders are and how long it will take to unload/load, they often have to do it over multiple levels if it is a really big order, the last two videos i posted explain this well, better than i could anyway.

the congestion in E/U could possibly be a massive order/s being processed at the moment??, they have their 'whispers' among the big players and i know from talking to one of them myself they do thing in groups.

regards

Phil.

Hi CookieMonsta

you see today on E/U m15 is the same (but different in appearance), they used the currencies (not the wheel this time) to start this, at london open they pushed up into the orders/stops then it fell, the stops where tight both sides today and now some buyers have arrived near the range bottom so watching carefully for their possible exit again.

regards

Phil.

http://www.smbtraining.com/blog/principles-for-turning-options-trading-ideas-into-profits

Good stuff

Hi Phil, I think perhaps it's more than that, it seems to be a really tight coil which may lead to a short term reversal or pullback.

It just occurred to me in the back of my mind, Alex was asking when to is stop hunting Vs trend change.

Actually I was also pondering about what fti mention about accumulation and distribution zones, and buy zones and sell zones, what Phil indicated is 1 way to see it, aka profit taking.

When markets are profit taking, or accumulating or distributing, they establish key levels, so I was thinking perhaps 1 way to see if in line with trend is if these key levels are being held or taken out.

Key support and resistance, help us identify terrain possibly. So the hips and lips in extremely choppy markets show the extremes which form key support and resistance, well it isn't that the support and resistance is there , but perhaps the market watches these levels closely and because of that, their psychology changes to factor this in when it's broken out or stop hunted and falls back into the chop.

i think i just had a new epiphany abt collars today.

longer dated collars when put on will have smaller deltas.
shorter dated collars will have more deltas.

so speed of move, sigma must be inline with delta, slow speed = longer dated collar, = low delta, but more time to go ITM
faster sigma = shorter dated collar, = high delta, but less time to go ITM, or rather, i should put it this way, we need to spec delta of collars whose profits are mainly from delta to be inline with sigma.

main reason, longer dated options price is has alot more of volatility and time premium compared to actual spot price. shorter dated ones are opposite, hence exposure to high sigma evens can expose you to loads of profits asap if choosing high delta strategies.

so thats what the 6th dimension fti talked about, sigma, speed of move by market is used for

making use of implied volatility skew. IV skew if done in your favour say, 10pips in your favour, skews your r&r, but also 1 more thing, if price does not move 1 bit at all, you profit by default, on expiry.

so theoretically, lets say if FOMC is to be say next thursday, i know the time, so i can spec the timing, so i don't know direction, so i perhaps do a long eurusd direction, short gbpusd direction, and collar (actual strategy will differ when factoring IV skew), say i put it on 2 days from FOMC and 2 weeks expiry so that the premium is still there, while perhaps still getting enough deltas to justify a good risk reward ratio.

so essentially this should be perhaps in line with news trading or global macro, in which we have a catalyst, say FOMC, and we decide a strategy to handle it, straddle form on USD and the vehicle is options collar done into a straddle so its more like a butterfly, short the wings, hmm maybe a butterfly is not a good choice, because can't make much on it lol. Or we can have directional assumptions, but its a way to limit risk while holding on to positions.

oh yea, after writing all these thought out, it seems like i have learnt more about options today by elucidating my thoughts and examining them in word form.

market feels like its confused these few days, lots of USD cross current, seems like market is every watchful of USD fundamentals, just yesterday's CPI, core retail sales and all, caused a 100+pip move, and with talks of the rate hike, hmm.

https://www.youtube.com/watch?v=79dsWkQ45-Y

interesting results.

if you randomly sell premium, you are not compensated for the risk you are taking on, the key is, to do it small size (ants work), and do it when volatility premium is high(edge), to compensate for risk of taking on that risk.

so it agrees with the theoretical edge trading, which is buy IV when low sell IV when high, and that is where the theoretical edge is.

as for the actual strategy selection, i prefer credit spreads when selling premium, its defined risk after all.

actually selling premium can work, you don't have to do naked, you don't have to do butterflies, and if price has a trend, you can sell with trend, in fact you can withstand the whipsaws, because of the defined risk nature and ability to hold onto position with respect to time.

the key? well on their videos they did say, they try to get 1/3 premium of their strike widths, 45 days to expiration, and they attempt to target 70% with rate, which is 70% chance to be profitable, so their breakeven is chosen at 70% chance to expire there.

you can keep selling put spreads in a bull market, and a call spread in a bear market and if its topping or bottoming, you can do butterflies or condors. so actually the taf's feel of price action on daily charts can be used here to feel the trend too.

disclaimer i have no affiliation with them but i feel like their research brings new point of view and learning points.

there really is 1 key though, if you do not manage the trade, then you probably will run into the numbers, risk reward and accuracy rate, but to really come out ahead even in tough times, its to inject discretion in managing the trade, the key is not to do it mechanically, but with discretion, that is the skill component which can tilt your expectancy and allow you to profit very well in a consistent manner.

There is probably 1 more relationship between gamma, delta and sigma, gamma shows us where our risk is sigma accelerates, so my guess is gamma maxima and minima can help us decixe where the optimal locations to hedge are at.

If you are using the mt4 terminal, you will see 1 tab, on the pc version called exposure, it shows exposure to specific currency.

So, with respect to news, dealers will flatten their exposure to certain currencies. Therefore the crosses, let's say, dealer A is loaded short EUR and long USD, and fomc is coming up, he can't flatten easily, so perhaps what he does is, long GBP short USD, and cross into eurgbp short, this reduces exposure to USD to 0 so exposure is then purely on EUR and GBP.

So butterfly has to do with this?

What I have read from Anthony Saliba's book is that, the open interest in the options market itself resembles, a gigantic butterfly. That would explain that perhaps, the market itself may not implode, and because the position itself is counteracted .

https://en.m.wikipedia.org/wiki/Go_(game)

Just an idea, for the final rescue sequence, is there a finite set of moves which I can pull off to bring book to break even or small loss?

Perhaps the key is to lay down low cost traps. Just like in the game of go you are creating traps and reading ahead of your opponent, can you trap them in a finite set of move such that no matter how price moves you are insured against failure in a finite resource finite set of moves scenario.

I think I have an epiphany today regarding the butterfly in spot positions, when doing the butterfly, 1 is trying to balance book exposure to market, and hence the complex position and probably do not want to be overloaded on 1 single currency since it is as good as taking a big bet one 1 currency unless one has a view on that single pair, and elephants fighting would mean that everyone has a different view hence, the butterfly position, so when performing butterflies, you may want to see currency strength of each pair before engineering your currency exposure.

Essentially correlation risk is extremely high if too loaded in a single currency.

It's an interesting one, essentially, it's very similar to how portfolio managers in equities would do long short books which are beta neutral to try to be as robust to crashes as possible and even generate alpha when markets crash, by buying what's fundamentally strong and selling what's fundamentally weak.

So idea is similar, so the idea borrowed from Phil could also be applied, in that indices of each currency pair, could be done to choose a portfolio selection of currency pairs according to their direction as well as to properly diversify their correlation risk, eurusd and gbpusd has fairly high correlation risk in us timing and sometimes with brexit, opposites correlation, now this is actually very difficult to trade, why? The correlations goes from -1 to 1 which makes it difficult to manage, so getting a bunch at 0 is usually more fruitful, and diversifies properly and especially if they have a nice trend, you can ride those trends.

In Forex, because of the 3 legged relationship, it's not as easy to create a long short, as all you do is create a 3rd pair on the 3legged animal. Hence employing 0 correlation is usually more effective as a measure. Unless of course we are pretty sure 1 of the currency is the overarching driver in the currency's strength or weakness.

There is this portfolio called the permanent portfolio, it employs something similar to ro3k in correlation of assets.

The book was called fail safe investing. It's called an all weather portfolio.

If we check out bridge water, ray dalio's hedge fund, also uses all weather as their fund.

The key, non predictive investment approach.

So what 1 example of all weather does is, 25% gold 25% stock index 25% long term bonds, and 25% cash.

And when you have this, you sort of become robust to crisis, the key generator of money is the fact that the economy is a weather generator rather than a zero sum game, hence although the correlations play each other off, there is a implied drift baised upwards in the portfolio as an investment strategy as the economy is growing.

the ultimate understanding of the markets, is not just in price and time, but in human nature, hence the AoW.

know your self and know your enemy and a hundred battles you need not fear, and hence, human nature is central.

this is just for keeping performance.

i realized my mistake was trading too big and hitting my size limits too often for a small account of size $1000, and i easily go into death battle situations on average 2 to 3 times per week.

so i had to enforce afew rules
1) account sizing $1000
2) maximum loss per session, $20
3) mm skew size, 1 1 2 3, max of 7, per pair, scout sizing is 0.01 for a $1000 account, just a ball park figure im working with.
4) 3 legged animal of choice, hence when using the 3 legged animal and i choose to go long eurusd, i will only go short gbpusd to produce long eurgbp and will only go short eurgbp, hence 7 units per pair, is 21 units maximum with hedging relationships, and additional 7 contingency troopers to be redeployed, max 28.

This correlation is enforced in order to be able to decorrelate book volatility from markets volatility.

performance this week, after enforcing these safety guidelines.
did not trade on monday.

realized r&r is on average 1.4, as average risk is $5 and average reward is $7, accuracy rate is 75%.
against maximum drawdown allowed, its 0.35.
this is not statistically significant since the samples size is not large enough, it does not indicate skill.
this is a period of 4 days so to be able to effectively measure performance, since it is on an intraday basis, at least 50 sessions on varying market terrain will need to be done to properly assess for skill.

will continue to trade and collect statistics on this risk management model of trading, to see if it is statistically significant.

there is alot of areas to improve.

all trades carrying periods are on average 2-4 hours.

The basic mo is the taf+3legged animal mo.

the 3 legged animal, some of the ideas are borrowed from this.

https://www.bridgewater.com/disclaimer/?g=/resources/all-weather-story.pdf

essentially forex pairs with hard correlations, with active management can be extremely robust.

the above mo still does not insure with regards to black swan type events.

primarily because of 1 primary scenario.

this scenario is where all the risk is concentrated, i have observed how many traders have gone belly up, even some who are really good, and this is usually how it manifests itself.

definition of the scenario is as follows:
1) suppose we are at 7 units, 1 1 2 3 deployed and suddenly the market suddenly encounter a black swan type event and the slippage of 100pips or more
2) because of the slippage, the rotation is ineffective and we are in the red of 100pips before we can do a rotation, which means we are locking in 100pips at the extends where we are at our positional limits.
3) is there an alternative MO to trade out of these kinds of scenario assuming we already are at our limits, and the slippage is large.
4) taking the loss outright itself may be fairly tough, but is acceptable, but if there are strategic alternatives it will be of course, better.

implication is that:
1) our book will have to be double tiered in terms of money management, risk management, mo and skew
2) tier 1 will be standard, 3 legged animal up above
3) tier 2 will include additional capital to rescue this limit
4) tier 2 will need to be extremely robust and be able to complete the trade and bring all troopers back safely.
5) possibility of such MO is that you sacrifice opportunity cost for ability to bring all troopers back as your money is sunk in and you spend alot of time and effort to bring troopers back safely.

if you guys have watched his video, majority of what he says is true except for afew points:

1a) intraday trading in forex is workable, (fti and taf mo) there is hard evidence which you cannot argue against.
1b) adding into a mistimed trade is ok, adding against a trend is not. this is a very fine grained distinction in which many are not making, even in the industry, and they say never add to a loss, what is a loss? how do they even define what it is? unless they can properly define it.
2) this guy is trading in a very fundamental way, and although he was in a bank, i do not believe he has as strong an intraday trading mo compared to fti.
3) the best mo is when you can use fundamental analysis, with the taf mo, and the 3 legged animal. ( in the case where fundamentals work out, it can be very profitable, in the case where you mistime or market is noisy, you can still make money, in sudden trend changes, 3legged animal can help you.

extreme robustness and adaptability is number 1 in the markets.

in fti's words, when you can trade blind and still come out ahead, what do you think you can do when you have really good analysis?

thats probably why also in fti's era, the banks have fundamental analyst and then they have dealers who trade like him, making the market, and managing book's risk. they have people assessing fundamentally is it a good stock or what the macro trend is. then you have dealers, who are actively managing book position which services the market and trade technically with mo, perhaps like the taf mo, or maybe not.

the problem with all martingales and grid trading blackbox is this, there is no discretion. this is what fti was talking about, you are the edge, your dancing is the edge. martingales done blindly and grid trading blackboxes are liable to big blowups because they do not have discretion which is the edge required to do well in the markets. some trades are not wrong on timing but wrong entirely on direction, and martingales and black boxes may add to it blindly, however you will see in the taf mo, this is not the case as we do not do things blindly. the implication is really this, martingales and averaging in is an acceptable method with a proper risk overlay and that you do not blow your limits, it is a tool to help your position management skill, used properly it is very powerful, used badly it cuts you really deep.

trend following is another thing altogether, its just when markets become very noisy a rigid trend following mo can cause you to give back quite a sizable amount of your profits. it is profitable long term, but you need the trends to be there. well to do well with trend riding you have to trade like gann, but gann's mo itself is highly discretionary. you can't just use his indicators and expect to make money.

it is safe to say, many do not understand how gann trades, he trades global macro style. see how many times general conditions appear in his book, truth of the stock tape, and he uses the indices to benchmark the market. in tunnel thru the air, his trade in cotton is backed by geography, its what hedgers would do and think like, all he did was think like one. you can see part of richard wyckoff's mo was influenced by gann, he interviewed gann after all, where do you think the accumulation and distribution phase come from, i suspect its from gann. perhaps thats how they trade, very similar.

in that case, why not just revert back to the taf mo, you can trade trends and ranges and noises and all, for the shorter term.

then employ other trend following strategies to trade long term, similar to how gann trades.

Hello Cookie boy!