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  • #341
  • May 22, 2014 7:11am May 22, 2014 7:11am
Yes the market moves by the "Big Boys", and yes they have their "little surprises", but when one economy is doing well and the other poorly, the suprises will tend ultimately to favor the economy doing well.

This effect is not very big however: It is like a coin that is weighted to fall heads 6 times out 10 instead of 5. The coin can still fall tails 30 times in a row. ( not as likely but still possible).

Unlike most coin tosses, the forex coin frequently bounces and spirals down to a rest before heads or tails is called, and sometimes you can see the head and get in your bet before it is.

Past history can give a feel for which way the coin is weighted -- or you could just have experienced one of those periods where the coin deviated from its mean probablity.

Or you can get lucky with a series of winning trades that grow your equity.

The smart thing to do, whether it is because you made the right calls, or got lucky (or both) is to set up your trading so that you don't give it all back with the streak of bad luck that is surely coming.

I notice that in previous posts ( by people I follow and listen to carefully) the losing trader follows some sort of Martingale technique:
By that I mean that the risks keep growing as a percentage of equity, while nothing is actually being booked to increase equity.

In an anti Martingale technique, the more money you have, the less of it you risk as a percentage of equity.

You should never add to a trade when the losses are increasing, only when the price is going your way.

If you have traded your way to an increase, you just keep part of that increase in reserve.

They call that "Playing with the company money".

You should get to that state as quickly as possible. And if you can stay there, (largely by risking a lower percentage of your equity)

you can survive the random vicissitudes of market movement and be able to benefit from its movement when it moves in your favor.

Let me put it this way: As your account grows, you should arrange things so that the margin level grows along with it.

The question is how often can I correctly see the movement of the market and run with it?

I find that there are hours and hours where I should not be making any entries, and missing a few entries that would have been good is better than making a bad entry.

You watch the market action for while, and figure various reasons why ( no, you cannot get them all, even the big boys do not get them all), You should be able to improve on the odds of guessing a coin toss.

After that it is a matter of "playing with company money" and keep your own money on the side.
  • #342
  • Edited 9:17am May 22, 2014 7:24am | Edited 9:17am
Quoting Rap Skallion
Yes the market moves by the "Big Boys", and yes they have their "little surprises", but when one economy is doing well and the other poorly, the suprises will tend ultimately to favor the economy doing well. This effect is not very big however: It is like a coin that is weighted to fall heads 6 times out 10 instead of 5. The coin can still fall tails 30 times in a row. ( not as likely but still possible). Unlike most coin tosses, the forex coin frequently bounces and spirals down to a rest before heads or tails is called, and sometimes you can see...
Yeah well obviously big banks are not stupid and wont buy the dollar when the USA is in big mess, but not because it matters anything.The economy is not really conected to the market (see 1929 crash), but because the liquidity points in the direction of the good economy.

Its a general tendency, but still there must be market makers from whom to buy that, so if XYZ hedgefund buys EUR/USD because the USA GDP shrunk 2%, there must be a market maker bank who will sell him that.In this way the market maker assumes risk by selling, but he wont close that losing position, instead wait with it to reverse and only close it when its in profit.And hedge against it in other markets to not get margin called/ bankrupt.

Now undercapitalized traders cand to that because they dont have cash to survive big swings, but market makers can.And its a good atribute because they provide liquidity and also take a risk off our shoulders.

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"There's a sucker born every minute" - P.T. Barnum
  • #343
  • May 22, 2014 9:15am May 22, 2014 9:15am
Quoting Proximus
{quote} Yeah well obviously big banks are not stupid and wont buy the dollar when the USA is in big mess, but not because it matters anything.The economy is not really conected to the market (see 1929 crash), but because the liquidity points in the direction of the good economy. Its a general tendency, but still there must be market makers from whom to buy that, so if XYZ hedgefund buys EUR/USD because the USA GDP shrunk 2%, there must be a market maker bank who will sell him that.In this way the market maker assumes risk by selling, but he wont...
Good post. I agree with every point.

Post script:
Whatever anybody thinks "Random" actually is, some how, some where They (including me) are wrong.

If this is not the case, then I am right about it being wrong, which makes it wrong about being right, which makes it.... Oh, never mind!
  • #344
  • May 22, 2014 9:20am May 22, 2014 9:20am
Quoting Rap Skallion
{quote} Good post. I agree with every point.
Hey thanks, actually i`m working now on a new hedging strategy which will do the same but designed for a smaller account.The trade explorer will be in my signature.

If it works i will start it live with 100€ and as the % increases i will gradually deposit more and more after i`m satisfied with the returns, and obviously growing it to atleast 1 mil € eventually just like big hedgefunds transform 1 mil into 1 bil.
"There's a sucker born every minute" - P.T. Barnum
  • #345
  • May 22, 2014 10:15am May 22, 2014 10:15am
Quote
Retracement is usually takeprofit for 1 big boy, so you have to ask yourself, why should he exit here?
You don't need a single lot sold to have the price going lower. If no buyer is buying the MMs will have to lower their bid to sell the lots they want to sell. Selling currency lots or pairs of shoes is alsmost the same, you adjust your margin to the demand. If you can't sell your stock of shoes you'll lower the price at some point. Money is somewhat a perishable good. If you keep it under your mattress for 1 year it will lose the value of your country's inflation rate.
No greed. No fear. Just maths.
  • #346
  • May 22, 2014 10:32am May 22, 2014 10:32am
Quoting PipMeUp
{quote} You don't need a single lot sold to have the price going lower. If no buyer is buying the MMs will have to lower their bid to sell the lots they want to sell. Selling currency lots or pairs of shoes is alsmost the same, you adjust your margin to the demand. If you can't sell your stock of shoes you'll lower the price at some point. Money is somewhat a perishable good. If you keep it under your mattress for 1 year it will lose the value of your country's inflation rate.
If he lowers the bid too much versus the ask (because the ask wont move if there are no buyers right), that will cause a huge spread and nobody will do business with that market maker.

Or worse, seeing that the bid is very lower than the ask , big boys see that as a sign of many retailers just sold (even if thats not the case) and buy the sh*t out of that MM, making the price go even higher against him.

I dont think that any MM would want that, and i think you are wrong there, just measure the spread after a big move, you see that its tight after the breakout / high volatility event happened.

So that doesnt work in the real markets.

What it really happens is that big boy exit the long, and the takeprofit of a long position is a sell order, so thats why the market moves down, but the big boy is clever and wont close the entire order at once, coz that will cause a huge bearish move and traders react to that, and that will reverse the market suddently.

Instead he closes bits of his position at every retracement together with other big boys, so that he will close in profit and not disturb the upward move.
"There's a sucker born every minute" - P.T. Barnum
  • #347
  • May 22, 2014 10:41am May 22, 2014 10:41am
Quoting Proximus
{quote} Yeah well obviously big banks are not stupid and wont buy the dollar when the USA is in big mess, but not because it matters anything.The economy is not really conected to the market (see 1929 crash), but because the liquidity points in the direction of the good economy. Its a general tendency, but still there must be market makers from whom to buy that, so if XYZ hedgefund buys EUR/USD because the USA GDP shrunk 2%, there must be a market maker bank who will sell him that.In this way the market maker assumes risk by selling, but he wont...
I don't understand your chart. If the seller was a big bank it has no position to close. He sold a bunch of EUR for a bunch of USD. Now he can sell his USD to get some GBP, moving G/U instead. He can even sell the GBP for EUR and is now somewhat long EUR.
And all of this depends on the clients calling him and at what time (in which order) they do so. Which is... random!
No greed. No fear. Just maths.
  • #348
  • May 22, 2014 10:42am May 22, 2014 10:42am
Quoting Proximus
{quote} Yeah well obviously big banks are not stupid and wont buy the dollar when the USA is in big mess, but not because it matters anything.The economy is not really conected to the market (see 1929 crash), but because the liquidity points in the direction of the good economy. Its a general tendency, but still there must be market makers from whom to buy that, so if XYZ hedgefund buys EUR/USD because the USA GDP shrunk 2%, there must be a market maker bank who will sell him that.In this way the market maker assumes risk by selling, but he wont...
Totally agree about this one
You Must Love CandleSticks
  • #349
  • May 22, 2014 10:43am May 22, 2014 10:43am
Quoting Proximus
{quote} If he lowers the bid too much versus the ask (because the ask wont move if there are no buyers right), that will cause a huge spread and nobody will do business with that market maker. Or worse, seeing that the bid is very lower than the ask , big boys see that as a sign of many retailers just sold (even if thats not the case) and buy the sh*t out of that MM, making the price go even higher against him. I dont think that any MM would want that, and i think you are wrong there, just measure the spread after a big move, you see that its tight...
When a MM bids lower that's your ask which goes down. He sells to you and you buy at his ask price ;-)
No greed. No fear. Just maths.
  • #350
  • Edited 11:03am May 22, 2014 10:52am | Edited 11:03am
Quoting PipMeUp
{quote} I don't understand your chart. If the seller was a big bank it has no position to close. He sold a bunch of EUR for a bunch of USD. Now I can sell his USD to get some GBP, moving G/U instead. He can even sell the GBP for EUR and is now somewhat long EUR. And all of this depends on the clients calling him and at what time they do so. Which is... random!
Ok let me explain it very basically:

Look banks can be either market makers or prop traders, or both but not both on the same market.I think there is a NFA reglementation for US banks about this activity.

So basically there is

BANK A which is a market maker: he will put any order on the market that his clients want to, making profit with comissions
BANK B which is a prop trader and trades only for profit

Now lets take the EUR/USD EXAMPLE

If you look at the chart in 1998 it hit a low point, what happened there?

BANK B just buyed the EUR/USD, but from who ? BANK A which was his market maker.Now bank A will make a comission, but he also takes a huge risk in entering in this sell position.

BANK B will close his trade at some retracement in small packets to not disturb the uptrend.
BANK A to no go bankrupt, will tell their prop trading division to enter immediately long on GBP/USD so that his market making activity should be covered on EUR/USD.Now he makes comission already on EUR/USD, and obviously doesnt want to go bankrupt by leaving a pending loss, neither want to close that loss instead he will hold both GBP/USD and EUR/USD open which will neutralize the risk, but he will make profit on comissions.

And when the time comes of reversal, he will close his GBP/USD long and take profit, and after the EUR.USD starts to reverse the risk diminishes, and he will either wait for breakeven or will push the price even lower to exit that position, but that position can be held open for years with little or no risk if hedged.

See?

Besides that, bank A as a market maker, he can still act like prop trader in futures markets, bond markets, etc. So banks have a very wide range of income
"There's a sucker born every minute" - P.T. Barnum
  • #351
  • May 22, 2014 10:54am May 22, 2014 10:54am
Quoting PipMeUp
{quote} When a MM bids lower that's your ask which goes down. He sells to you and you buy at his ask price ;-)
I meant from the traders perspective

My bid is where is sell my ask is where i buy
"There's a sucker born every minute" - P.T. Barnum
  • #352
  • May 22, 2014 10:59am May 22, 2014 10:59am
Quote
BANK B just buyed the EUR/USD, but from who ? BANK A which was his market maker.Now bank A will make a comission, but he also takes a huge risk in entering in this position.
That's the point I don't understand. Bank A holds no position to be closed. It took no risk. It already made money with the commission. It has more USD and less EUR than before that's it.
No greed. No fear. Just maths.
  • #353
  • May 22, 2014 11:11am May 22, 2014 11:11am
Quoting PipMeUp
{quote} That's the point I don't understand. Bank A holds no position to be closed. It took no risk. It already made money with the commission. It has more USD and less EUR than before that's it.
NO!

As they both enter the same time in the trade, they both open a position.Now obviously the market maker cant cancel his clients position forbidden by law, so he must stay in the market atleast as much as his client.

But BANK B is with the trend, probably the creator of it, while BANK A is the market maker who must serve BANK B.But when the BANK B reached his goal, and starts to take profit in small chunks, BANK A is already in a massive drawdown, i mean BANK B literally takes BANK A's money.

But BANK A wont close the trade after BANK B took all its profit and exited the market, because that will be a huge loss and the comissions dont cover it, instead he will hedge that position as soon as BANK B puts his order on, and wait for the reversal, while taking literally no risks other than the swap, but thats probably covered by the comission.

So basically MM's dont use stoploss, instead hedge around it, and also they never lose a single trade (except Lehman lol)
"There's a sucker born every minute" - P.T. Barnum
  • #354
  • May 22, 2014 11:48am May 22, 2014 11:48am
laandan cocksuckers usually eat some shjit to get to see some giant orders from some HFs

usually HFs are rite and laandan cocksucker is pretty much in red with a smile. Why? Cus hes got the information


I would agree that MM could leave all on the table and hedge with other pair and leave them be afterwards.. With all that said MM could also hedge large books with some other instruments. So, lets say the portfolio is big enough you cant hedge it anymoo mumbling something..

I would say that large portion of MMs already use direct hedge as soon as possible leaving commission on the table and hot potato for others. But, if the big order is "good" eligable for the books portfolio, they wont hedge for some time.
  • #355
  • May 22, 2014 12:10pm May 22, 2014 12:10pm
Quoting Proximus
As they both enter the same time in the trade, they both open a position.Now obviously the market maker cant cancel his clients position forbidden by law, so he must stay in the market atleast as much as his client.
I definitely don't get it. If I sell my car I have the money in my hands and no longer have a car. I needn't buy it back later to "close" any position nor am I forced to buy any other car. That's the same for bank A except they sold EUR instead of a used car.
No greed. No fear. Just maths.
  • #356
  • Edited 12:40pm May 22, 2014 12:23pm | Edited 12:40pm
Quoting PipMeUp
{quote} I definitely don't get it. If I sell my car I have the money in my hands and no longer have a car. I needn't buy it back later to "close" any position nor am I forced to buy any other car. That's the same for bank A except they sold EUR instead of a used car.


Ok let me explain it simple.

I have an apple and you have 1$ to buy it. I am the market maker for the apple and you are my customer. Now you want to buy my apple and i get 1$ for that.We are exchanging the apple, now i cant take your 1$ before i give you the apple, nor you can take the apple free without paying first.So we must change hands at the same time, so that why it is a margin requirement or a good faith sum, so that you dont take the stuff and run without paying.

Now i also charge a comission for buying my apple because i can do it.So you end up paying me 1.2$.
But i also dont want to lose my apple, and before the apple price changes on the market due to lack of demand or supply changes i quickly buy another apple from another seller, but i pay him only after i got the money from you, but i pay him only 1$ if he sells for long term or a smaller comission than i did to you.

So in the end you get your apple, i buy back my apple from another guy, and also i made 0.2$ profit.

Now replace the apple with currencies and you get the idea
"There's a sucker born every minute" - P.T. Barnum
  • #357
  • May 22, 2014 12:39pm May 22, 2014 12:39pm
I think you're making things more complicated than needed. There is no transaction inside the transaction. The sell, the payment and the delivery and distinct elements of a transaction which have no reason to happen simultaneously.
No greed. No fear. Just maths.
  • #358
  • Edited 12:58pm May 22, 2014 12:46pm | Edited 12:58pm
Quoting PipMeUp
I think you're making things more complicated than needed. There is no transaction inside the transaction. The sell, the payment and the delivery and distinct elements of a transaction which have no reason to happen simultaneously.
Ok maybe in that example it didnt worked, but in the market there is no transaction until it is closed on atleast 1 end.

So obviously the client must close his position, because the market maker cant close it for him because thats illegal.

So if prop trader buys 1 milion EUR and sell 1 milion USD, the transaction is pending until closed, now obviously if prop trader closes it now he will lose comision and spread, and the MM cant close it.

So the prop buy waits until the price goes higher and close, but he cant close either if no liquidity, because the market makers also dont want to close as they would end up in a loss.But no problem because the retailers will be the extra liquidity needed.

And as the extra liquidity is added, the prop guy can slowly close his trade, while the market maker slowly goes in - , but he wont close it, he counter-hedges it on another pair.

How? Easy, the MM has the orderbook, and see every trade, so he knows ahead the price direction, so he will put the hedge in that direction on another market (because here there is no more liquidity) and neutralize the risk to 0.
While earning big bucks on comission.

And after reversal, which do happen, he will close at BE or in small profit.That might take years, but no hurry needed, the MM can wait as much as needed.

Sorry i cant explain it any better
"There's a sucker born every minute" - P.T. Barnum
  • #359
  • May 22, 2014 12:50pm May 22, 2014 12:50pm
No i don't think its random
  • #360
  • May 22, 2014 1:00pm May 22, 2014 1:00pm
If Prop trader has a BIG big chunk order up as a SL. Market is lower atm.
I as MM will need to worry about that imo. Ill dynamically hedge that fooker up by already buying the EUR now, when market is moving up. This is how market sees this strong moves to levels of interest. MM dont want your SL to be hit but closer it gets, MM will hedge it stronger.

MM has its own limits. Holding a strong looser...hm, means you overhedged somewhere else. Hedging only with another pair? perhaps, dont really know the inside much

When I get an order on EURCHF faghet pair and relatively big chunk for our economy size, I get commission via spread. I back to back the fooker and its over.
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