Reminiscences of A Forex Speculator

Risk nicely taken off the table thanks to a more dovish cast voting at the BoE this morning. Need to do some thinking about the end of QE2, and also some analysis regarding the current situation and upcoming events in the EuroZone. I'd say euro-sentiment is relieved for now, and barring any surprises from the FOMC, I'm hoping for it to end on a positive note, as the world absorbs the information.

Regards,
xXTrizzleXx

So long on Euro then?

At least until July, but I'll have to monitor how developments go regarding passing the austerity measures and then the disbursement of the IMF tranche. That should relieve uncertainty and get some bullish sentiment into the Euro to allow more pips to be milked .

Are you playing Euro by chance as well?

Regards,
xXTrizzleXx

Yep. Though still favoring the short. With no QE and uncertainity in the Greece situation, I am thinking short.

Still the rise from has been a mystery to me.

Good luck and may your pips have babies .

Trying to get some more EUR positions in. I've put in some pending orders in EUR/USD and EUR/GBP, the former of which has been hit.

Event risks on the horizon for this week, are:

 

1. Low but non-trivial possibility of hindrances to the Greek Parliament passing the austerity measures
2. US Employment Claims tomorrow
3. Something odd occuring at the EU summit..like UK's PM causing a stir about not wanting to contribute to the fund, and the market responding to it badly

Ideally I would have preferred to be playing this on EUR/GBP, but every so often there are just some low-risk opportunities you spot that justify the risk taken. The EUR/USD trade was one of them, and with the FOMC out of the way, and no big surprises, it felt like a reasonable trade. I'm hoping to move my stop to BE ahead of US Employment Claims in the event that I can't take the risk off by then.

Have some thoughts about Gold and the end of the Treasuries Program which I'll pen down momentarily.

Regards,
xXTrizzleXx

And the EUR/GBP order has been hit. More or less sidesteps the event risk of US Employment Claims tomorrow, which I'd actually like to trade the outcome, but will instead be sightseeing

Regards,
xXTrizzleXx

Perhaps we've been following different news pieces or interpreting them in a different way but it seems to me that these remarks made during the press conference were unexpected:

We acted auto that here in the
United States as I described, in August/September of
last year. We could infer from tips prices and
inflation index bond FLasz that there were those who
saw inflation going forward so there was a
significant risk there. The securities purchases
that we did were intended in part to end that risk
of deflation, and I think it's widely agreed that we
succeeded in ending that risk.

> Mr. Chairman, given your response just now,
and given the Fed's belief that the recent uptick in
inflation is transitory, why wouldn't the F eshgd
consider taking more action to stimulate growth and
would bond purchases be your preference or
communication tactics as someone suggested also be
on the table as you consider how to get the economy
growing again?
>> BEN BERNANKE: Well there are a couple of
considerations, one as I indicated before, is that
the current outlook is significantly different than
what we were facing in August of last year. We no
longer have a demrags risk, inflation at the moment
is above target, we expect it to fall, but we're not
in a deflation aeroary position, and -- deflationary
position and the labor market has been performing
better than last year. On top of that we have
uncertainty now about how much of this slow-down is
temporary, how much is permanent, so that would also
suggest that we need a little bit of time to see
what's going to happen and that would be useful in
making policy decisions.

Remarks quoted from (the text was broadcast live during the event, text no longer available) http://www.streamtext.net/text.aspx?event=FRB

Forexlive summary available here.

If nothing else, these comments serve to weaken the position of dollar bears in the short term, perhaps only as long as to unwind those trades that were taken in the hopes of Bernanke hinting at another stimulus. I haven't had the time yet to digest everything out of the FOMC and Bernanke yet so there could well be something dovish that I missed. As is the case with FOMC days, it takes a day or two for the market to reveal its hand so I'm not making any conclusions yet. I'm 'closely monitoring' the situation, though.

In other news:
Tyler Durden reporting: Debunking Some Myths About The "Greek CDS Contagion" Threat
The article itself doesn't offer much in the way of new information, but perhaps it is good to know the dates during which the Chinese are in town (including Wen Jiabao): EU recovery from debt crisis 'vital' to Chinese interests

It may indeed be a case of differences in interpretation. I interpreted it as the market expecting no further rounds of QE, and this was somewhat confirmed based on my perception of the report, and I think the market took it positively as well - dollar bullish. The Fed communicated that they were in a better position now than last year and deflationary risks have been eliminated. However, the uncertainty about how much of the slowdown was temporary, and how much of it is permanent requiring some more time/meetings to assimilate incoming data, in my opinion is not on the market's agenda anytime soon.

I agree with you here, but the dollar bulls have little more fire power for the rest of the week, with US Unemployment Claims tomorrow, before profit-taking ahead of the weekend, as Greece will take center stage next week once again. I'm thinking the market will begin to price in the Greeks passing the austerity measures positively.

Noted. Thanks!

Regards,
xXTrizzleXx

Thanks, they already have. Took a short from 4365.

Class trade. Guess you like your trades extra pipsy with a side of no draw-down?

Regards,
xXTrizzleXx

It turns out that my last trade on EUR/USD turned out unsuccessfully, and last night I realized my first loss in quite some time, and a live one at that to boot. I am now flat EUR/USD and only exposed EUR/GBP. While the experience is a healthy one, as it will help me deal with my emotional approach to trading, it helped exemplify the following areas I need to work on:

 

1. I need to assess sentiment in a consistent manner, preferably at the end of my trading day, as opposed to when I want to initiate a position, because in so doing I may neglect important happenings/have a skewed interpretation of events. While it may be a very useful tool to gauge market shifts and assist in positionning, it is a very time-consuming method of doing so, but I think the trade-offs are worth it.
2. I need to exercise a bit more patience and rationale when I see these 'opportunities where I thought the risk would be justified' as these have been the trades that don't turn out well for me, such as the AUD/USD one and the recent EUR/USD. What strikes me as ironic is that I actually said that I wouldn't be initiating positions in them due to the end of QE2, and would instead opt to play EUR/GBP...bug even reminded me! At this juncture it is only my EUR/GBP positions which remain. The proverbial plan your trade and trade your plan.
3. I need to be more flexible in my trading. By fixating myself with only one long-term view of a currency, I'm missing out on some good opportunities to take trades in the other direction. I also think that by taking trades in the other direction, will help improve my analysis of things, giving me a fairer take on events and sentiment, while improving my bottom line. If I traded the QE2 as according to how I regularly trade events, instead of imposing my own outcome on to it, then I would be sitting pretty with some short positions in EUR/USD right now.
4. However it was not a complete wash, and I must commend myself for having the ability to cut my loss. What could have been an effective 4% loss was shaved to just over 1%.

That being said, at least I find comfort in knowing where I went wrong; underestimating the change in sentiment produced by the closure of QE2 and subsequent unwinding of dollar shorts and possibly slight initiation of dollar longs. I will tread FOMC much more carefully in the future - thanks for the heads up, bug. Going to do some sight-seeing today, so I can come back to the markets with a clear mind and a fresh take on events. I also have some thoughts about Gold which I never got around to penning down, but will do so when I get back.

Regards,
xXTrizzleXx

Well I really do, how did you know?
Added another short from 4310.

Hey xXTrizzleXx,
We all miss the mark sometimes and interpret information to fit out preferences. Your performance has been remarkable recently and I hope you don't start reorganizing everything because of one bad trade. It is important not to take yourself too seriously - and that applies whether you are winning or losing. Remember my experience last Friday? I was way off the mark with that one and later I continued shorting not realizing it was a massive short squeeze of a Friday. Live and learn is what they say. I've made some minor changes to how I analyze the higher intraday TFs (M30, H1) and everything seems to be working fine right now.

Me too! This is something that I was reminded of on Friday. MuddBuddha's post (which I know you read) also mentioned that and I' working on my flexibility right now.

---
I haven't read all of your posts which means that I'm not entirely sure what goes into your analysis, but from where I'm standing it seems to me that you could use a bit of technical analysis on intraday timeframes to help you confirm your sentiment reading. There was a trendline break right around the Asian open and numerous demand areas were decimated. Not sure if this is something that's going to last, though, we'll have to see.

PS. I am also testing out trading market profile. I'm fairly new to this, but I've discovered that using the indicators can greatly enhance my own readings of supply and demand, this is especially true at prices where my own interpretation of supply and demand overlaps the POC area. Do you have any experience with market profile? Perhaps there is something I could learn from you...:nerd:

Thanks for the reassurance man..really means alot.

Same here, simply some minor changes regarding how I assess sentiment and some guidelines to favour a more patient approach to my entries. Patience and flexibility could make for a deadly combo.

Good to know we're in the same boat. I really took his post to heart - great material.

I used to look for techs to confirm bias but it never really resonated with me greatly..I feel like incorporating it would weigh down on the 'mushy feely', which I think I'm slowly getting more proficient at assessing.

I read a book about Market Logic by Steidlmeyer (sp?) and I think it had some hints of Market Profile in it. I never really applied the technicalities of the POC/Bell-Curve Time Weighting but some of the concepts he presented about time frame horizons, markets needing to facilitate trade etc. were interesting stuff that led me to draw some useful conclusions. I wish you luck with it!

Regards,
xXTrizzleXx

So as I was saying I had some thoughts about Gold which I never got to pen down...

Over the past few days, what's been weighing on my mind is the nature of the factors influencing Gold; identifying what it responds to. After some decision I came to the perhaps not-so-accurate, but working conclusion that while reflecting USD moves to a certain extent, and reacting when commodities across the board are affected, speculation is the primary driving factor behind Gold. Despite what's being touted about it being a hedge against inflation, or a safe haven currency, it fails to live up to it's role in these aspects as per my observation. Additionally as a choice of safe haven, from an investor standpoint, it offers little incentive for holding it; you don't get paid interest from holding gold.

That being said, what I wanted to identify was a shock to the Gold market, which would make the speculators question whether or not they should hold on to their Gold holdings. The market is positioned very steeply, and a rush by these speculators to liquidate their positions may produce a lovely burst of volatility, analogous to what happened to Silver recently.

It was recently brought to my attention, that for some reason or another, size was being accumulated in the commodity, in a glaringly obvious manner. Each day for the past week and further, like clockwork at 8:30EST, a participant or group of participants rapidly bids up Gold, which then settles and drifts upwards throughout the day. The number of times this has occurred in my view is non-random, and with the market at extreme positionning, I could not see how such activity would be sustainable.

Today marks an interesting development in that there was a steep $40 plunge, as a hedge fund manager liquidated his position in the precious metal.

 

1. Could he have spotted this activity, and decided to squeeze the accumulator?
2. Could this have been just one wave in a series of liquidations from this hedge manager?
3. Could this hedgie be the one who was responsible for accumulating the position?
4. How would participants react to these new developments?

The first two scenarios I cannot think of pleasing answers to. However, if in the second case, the accumulator is squeezed, it may very well make for an interesting exercise in gamesmanship, which could be capitalized on nicely. It would also seem unlikely that the same hedgie would go through the trouble of aggressively executing and accumulating that size (massive slippage) only to unload it again (massive slippage) - at least from a speculative standpoint. If it was indeed him, and he took the effort to do this, it signals to me that something fishy is going on.

I imagine after the initial move, the fact that there was no subsequent 'BTFD reaction' from participants would suggest to me that they would be in a wait-and-see reaction. Another massive liquidation by a large spec entity would create great extended downwards movement, as I think the bids supporting the market would have thinned due to uncertainty. If anything, Friday is looming on the horizon, and it would definitely play on the speculators' conscience as to whether or not they should hold on to these positions before the weekend.

I'm looking to play on the uncertainty on their minds, and the remote possibility of a similar activity taking place tomorrow. I am earnestly hoping that I can get a move to take half R/R off the table, or at least be comfortably in profit to move my position to BE as the weekend comes to a close. If it closes above my position, or I see the same accumulative activity once more tomorrow, I'm going to cut my losses and call it quits.

In other news, 2 of my EUR/GBP legs have succumbed to losses, and unfortunately I was unable to shave their loss by 0.00004 pips. Alas, it was somewhat expected with the fate of the EUR/USD legs, and I took it in stride as a learning experience. I have one remaining EUR/GBP leg, which I placed after the parliamentary vote, which is snug and safe for now, and the near future. In tonight's Asian Session, I'm hoping to take a quick 50 pip scalp on EUR/USD if my order can get filled, as I sense a short market, on a Friday, with a recent shift in sentiment...In the Asian Session

Regards,
xXTrizzleXx

After thinking on it, I'm going to approach the situation from another angle, and so decided to close my positions at more-or-less entry level.

I'm thinking that it would not be prudent of me to paying attention to what happens at 8:00EST and onwards instead of pre-empting it. If my analysis is correct; since it's a long, extended market, a move to the downside below the near supports should extend nicely if it trips enough stops. If not and it instead rallies, I'd have saved myself a costly mistake.

EDIT: Looking back on the idea of accumulating a position by a spec, it may seem that I was reading into the situation too much, and the spikes may have simply been the result of thin-liquidity moves near the open. After sleeping on it, some of my analysis' logic appears greatly faulty.

Regards,
xXTrizzleXx

Short term play on EUR/USD which was actually very frustrating since my platform locked up 10 minutes before the German Ifo numbers, when I went to exit. Fortunately for me the numbers saved my trade, but regardless, I now know to exit all my trades half an hour ahead of such high magnitude releases. I was completely unaware that it locked up as much as 10 minutes ahead of the event. New experience for me since I always thought I could exit the minute before on demo...

Some news on the private sector involvement front that so far they are willing to roll over the debt, but I am wary of how the ratings agencies will take it. I'm ensuring that this EUR/USD position is closed today if my TP is not hit, and also that I moved my stop to entry in EUR/GBP and EUR/USD to lock in some gains in case the ratings agencies decide to trump the whole move and call a default. In doing so they would create quite a stir, and throw all the positive efforts so far down the drain, but I don't put it past them.

Regards,
xXTrizzleXx

Target was hit rather quickly, so I'm flat on EUR/USD while stil maintaining EUR exposure via EUR/GBP. Don't have any more trades intended for today except if Gold breaks $1507.50

Regards,
xXTrizzleXx

I'm glad I could help.

Fair enough. I am actually using 'mushy' indicators myself. I've set my M30/H1 trend indicators up in a way that leaves a lot to interpretation so that I don't get the false security offered by simple mathematical formulas (a'la only short when price<200dma). The downside is that it takes considerable experience to interpret the indicators, but that's a risk I'm willing to take. I combine the indicators with supply and demand areas and simple trendlines. It doesn't always work but I've become used to them. I was a very big skeptic of trendlines for about a year or so until I started reapplying them about a month ago. I don't know whether I 'developed the eyes' in the interim, but my trendlines seem to be holding far better than they did a year ago so I've decided to keep 'em. Alright, enough about me and my 'techies'. If anything I said here piques your interest let me know and I'll make sure to post a chart example.

That shouldn't happen. You need to contact your broker, maybe they have a solution. High impact news events are usually characterized by lower liquidity visible through increased spreads and slippage, but freezing...??

On gold
That hedge fund manager you referred to was probably Henry Paulson. He suffered a huge $750 million loss on Sino Forest recently (from what I've read it was basically a ponzi scheme). He is very well known for his bet on the housing crash and his accumulation of gold and gold shares in recent years. Why would he want to liquidate his gold? Well, there are two possible answers to that: one is that he sold his gold to make up for the losses (I'm told fund managers often do that) and the other is some clients got nervous and decided to pull their funds, which would mean liquidating at least a portion of the XAU position (this also happens a lot, in fact the hands of the general investors are so weak that he will liquidate right at the bottom and buy right at the top, this kind of activity is very visible if you look at mutual fund inflows/outflows).

News UPDATED
1. We have a date on stress tests. Finally! It's July 13th LINK
2. Potentially worrisome news from Europe. WSJ: Euro-Zone PMIs Raise Specter of Sharp Slowdown
3. IEA decided to release 60 million barrels of oil from reserves to make up for Libyan lost supply. One the one hand this news should dampen speculative moods on the oil market, but on the other hand this was only done because OPEC failed to increase it's supply. The supply failure is mainly due to Saudi Arabia, which said it had the necessary capacity to make up for the 1 million barrels market shortfall due to Libya, but it was unable to do so. This tells me that Saudi Arabia is finally reaching the point of peak oil production. They are already going ahead with offshore projects, something that tells me they are running low on conventional on-shore capacity. If this is indeed the case the IEA decision will only serve to push the price of oil lower for a week at best.
4. Greece got another bailout: Greece bail-out agreement sends European markets higher
This is good news for the euro, but the Greek parliament still has to agree to new austerity measures and it has to implement them.