DislikedAll sound advice, though I take issue with 6&7. With six, there is no harm in knowing macroeconomic fundamentals, but not knowing is not likely to have any adverse affect on a day trader who trades from patterns on charts and so from a purely technical perspective. I would even say cluttering your thoughts with too much surplus knowledge will be detrimental. Concentrate 100% on your charts, pay attention to big economic news releases, and forget about everything else. Number 7. There is nothing wrong with trading off small time frames, in fact,...Ignored
Just a bit of advice, for anyone, for free
- #82
- Edited 11:26am Sep 27, 2015 11:13am | Edited 11:26am
- Joined Oct 2010 | Status: Trader | 5,442 Posts
- #86
- Sep 27, 2015 10:40pm Sep 27, 2015 10:40pm
- Joined Jan 2011 | Status: Trader | 2,680 Posts
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{quote} Hey Katrooo, I Find your thread very interesting, I have a slightly different view on the ubiquitous "there is more than one way to skin a cat" argument that I see here in forex factory. I bet if we analyze the cat skinning business we can see optimum strategies, dominated strategies, some down right misguided. Even among the Indicators, Stochastics, MACD, SMA, EMA cross systems, average of log returns, BB, runSD of log returns, VAR, Support/Resistance, Trendlines, etc the underlying ideas are basically similar. I think you make a great...
Too tired and very busy today, I will think about your post tomorrow.
{quote} Hey Katrooo, I Find your thread very interesting, I have a slightly different view on the ubiquitous "there is more than one way to skin a cat" argument that I see here in forex factory. I bet if we analyze the cat skinning business we can see optimum strategies, dominated strategies, some down right misguided. Even among the Indicators, Stochastics, MACD, SMA, EMA cross systems, average of log returns, BB, runSD of log returns, VAR, Support/Resistance, Trendlines, etc the underlying ideas are basically similar.
I completely agree that underlying ideas are very similar, because you don't really have many options. As a trader you can either be a momentum follower by nature or a mean-reverting type of trader. Then you have several "sub-classes" of these, like momentum follower looking for range breakouts / trend continuation, or you might be a momentum follower looking for trend reversals. You can also be more into mean-reversion, either always into the prevailing trend (buy the dip / sell the rally into the uptrend / downtrend), or you can be a mean-reversion guy trading the ranges / extremes (i.e. against the trend). That's pretty much all you can do in terms of technical trading. Whatever indicators you put on your screen and whatever "mix" of them you use to give you a "trading system", it should always be something to replicate one of the "philosophies" described above. For example a momentum trend followers are more likely using MAs and some other indicator signalling the momentum (like oscillator cross for example). Mean-reversion types are probably using S/R, trendlines, channels, oscillators etc. If you are trying to go into mechanical trading systems, you first should know what you want to achieve / what is your style of trading (i.e. what "philosophy" seems more natural to you) and only then try to find some indicators which would describe / fit that style as closely as possible. Keeping it very simple is the key, tweaking / adding the indicators or filters is not likely going to improve the results, it's rather likely that the "philosophy" and money management principles have to be thought over once again. The only good attribute of indicators / mechanical indicator based systems is the mental part in my view (i.e. clear methodology / rules -> trader is more disciplined / less emotional). Right now I can't imagine there is some indicator messing up with my screen or that there is/are some exact rules telling me what / when to trade.
I think you make a great point in being knowledgeable of the macroeconomic data, as fundamentals influence behaviors, behaviors influences supply and demand, supply and demand influences liquidity, liquidity drives prices. There are no time frames, prices are quoted BID/ASK, that is it. I completely agree with you that running transaction costs up is not a good idea.
More knowledge and experience as a trader you have, more likely you are going to be able to find "philosophies" which are going to work well. More likely you are going to be able to implement those things, as you have a good understanding of macro, market's participants way of thinking, microstructure / orderflow / liquidity, time affecting the price action. You will be able to see things others have no idea about and you are going to be able to identify them regularly. By identifying the current state of the market, applying everything you know and discretionaly guessing the future state / type of behaviour of the market, you can apply one of the "philisophies" (whichever is the best for that future state of the market) into the way you trade. This needs to be re-asessed constantly as the markets are always changing and the available information is always changing.
I am super tired and honestly when I read it after myself, I am not sure if anyone is going to understand, so just feel free to ask guys.
PS: when I talk in "philosophies" terms I am starting to feel as one of these "gurus" who later on come up with a book revealing all the "secrets" for 100 dollars.
not the case no worries, so just ask - this is not written in a secretive language even though it might sound like that
Congratulations to Katroo for a wonderful thread. My hats off to you my friend. This discussion is healthy and I would like to add some thoughts with all respect to the OP. The foreign market exchange AKA FOREX. is not a trader's market. Forex is in essence, a swap- auction market where banks are trading currency to acquire inventory and make some gravy off spreads. That includes some big shot hedge funds like UBS , Morgan Stanley etc. Futures market IS a trader's market, despite some big shots dump some serious cash occasionally, to hunt stops....
thanks for coming by and contributing
I will come back to this later and fix some of the things you mentioned which are quite not correct, hope you don't mind.
- #95
- Sep 29, 2015 7:51pm Sep 29, 2015 7:51pm
- Joined Jan 2011 | Status: Trader | 2,680 Posts
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- #97
- Sep 30, 2015 6:13pm Sep 30, 2015 6:13pm
- Joined Jan 2011 | Status: Trader | 2,680 Posts
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Hey katrooo, This looks like the start of a very good thread. Thank you so much for writing and sharing your valuable thoughts. I'm only a part-time trader but have been doing it long enough to realise that what you've written above is absolutely true!
hi wp3vv,
as promised, just wanted to correct some of the things you spoke about
What do you mean by swap-auction market? Not quite sure what that term stands for. Spread / commission business in FX is not that lucrative for banks anymore, because first, liquidity is bad in general (which impairs the ability of market maker to recycle risk quickly and earn the spread), and the reason why liquidity is bad is are post GFC regulations (Basel III in Europe, Volcker, Dodd-Franck etc.) which are putting rules on capital / reserves adequacy / requirements. That in turn makes the banks to retreat from some businesses like Fixed Income trading which require them to reserve a lot of capital aside to make their adequacy ratios in line with the regulations. On top of that the ban on proprietary trading is another thing complicating the situation. In the past, banking prop traders were a significant part of liquidity structure in the market, especially for less liquid stuff - whenever there was stress in the market (but valuations good) there has always been some last resort bid from banks' prop trading desks. So what you have right now, are FX trading desks with much smaller headcount than before (because of factors above, and growth of eFX platforms), lower risk limits and they are in general struggling to make any money solely from market making (i.e. from b/o spreads) unless it is a big flow house like DB or Citi. Therefore the only way for the trading desk to accomplish their PNL targets is prop trading, which is done by every single bank trader around (except too junior traders) as there is no other way around.
You may wonder about prop trading ban I mentioned, yes there is prop trading ban but almost all bank traders (with the exception of more exotic market making businesses like exotic options / structured products where the commission part is still very attractive) engage in proprietary trading within some boundaries. Of course you don't say to your compliance officer that you are doing this trade because you think EUR/USD is going to go higher and you want to make money out of it, but you just say that (because of some factors / arguments) you think your clients are going to demand a lot of EUR/USD in the future (minutes, hours, days, whichever you want) so you had to buy EUR/USD to accumulate some inventory to be able to sell it to the clients without exposing the bank to outsized downside directional risk in EURUSD (hope this makes sense?). So prop trading is still done by bank traders, but in much much smaller size than it used to be before GFC. Also you don't have dedicated and separated proprietary trading desks anymore as it used to be the case.
Morgan Stanley and UBS are investment banks not hedge funds Good examples of hedge funds are Bridgewater, Moore Capital, Tudor Corp, BlueCrest, Brevan Howard and others.
This is not correct, volumes in futures market are way smaller than volumes in cash markets. A lot of futures trading is done by CTA hedge funds, some HFT firms (market making mostly) and small speculators. The real flow from big institutions (corporates, banks, real money, SWFs, most hedge funds) is mostly being traded in cash (in case of real/hard assets like equities, bonds) or in spot / forwards in case of FX. And with regards to your point about "dumping cash for stop hunting purposes", that doesn't make much sense either - one could squeeze / stop hunt the market via futures the same way as one could do it with cash, it's just about understanding how futures work and that there is a future market maker somewhere, getting all the futures flow which he will need to hedge out in the cash market.
I don't agree. Don't forget that there is nothing like "the way banks trade". Each bank has its own FX trading desk (the bigger ones have separate desks for FX spot, FX forwards/swaps, FX options) and each desk has several traders - you will have a trader covering EUR/USD, cable trader, AUD & NZD trader, JPY trader, scandies trader. Then you would also have EMFX desk with few traders (some doing CEEMEA, some LATAM, some ASIA) normally based in different locations (NY, London or Singapore). All these traders are normally doing their own thing and trading their own way (market making + prop some of them, mostly associate level and higher), only sometimes when there is a big client flow coming they would co-operate and call out the flow / cover the exposure for the bank together as it needs to be done fast. Then there is a chief trader / head of desk who is usually the main risk taker (in rare cases can be a "manager" only), i.e. is in charge of the overall book and direction. Himself (or the team as a whole) would normally run some medium term overlay macro trades on top of the accumulated inventory and short term trading. In the meantime, do they screw up their clients? yes of course, but depending which clients and by how much - the game has changed massively since GFC and client-rigging has become much more difficult than it used to be. So there can't be much of a market manipulation by a single bank in FX (apart from few pips here and there) as that's not really compatible with the desk's structure and there is usually not enough firepower because of low risk limits. Reuters fixing scandal you might have heard about in the past was a completely different story and there was usually few banks involved, rigging the rate at a particular time of the day. I wrote a post about this in some other thread maybe 2 weeks ago so you can search it up if you are interested. You are also more likely to get screwed if you are a guy trading in size and doing FX options or EMFX, as there is a bit more leeway for the bank to screw you over in few ways, but in G10 FX spot extremely unlikely. And about your point regarding moving averages and round numbers, not true again - many bank traders / hedge funds PMs are looking at those, usually as a complement to other tools.
Fully agreed with this, doesn't necessarily have to be 4h or higher, but doing scalping is a negative expectancy game.
Sorry, hope you don't take my comments as bad, just wanted to put the things into right perspective for the other people reading this.
Cheers guys, hope trading is going well
as promised, just wanted to correct some of the things you spoke about
The foreign market exchange AKA FOREX. is not a trader's market. Forex is in essence, a swap- auction market where banks are trading currency to acquire inventory and make some gravy off spreads.
What do you mean by swap-auction market? Not quite sure what that term stands for. Spread / commission business in FX is not that lucrative for banks anymore, because first, liquidity is bad in general (which impairs the ability of market maker to recycle risk quickly and earn the spread), and the reason why liquidity is bad is are post GFC regulations (Basel III in Europe, Volcker, Dodd-Franck etc.) which are putting rules on capital / reserves adequacy / requirements. That in turn makes the banks to retreat from some businesses like Fixed Income trading which require them to reserve a lot of capital aside to make their adequacy ratios in line with the regulations. On top of that the ban on proprietary trading is another thing complicating the situation. In the past, banking prop traders were a significant part of liquidity structure in the market, especially for less liquid stuff - whenever there was stress in the market (but valuations good) there has always been some last resort bid from banks' prop trading desks. So what you have right now, are FX trading desks with much smaller headcount than before (because of factors above, and growth of eFX platforms), lower risk limits and they are in general struggling to make any money solely from market making (i.e. from b/o spreads) unless it is a big flow house like DB or Citi. Therefore the only way for the trading desk to accomplish their PNL targets is prop trading, which is done by every single bank trader around (except too junior traders) as there is no other way around.
You may wonder about prop trading ban I mentioned, yes there is prop trading ban but almost all bank traders (with the exception of more exotic market making businesses like exotic options / structured products where the commission part is still very attractive) engage in proprietary trading within some boundaries. Of course you don't say to your compliance officer that you are doing this trade because you think EUR/USD is going to go higher and you want to make money out of it, but you just say that (because of some factors / arguments) you think your clients are going to demand a lot of EUR/USD in the future (minutes, hours, days, whichever you want) so you had to buy EUR/USD to accumulate some inventory to be able to sell it to the clients without exposing the bank to outsized downside directional risk in EURUSD (hope this makes sense?). So prop trading is still done by bank traders, but in much much smaller size than it used to be before GFC. Also you don't have dedicated and separated proprietary trading desks anymore as it used to be the case.
That includes some big shot hedge funds like UBS , Morgan Stanley etc.
Morgan Stanley and UBS are investment banks not hedge funds
Good examples of hedge funds are Bridgewater, Moore Capital, Tudor Corp, BlueCrest, Brevan Howard and others.Futures market IS a trader's market, despite some big shots dump some serious cash occasionally, to hunt stops.
This is not correct, volumes in futures market are way smaller than volumes in cash markets. A lot of futures trading is done by CTA hedge funds, some HFT firms (market making mostly) and small speculators. The real flow from big institutions (corporates, banks, real money, SWFs, most hedge funds) is mostly being traded in cash (in case of real/hard assets like equities, bonds) or in spot / forwards in case of FX. And with regards to your point about "dumping cash for stop hunting purposes", that doesn't make much sense either - one could squeeze / stop hunt the market via futures the same way as one could do it with cash, it's just about understanding how futures work and that there is a future market maker somewhere, getting all the futures flow which he will need to hedge out in the cash market.
Stocks /options - 50/50. Banks and big shots prefer to trade futures. This is why some of them have seats and/'or dealing desk on the floor - CME- I apologize if I burst some bubbles here but a bank could care less if EUR-USD is trading at a moving average x a round number, whatever. As I said before, whenever banks trade, they're looking to shave 1/2 point off the spread plus getting new fresh inventory.
I don't agree. Don't forget that there is nothing like "the way banks trade". Each bank has its own FX trading desk (the bigger ones have separate desks for FX spot, FX forwards/swaps, FX options) and each desk has several traders - you will have a trader covering EUR/USD, cable trader, AUD & NZD trader, JPY trader, scandies trader. Then you would also have EMFX desk with few traders (some doing CEEMEA, some LATAM, some ASIA) normally based in different locations (NY, London or Singapore). All these traders are normally doing their own thing and trading their own way (market making + prop some of them, mostly associate level and higher), only sometimes when there is a big client flow coming they would co-operate and call out the flow / cover the exposure for the bank together as it needs to be done fast. Then there is a chief trader / head of desk who is usually the main risk taker (in rare cases can be a "manager" only), i.e. is in charge of the overall book and direction. Himself (or the team as a whole) would normally run some medium term overlay macro trades on top of the accumulated inventory and short term trading. In the meantime, do they screw up their clients? yes of course, but depending which clients and by how much - the game has changed massively since GFC and client-rigging has become much more difficult than it used to be. So there can't be much of a market manipulation by a single bank in FX (apart from few pips here and there) as that's not really compatible with the desk's structure and there is usually not enough firepower because of low risk limits. Reuters fixing scandal you might have heard about in the past was a completely different story and there was usually few banks involved, rigging the rate at a particular time of the day. I wrote a post about this in some other thread maybe 2 weeks ago so you can search it up if you are interested. You are also more likely to get screwed if you are a guy trading in size and doing FX options or EMFX, as there is a bit more leeway for the bank to screw you over in few ways, but in G10 FX spot extremely unlikely. And about your point regarding moving averages and round numbers, not true again - many bank traders / hedge funds PMs are looking at those, usually as a complement to other tools.
In futures, is possible well, not as much as trading in your kitchen table making a pile of money, but you can make a sustainable income trading off tick or range charts. I suspect people behind ad's were pushing a futures trading format into forex back in the day. You can't have a sustainable edge micro trading forex. Yes, you may have nice runs from time to time but at the end you'll fall flat in your face. That's the reason why forex at retail level is a revolving door. You think you have an edge of course, that boost your confidence but at the...
Fully agreed with this, doesn't necessarily have to be 4h or higher, but doing scalping is a negative expectancy game.
Sorry, hope you don't take my comments as bad, just wanted to put the things into right perspective for the other people reading this.
Cheers guys, hope trading is going well