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Identifying Market Swings - Medium and Long Term Trading

  • #341
  • Edited 4:21am Feb 24, 2010 3:48am | Edited 4:21am
Quoting rac
Razor,
Thisn exercise was great.
Sorry I missed the opportunity to participate. I'm not a full time trader.
Your guidance is always greatly appreciated
You're welcome rac.

But we're not done yet, now that we understand how the big boys are operating. We need to discuss how we can take advantage of this knowledge.
-Razorjack
  • #342
  • Feb 24, 2010 4:23am Feb 24, 2010 4:23am
Hi Razorjack, Great thread...

Right now I am accumulating both USD/JPY and GBP/JPY for my long term goals...

Why? For me I am looking at the USD losing its appeal for carry trades in the next 6 months and being replaced by the YEN which is at a very strong level.

To support this I am looking at the VIX chart which has shown its number touching below 20 since 2008 which is bound to increase a rise in risk appetite which will help the JPY carry trade.

Another thought is the degree of money supply and ease to acquire it both in the US and UK is a strong nudge for inflation as those economies start to have strong GDP figures once again....

10 year bond is going up as well. 10/2 difference is increasing. Plus both currency pairs are at their historical lows.

The probabilities favor longing in both pairs for the next several years in my opinion...
Traderdesk -
  • #343
  • Edited 6:34am Feb 24, 2010 4:26am | Edited 6:34am
Ok, so now that we have an understanding of how the big boys are operating, we need to look at the next problem.

So again in this exercise, you work for a large institution. You are looking to put on a large position in a certain market, but you can not go against what the other big boys are doing. Remember that there are MANY banks, institutions, etc around the world and you can not go against what the majority of them are thinking or else you will end up losing money.

So the next question is, As a large trader how do you make sure that you are NOT going against the other big boys?
-Razorjack
  • #344
  • Feb 24, 2010 4:35am Feb 24, 2010 4:35am
Quoting Razorjack
So the next question is, As a large trader how do we make sure that you are NOT going against the other big boys?
Short of calling up your old roommate Bob who now works for the competition I would venture to guess the ol' saying "The trend is your friend" applies.
  • #345
  • Edited 5:29am Feb 24, 2010 4:41am | Edited 5:29am
Quoting Razorjack
It being in an accumulation phase (so you use VSA and Fundamentals )

No I don't VSA, I use terms are also used in VSA. I could be wrong, but I believe these terms are used outside of VSA.

So, now we are seeing a fundamental shift towards the JPY, it being bought to finance the carry trade. Next step, how do we go about trading it ?

Actually WHEN the shift happens JPY will be SOLD to fund the carry trade. Please read up on how the carry trade really works so that you can take advantage of it.

As...
Razorjack, my bad, I had in mind to put the description as "sold" but instead put "bought" for JPY. I messed it in a hurry to get to office. Low interest currency are used to get more out and are thus sold.

As, for those terms, yes they exist outside VSA but are related to volume trading only. As, for trading yes patientence is not a vitrue I possess.

Medium Risk aversion causing USD being favoured? As for Dubai crisis , what I understand from your previous posts is:

USD maintained a near zero interest rate. With people becoming more risk appetite it became a favoured curreny to finance carry trades.
Now, during Dubai crisis ,a sudden risk aversion came into picture. So, people tried to cover their risks by buying back dollars or unwind carry trades. With more carry trades being unwound ,the further the price was pushed. That was a short term risk aversion.

So,

a. Why are we having medium term risk aversion?
b. Risk aversion only leads to unwinding of carry trades, right? So, what is the difference when I use the term of "unwinding of carry trades" and not "risk aversion". Politically not correct?

Or just that I need to polish on my way of saying it?
  • #346
  • Edited 6:14am Feb 24, 2010 4:53am | Edited 6:14am
Quoting zoogle
Short of calling up your old roommate Bob who now works for the competition I would venture to guess the ol' saying "The trend is your friend" applies.
Yes, you can call up colleagues working in other institutions, but remember that there are many of them around the world and you can't coordinate with all of them.

As for "the trend is your friend", this applies only for small traders, i.e. "market followers".

If you remember the discussion about how the big boys put on large positions, you'll see that they put on positions BEFORE the trend starts. If you put on a big position AFTER the trend has been established, you will only end up pushing the price against yourself and more than likely lose on the trade.

So it's the BIG BOYS THAT DEFINE THE TREND. Remember that, I'll say it again, it's the BIG BOYS THAT DEFINE THE TREND. This exercise is about how you as a large trader are a MARKET MOVER not a market follower and how you make sure that you are in line with the other MARKET MOVERS.

So let's try that again, how do you as a large trader make sure that you are in line with the other large traders?
-Razorjack
  • #347
  • Feb 24, 2010 5:20am Feb 24, 2010 5:20am
Hi Razor,

I'm a relative newbie and found this thread to be truly a great help to me after I've tried other 'systems' with no success. Still learning but at least just the knowledge from you here has calmed my nerves a great deal about trading forex...

I'll have it a try on your question: you place trailing buy stops as the price continue to drop with the current trend.
  • #348
  • Feb 24, 2010 5:36am Feb 24, 2010 5:36am
Quoting Razorjack
So let's try that again, how do you as a large trader make sure that you are in line with the other large traders?
i have to be smart enough to anticipate the moves and probable effects from the decisions of central banks, governments and global institutions (imf), i have to gauge the economic trend of the major economies, global supply & demand of commodities and whether there is risk appetite or risk aversion in the investment community.
Invincibility lies in the defence, the possibility of victory in the attack
  • #349
  • Feb 24, 2010 5:58am Feb 24, 2010 5:58am
Quoting silverheat
i have to be smart enough to anticipate the moves and probable effects from the decisions of central banks, governments and global institutions (imf), i have to gauge the economic trend of the major economies, global supply & demand of commodities and whether there is risk appetite or risk aversion in the investment community.
BINGO!

Well done, Silverheat! That's 2 in a row! Move to the head of the class! :nerd:



Yes, this is exactly right. This is the only way you can know what the other large institutions are thinking.

IMO, this is why fundamentals are absolutely necessary. Because when there is a change in the economic conditions, you want to know where the market movers will be moving the market to!

I hope that you are all now putting together the pieces. For instance, you hear about how it takes time for the long term fundamentals to be reflected in the market prices. When you think about the how the big boys all move by trying to anticipate economic developments and how it takes TIME for the big boys to build up their large positions.

What does this tell you? Can you see why long term major economic developments take some time before it is reflected in the price?

Stay tuned for the next lesson.
-Razorjack
  • #350
  • Feb 24, 2010 6:38am Feb 24, 2010 6:38am
Quoting Traderdesk
Hi Razorjack, Great thread...

Right now I am accumulating both USD/JPY and GBP/JPY for my long term...
Hi traderdesk,

Welcome to the thread.

I can understand USDJPY, I'm doing the same. However I'm not sure that GBPJPY has hit bottom yet, so I'm not too keen to jump on that one. Having said that, in the future I will be looking to short GBPJPY and EURJPY in times of risk aversion.

Let's hope we both make some nice profits off these pairs!
-Razorjack
  • #351
  • Feb 24, 2010 6:58am Feb 24, 2010 6:58am
Quoting myfx
Hello Razor,

I wish you were my economic teacher when I was in college. I like the way you construct the lessons / answers. Simple language and easy to understand,.. wonderful.

Thanks again for the wonderful thread..One of the bests on the subject.
Hi myfx,

Unfortunately I don't know enough about economic theory to teach at a college / university level. But I do know enough to form my opinions and anticipate how the big boys are thinking and this is more than enough for me to profit from.

Who knows maybe I might teach this stuff on the side when I'm not trading .....
-Razorjack
  • #352
  • Feb 24, 2010 8:00am Feb 24, 2010 8:00am
Razorjack:

Thank you for starting this incredibly informative thread. It is a fresh change from other threads that are filled with EA and indicators.



I remember when I was an equity trader, when a particular company's share price needed to be 'pushed' up, we had a lot of fun accumulating and distributing the shares amongst the company's 'discreetly hidden' accounts to generate the volumes and interest. At the end of the day, the retail players are left holding the dead cat while the syndicates and my company profit. This is pure manipulation but being an employee, we do what we were told. I doubt it can be done on that scale in the currency market but as we can see, very often banks 'dump' a lot of their stock to balance their portfolio and causes a huge drop or rise in the pairs.

Anyway I am sure I speak for all here that we are really appreciative of your work and selfless effort to educate us all.

Keep up the good work.
  • #353
  • Feb 24, 2010 9:24am Feb 24, 2010 9:24am
Quoting hohgch
Razorjack:

Thank you for starting this incredibly informative thread. It is a fresh change from other threads that are filled with EA and indicators.



I remember when I was an equity trader, when a particular company's share price needed to be 'pushed' up, we had a lot of fun accumulating and distributing the shares amongst the company's 'discreetly hidden' accounts to generate the volumes and interest. At the end of the day, the retail players are left holding the dead cat while the syndicates and my company profit. This is pure...
Hi hohgch,

Welcome to my little corner of FF.

I think it's fantastic that you used to work as an equity trader. I'm sure there's a lot you can teach me.

It's good to have my views confirmed by someone who's worked on the "other side", it tells me I'm on the right track!

I look forward to seeing some contributions from you as well.
-Razorjack
  • #354
  • Feb 24, 2010 1:24pm Feb 24, 2010 1:24pm
Quoting hohgch
Razorjack:

Thank you for starting this incredibly informative thread. It is a fresh change from other threads that are filled with EA and indicators.



I remember when I was an equity trader, when a particular company's share price needed to be 'pushed' up, we had a lot of fun accumulating and distributing the shares amongst the company's 'discreetly hidden' accounts to generate the volumes and interest. At the end of the day, the retail players are left holding the dead cat while the syndicates and my company profit. This is pure manipulation...

Well said. as i mentioned in my earlier post..this is the best or one of the best threads on FF..this is very informative thread. He, Razor, tries his best to make everyone understand the concept of Fundamental and how to use fundies in trading.
-happyTrading-myFx.
  • #355
  • Feb 24, 2010 2:06pm Feb 24, 2010 2:06pm
Razor,

I had suggested usd/cad as the pair in accumulation.

Now looking at usd/jpy I clearly see where (you consider) we are at.

A question...and I hope additional learning for all.

If we look at the low in usd/cad in nov 2007 at .9055..and in turn consider a full business cycle has come and gone (ie accumulation -looks exactly like current chart pattern in usd/jpy NOW, markup, distribution and markdown) to see us presently at a price, that is more or less the "breakout" price back in late nov 07

Could one look at this as a "roadmap" of sorts?...in now considering a similar chart formation in the usd/jpy?

ie....a low established...a flattening....and an area of higher lows..consolidation...and soon to come (how soon??) a time of mark up?

any input/comment would be greatly appreciated.
  • #356
  • Feb 24, 2010 2:16pm Feb 24, 2010 2:16pm
As well then.....would you yourself (with your method of trading) consider this area of 1.02-1.07 more or less..the first pullback (im looking at a 10 yr weekly) in this pair.....since its biz cycle completed?

And if so....wow....is it fair to say that the phase of "markup" (late 08) is truly ridiculous with respect to its profitability...and in turn so vital (as per your thread and instruction) to be there BEFORE this takes place?

If confirmed...I as well as all others here on FF who trade the long time frames will again....greatly appreciate your insight and comments.
  • #357
  • Feb 24, 2010 3:04pm Feb 24, 2010 3:04pm
from your original post:

for those that have done their homework, the USD has turned around after hitting bottom and is starting to reverse the down trend.

So what does this mean for traders?

To get an idea of what this means, look at AUDUSD, NZDUSD or USDCAD daily charts from March / April 09 to Nov 09. We're seeing the end of the 1st leg of the bull run. Now when the carry trade funding currency shifts then we'll see the next leg of the bull run move the JPY crosses more than any other pairs.

The next leg of the bull run in what?...U.S equities?..commodities?

We get the "selling of JPY" in Carry trade "if/when" U.S raises rates ( which many believe may not happen til mid 2011...including GS)

What Im missing ....is the usual co relation of stocks/bonds/commod/equities...would have it that........

If U.S dollar will be bought ( in line with rise in % rate)...and/or JPY sold...then we would see the U.S equities FALL in price...as risk is averted and U.S dollars are bought. (equities sold??)

SO.....in the face of the attached chart....and the endless print of U.S dollars...you feel strongly that we are seriously on the cusp of the full on turn around of the U.S dollar as seen (secular bear) for the past ten years?

and in turn....double dip/re test of March lows in U.S equities?

in that any rise of the U.S dollar... of any magnitude to truly change its downward direction over the long term...would it not be indicitive of lower prices in equities?
Attached Image (click to enlarge)
Click to Enlarge Name: dollar_cycles.png Size: 49 KB
  • #358
  • Feb 24, 2010 5:34pm Feb 24, 2010 5:34pm
long audjpy on this pullback
  • #359
  • Feb 24, 2010 7:14pm Feb 24, 2010 7:14pm
I have been thinking about bigger picture aspects to FX trading recently. It has something that i've known to be important but just couldn't fit it into the technical-untra-short term trading I was attempting, and failing, to do. It has been repeated in this thread that the bigger picture trade on the horizon is U/J. Now from where I sit both economies seem to be in pretty bad shape. But that is only part of the picture. If I am interpreting things correctly. It appears that one needs to take a relative view of pairs of economies - in this light, relatively the US is in better shape than Japan, or at least, there is a better economic prospect in the long term for the US than Japan. Where I have the confusion is how do the actions of the government and major financial insitutions in a country try to guide their economies? What direction are they headed in? How does the relative strength of each country's currency effect the economy as a whole?
Looking at Japan. There is an aging population, low birth rate (combined give a declining population), a huge government buget deficit (190% GDP or something like that), and a decline in the savings rate, which if what I've been reading is even close to accurate, would mean that future government deficits will need to be funded from external sources, i.e. outside Japan. The other piece of information that I think ties my thought processes together is that Japan is an export based country rather than a consumer based country. So, the heart of the matter for me is: how does a weakened yen improve the country's economic situation? Would the government even want a weak yen? Even if they did, would they be able to move the market enough for it to make a difference? To fund future government spending people outside Japan will need to buy Yen? But potentially a weak Yen is good for the country, i.e. increase exports. This doesn't add up! I think I am missing some key component
My apologies if this is a little verbose. Still struggling to understand all this and then trying to put it into a trading context.
THoughts and comments appreciated.
  • #360
  • Feb 24, 2010 8:07pm Feb 24, 2010 8:07pm
The next leg of the bull run in what?...U.S equities?..commodities?

We get the "selling of JPY" in Carry trade "if/when" U.S raises rates ( which many believe may not happen til mid 2011...including GS)

What Im missing ....is the usual co relation of stocks/bonds/commod/equities...would have it that........

If U.S dollar will be bought ( in line with rise in % rate)...and/or JPY sold...then we would see the U.S equities FALL in price...as risk is averted and U.S dollars are bought. (equities sold??)

SO.....in the face of the attached chart....and the endless print of U.S dollars...you feel strongly that we are seriously on the cusp of the full on turn around of the U.S dollar as seen (secular bear) for the past ten years?

and in turn....double dip/re test of March lows in U.S equities?

in that any rise of the U.S dollar... of any magnitude to truly change its downward direction over the long term...would it not be indicitive of lower prices in equities?
occasionally, i will post because I have a full time non-trading job.
here is my story;
world bonds and world equities and commodities are linked.
bond will rally first, followed by equities and lastly commodities.
sometimes, they move in tandem with little time lag.

when trading ccy pairs, remember to buy economy-strong cyy and sell economy weak ccy as specified by kathy lien

when US hike rate, usually, most countries (not all) will hike too.
because when US economy improved , usually, economies of most countries (not all) will improve too. this means the world equities rally, risk appetite increases and non-safe heaven ccy appreciate.

usually, other countries interest rate is lower than that of US
for example, consider the AUD/USD ,
when US hike rate, Australia may hike too.
because both ecomony are getting better.
thus, the interest rate differential may remain approx constant
from carry trade point of view, it is better to be long in AUD
since AUD has higher interest rate than that of US.











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