james16 Chart Thread

I just lurked this thread for a long, long time before joining the fray

hehe, fancy booklearnin' with little relevance to trading (in this context, anyway).

I just get a bit worried when someone posts junk like 'if you have 3:1 r:R, you will automagically hit your TP 75% of the time!' (and therefore everyone can be a breakeven - or better - trader without trying).

I dont really want to be responsible for someone losing their house because they think the internets taught them the magic MM trading secret. Even if it means an offtopic rant every now and then

lol, I wish. My job is far, far more boring. And way less lucrative

I'm on two different (demo) brokers - FXDD and MB Trading. The former closes D1 charts @ 5pm EST, whereas the latter closes them at 12 midnight EST. There's obviously a large time-gap there. Comparing identical charts, the general chart shapes are clearly identical, however when it comes to PA, one, for example, shows a very pronounced DBLHC. On the other, there's nothing at all. Since obviously all brokers use different times, am I at a disadvantage using one over the other, and more importantly, am I taking bigger risks trading one over the other - ie. the aforementioned PA?

Just having a little fun with ya, joel.

I thought you were (or wishing you were) Merlin. He knows all about that
trade modeling stuff.

Anyway, your lurking has paid off well.

Jim

Alot of guys here use a bunch of different brokers with different time offsets. Helps you get a better overall picture of the market, as well as giving you twice as many bars to trade.

I think SC might even have 5? (I could be making that up)

You arent really taking bigger risks using either one, unless they do something retarded like close daily candles in the middle of the London session. If you look at it at the most basic level, you are looking at the same information on both screens - PA setups on either are just as valid.

I wish. I still have pretty much every post of Merlin's saved.

And thanks, much appreciated - I'd like to think I've progressed at least a little in the 1500 pages or so since I made my first j16 trade (a pin right into a massive PPZ/fib/round number for a spectacular full bar loss!).

I've read Tharp's stuff on RR - and it looks good on paper, but like everything outside of PRICE, it lags. It is a calculation of the past. It is just not possible to calculate forward - hence high probability PA at confluenced areas is what you need. .5R, 1R, 10R - what ever the market will cough up, I'll gladly take - except for the super tight crap.

MM (proper position sizing specifically) - it ain't rocket science - so simple to do and understand, and hoped for RR has NOTHING to do with it!

So.... now that you are here....

A posting or two you've made leads me to believe that you might know something about how/when banks move funds into the market. I'd love to see you explain a little of it as you can. Pretty please?

Guys sorry but want to understand this portion more

Is this valid fib confluence even when 1 is looking for resistance and the other support?

Maybe This Can Clarify More, It's Very Basic :
http://www.mediafire.com/?sharekey=1...018c8114394287

Regards,
Basber

hhmmm - never measured it that way, but I'd say no. (I could be wrong here) <scratches head>

The idea is to measure a retrace - and hence you'd need to be interested in measuring in the same direction.

And - I've seen some fib wizards throw up multiple fibs - I'd focus on one at a time for now and finding confluence with a PPZ.

Hey Trader

You would only want fibs going the same way for fib confluence. So those would not fit that criteria. Independently those are drawn right though

Best
Mike

yeah I was going to say, there probably is some validity to it, but not the way we look at it here. Cause again fibs are just a tool, so to say it is wrong would be wrong lol. But for the way we do things here yeah this would be wrong.

Ah trading

And I was going to strongly disagree. LOL. I totally do what Tradertt has done. It's a confluence for christs sake and I use it exactly this way!! Thought everyone here did?!? LOL

Take for example the T-Shirt collection in the closet. I not only wear them, they clean my glasses - and interestingly enough, they do double duty as beer bottle openers. Hence many of them have a hole in the front...

Ah beer...

yes time does matter. if you watch the charts everyday you will notice pairs do most of their moving during the overlap of london and NY sessions.
things don't move much during Asia session, especially non-JPY pairs.

to answer your question, if i saw a really good setup on H4 but it was going into the asia session, no i would not take it.. unless it was USD/JPY or AUD/JPY or any pair that is in Asia timezone

@basber thanks for the file. unfortunatly when i downloaded it the suffix is flv and i don't have program to open it and when i went online they said it is an unknown suffix??? thanks anyway i appreciate it.

This should be a page 1 quote.

If only more people thought like that! Take good bars in good places, watch for trouble areas and let the money sort itself out.

Not that risk management isnt important - it just doesnt need to be overcomplicated like some people end up doing. My basic rule is 'dont act a fool'.

Risking 1000 pips for a 20 pip gain? Dumb.

Risking 50 for a trade that will almost certainly hit 30, probably hit 65 and possibly shoot off to 100+? Seems fine to me, even if some of the 'strict' interpretations of r:R would tell you its a bad trade.

to be honest, forex isnt really my area - i am on the debt market side of things. But, from talking to guys who do that kind of stuff, it is pretty similar. This is probably going to be alot more basic than you are looking for, but if there is any interest in stuff I'd be happy to expand in the slow-thread-3am times (aka its midafternoon on a friday and i am braindead and bored ) So not sure how much use this will be...

Your institutional desks do two main things. They spend a ton of their time filling orders for their big clients - mostly manufacturers/importers/exporters who want to hedge the cost of their inputs and/or lock in the selling price of their outputs. If a miner is shipping 20m tons of copper to Japan every six months, they dont want to risk the exchange rate falling through the floor and cutting their profit margin in half. So they use a forward contract to hedge it out.

(not all companies do this, though... many run a floating book to try and capture foreign exchange gains. whether or not this is appropriate is a whole topic on its own.)

They are the ones who are largely responsible for your round numbers being so strong - they are likely to buy/sell forward at the nearest round number. They are also the kinds of orders that lead to things like the breakout trade mike was talking about the other day - if they want Y20m at 96.75, for instance, price is going to hit that 96.75 and bounce off it again and again until the order is completely filled. And after that, price can shoot straight through.

The other half of what the insto desks do will be hedging their own exposures. The US and Europe (largely London) are the best place for banks to borrow big sums of money - huge, liquid, efficient markets where they can borrow with a tight credit spread and in big volumes. So when an Aussie bank needs more than it can profitably borrow here, they head to London to borrow GBP, convert it to aussie dollars, and then hedge the future payments.

(in reality, they do a cross currency swap, but the effect is the same since they are just laying off both sides of the contract to counterparties who are then going to trade it into the market)

These types of transactions probably lead to the PPZ's you see - their clients (mostly mortgages) are going to be paying them in aussie dollars, but the bank owes someone in London a bunch of GBP. To protect themselves from movements in the exchange rate, they might lock in 10 future payments at x.. and so you will see big reactions off those numbers as the bank locks in a bit more of their future obligations when price hits their target.

Banks are super risk averse, so they dont like holding forex risk on their books - but the traders are given some discretion to trade (with tight risk management and oversight). So price wont exactly hit a number and reverse - but close to it.


Then you have your investment banks, who do a bunch of different stuff.

Obviously, alot of them have retail sides, so they will be processing orders for people like you and me. Some also do a significant amount of prop trading. Amusingly, alot of their trading (at least the guys I have talked to) is based on the same kind of things we do here. One guy I have beers with every now and then works on a forex desk, and trades nothing but pinbars and s/r levels. And drives an Aston Martin.

The other big thing they do is arbitrage trading. From what I understand, it is mostly triangular arbitrage and covered carry trades, but they also have a bunch of advanced algorithmic trading (sub-second high velocity stuff) that no one really understands.

Tri arb is pretty straightforward. Theoretically, and ignoring the spread, an Australian buying US dollars should pay the same amount whether he goes through AUDUSD, or swaps his aussie dollars for yen and then yen for US dollars.

So they look at (for instance) AUDJPY, AUDUSD and USDJPY, and as soon as they get a little out of line, stuff as much money as you can into the trade until they are back in line.

And, being investment banks, they then take this as far as possible, so have a bunch of algorithms constantly looking at every possible pairing and every possible path between currencies to see if they can make a pip on a trade - which isnt much to us, but when you can put $100m into a trade...

I guess the big effect that this is going to show on the chart is the mean reversion you see - as soon as price diverges too far from where it should be (which is based mostly on interest rate differentials, see below) you will see these guys throwing money at the crosses until the divergence disappears. This is also a big factor in why you see pullbacks and retraces.

The other big thing they get involved with is the covered carry trade. Guessing you already know all this stuff, but basically if you can borrow yen at 1% and invest in riskless NZD at 6%, then you can make a ton of money by borrowing yen, buying nzd at spot, investing in 6m gov notes and then swapping back to JPY to repay your loans.

Obviously, if NZDJPY moves during this 6m period, you could end up losing more money than you make, so most of these trades will be covered- they will just go into a forward contract to buy the right amount of yen to repay their loan when it is due. Again, big order at specific number -> PPZ.

This kind of trade also serves to make sure that markets dont get too far out of line with each other.

Some of the less risk averse types also do these trades uncovered, banking on the movement between currencies either being in their favour, or being smaller than the interest rate spread they are banking. They make alot more money when it works for them (hedging is expensive), but get wiped out on a regular basis when it doesnt. Usually they will just get their stops to BE though.

Again, the carry trade (and, more importantly, what it does to the charts) could be a topic in itself. Especially when you get into things like risk aversion (why does the Aussie drop when the S&P does?) and correlations with commodities and other currencies (aka, CDN + crude/NG). I believe Mark uses alot of these types of correlations in his voodoo pot.

The biggest players who are probably most responsible for making PA 'work' are the hedge funds. They run covered/uncovered carries, triangular arbitrage, but also do massive volumes of trading. If you see something pin off a 365EMA, a breakout fail and go back hard the other way or a DBHLC dive through a PPZ, it is probably a hedge fund guy looking to get himself a new yacht. They are also the guys responsible for the news trade kicking your ass every time.

In a way, the hedge guys are the 'smart money' that is bustin your stops. They know that a bunch of people trade MA crosses (and where their stops are going to be), they wait for an MA to cross and then take the other side of the trade, push through the stops and liquidate.

Unfortunately, since there are a huge number of funds out there with a rainbow of approaches, the only way to really take advantage of what they are going to do is to be on the trading desk of the investment bank that takes their orders

Lastly, I guess you have your central banks who buy/sell huge volumes of currency, depending on what kind of monetary system the country runs. Many countries actively manage their exchange rate with their major trading partners, leading to super strong areas of support and resistance. This is another huge topic on its own, but look at a chart of EURCHF to see what happens when a central bank wades into the market.

The Swiss and Japanese central banks are probably the most interventionist out there. They have some massive s/r levels that stick out like nothing else.

*edit*
Wow, that was quite a bit longer than I planned. Shouldnt have had those 4 coffees and started typing randomly

@dengzhi thanks for the answer. i kind of figured things would be to slow to trade during asia. would the setup still be valid during uk open? if i had an 8 oclock pb and 12 it wasn't broken but by 4am it was then is that tradeable?

thanks, john

Yep

Nice. Cool stuff.

Thanks joel.

Jim

...and thanks for the rest of the post too. I love drinking in that stuff.

thanks mike as always. yes div. is one of the tools that has lots subjectivity to it, and in almost every case there is as much reason to use it as not to use it. that's my feeling for it so far.

my trouble(for the lack of a better word) with div. is probably more for:
1. it prevent me from taking counter-div. trades
than
2. use it as a plus for taking trades

this is what i mean on the chart below. when the div. is in effect, it prevents from taking short trades like the red arrows(i understand these may not A+, i just use chart to show my point, and i don't trade 1h).

what do you think of these counter-div trades?