I just found this cute overview of the relationship between fundamentals and the DOW over at zerohedge:

GM chapter 11 = PRICED IN
125K+ jobs lost from GM chapter 11 = PRICED IN
unemployment @ 9% = BETTER THAN EXPECTED
unemployment @ 10% = DOW SOARS
unemployment @ 11% = GREEN SHOOT RALLY
unemployment @ 12% = ALREADY FACTORED IN
unemployment = 35% = DOW DROPS 100 POINTS
housing price =1% = RECESSION ENDING
housing collapses = GREEN SHOOT
Housing falls 20% = STABILIZATION
Government spends 1 trillion of OUR dollars = STIMULUS
North Korea fires nuke = RALLY
Israel bombs Iran = 30 MINUTE END OF DAY RALLY
world explodes = ASIA RALLIES
PMI crashes = HUGE RALLY
No jobs are created = RECESSION ALMOST OVER
U.S. debt overwhelming = TOO BUSY RALLYING TO CARE
Consumer stops spending = RETAIL RALLY
Banks are insolvent = SIGNS OF STABILIZATION
American auto industry BK = GOOD THING
Banks pass scam stress tests = HUUUUUUUUGE RALLY
Banks “only need 75 billion = OUT OF THE WOODS
Banks pass a real stress test = NEVER WOULD HAPPEN
Banks pay back tarp = LATE DAY SURGE
Banks can’t pay back TARP = EARLY MORNING SURGE
12% mortgage delinquency = GOOD FOR STOCKS
Hundreds of thousands of mortgages underwater = HOUSING BOTTOMED
Dollar rises = RALLY
Dollar crashes = RALLY
Inflation = BULL MARKET
Deflation = BULL MARKET CONTINUES
REFLATION = MASSIVE SHORT COVERING RALLY
Gold rises = STOCKS RALLY
Gold falls STOCKS RALLY BIG
Banks’ fake earnings = SIGNS OF STABILIZATION
CRE stabilizing= 1000 POINT RALLY
CRE CRASHING = STOCKS SHAKE IT OFF TO RALLY
CONSUMER INSOVENT = CONSUMER IS SPENDING
OIL @ 50 = BULL RALL... [Read More]

In a follow up to my previous posting on the proposed NFA rule change on FIFO, it seems that the more I read the more different interpretations of the FIFO rule I see.

FxSol, for example have an entirely different interpretation to IBFX.  In their view of FIFO, it means that all open trades on a specific pair must be treated as a single position.  Therefore, when you start closing trades because a stop has been hit or profit is being taken you should start closing the first positions first.  This effectively means there is a single stop and profit target for all trades on a single pair.  i.e. all the trades are treated as part of a single position with a single stop and target.

The FXSol interpretation, basically allows you to pyramid and keep your stops and profit targets the same.  This works fine for some strategies, but it does not really work for others which rely on each trade on a currency pair having its own stops and targets.  Some grid traders do this for example.  If you do still need to do this FXSol recommends you transfer your account to Australia.

If you want to see how some other brokers are choosing to interpret the FIFO rule, FX Street has a page covering the variations.  This page provides a list of the various FIFO related press releases from each of the brokers.  For example, GFT claim they have always used FIFO, so there will be no changes for them.

I guess in my case I will wait and see.  Probably of greatest concern for me at the moment is my IBFX account which ... [Read More]

At the end of the month the NFA are placing in a new rule on its member forex brokers where they need to manage orders in a similar fashion to equities and futures, based on a First in First Out rule on trades on the same pair.  The benefit of this rule is it makes trading more transparent as the trader knows what to expect in the order of the execution of trades.  For example, if you opened two trades on the EUR/USD, then you can expect the first one to be close first.

The downside of this is that  if you have stops or profit targets on your trades such that it is possible to close the second trade before the first, the broker cannot honor the stop or profit target.  This may mean that many pyramiding, grid trading and martingale strategies will no longer work.

How brokers interpret this rule varies immensely.  FXCM for example have spat the dummy and interpreted this rule as meaning that no stops or limit orders can now be honoured and they now urge their clients to open an account in the UK which is regulated differently.   FXCM on their website explain this further.

I asked IBFX how they interpreted this rule and they basically told me that it only applies to positions on the same pair with the same lot sizes and as long as you vary the lot size you are fine.  For example, if you vary your lots sizes by 0.01 lots you should be fine.

What does all this mean?  well first ask your broker.  As for me, I am starting to get a gut full of the NFA and maybe FXCM’s suggestion of using a UK regulated broker is not so silly.

In my last posting I asked “what if I raised the risk level on M5G cyborg“. Well after 3 weeks and tripling my demo account, it did this:

Before you say “I told you so – never get greedy and fool with the leverage settings”, an interesting thing is I am trading the same system with the same settings (except leverage) using the same broker and both accounts opened the same trades. The difference is my live account closed the same trade for a profit and the demo did not hit the target and found the stop instead. Just goes to show the price feeds for live and demo and the order execution are similar, but quite not the same. This is why you should never really totally trust a demo account forward test.

(Another more superstitous part of me knew that as soon as I published the last post on my blog the account would blow up….)

About 3 weeks ago I decided to take one of my demo accounts that I am running M5G cyborg and push it to the extreme by raising the risk level to something obscene (15% instead of the recommended 2%). This is what happened: a 5K account has tripled. In reality the risk of ruin is extreme for this kind of trading and I would never try this style of trading with money I am not prepared to loose, but it is always fun to see what is possible. I might let it run for a few more weeks and see if it blows up.

I am a chronic trading book buyer and long ago I ran out of space on my bookshelf. So I can make some space, I am reluctantly selling off some of my books on ebay. If you want to get yourself a bargain (you know how expensive trading books can be ….) why don’t you go onto ebay and make a bid on the following:

* CFD and Stock Trading Books
* Options Trading Books

If have ever been on the forex factory forums, there is a very popular and long running discussion thread devoted to trading a set of trading strategies by James16. The thread has been running since 2005 and has over 2,500 pages on it. Given the insane length of this thread trying to understand this trading method takes a lot, a real lot, of of hard work. You can pay James a subscription of $129 a month to help decode this massive thread, but as many others have noted, most of the content is on the Forex Factory thread, you just need to pull it apart yourself.

I have not coughed up the cash to find out what happens in the paid group, but I am curious about the James16 phenomenon, so I thought I would bravely try and summarize what little I know about the James 16 trading method. If you are interested, then read on.

Who is James16?

I don’t know who James actually is, but if you read the thread he is a full time trader who has been trading for 25 years. James started the thread because of all the pleas for help from many retail newbie traders and he was tired of seeing all the crap written about trading, so he thought he would teach what he knows.

While James developed the system himself, he attributes the key influences on this system by:

•Martin Pring (author of several books on technical analysis)
•Todd Mitchell
•Austin Passamonte
Trading System

Trading Platform

James uses Tradestation, but as most of the tools he uses are common trading tools, you can use any charting platform such as Metatrader.

Markets

James’s methods can be used to trade most forex markets. On the forums the examples of trades are diverse and include, but are not limited to, markets such as GBP/USD, USD/CHF, NZD/JPY, EUR/JPY, etc.

Time Frames

James advises that you should trade daily or weekly charts. However, many of the readers on the James16 thread prefer to trade the 4 hour or 1 hour chart as it provid... [Read More]

In the last couple of postings on day trading I have been looking at the down side of day trading and a look at a popular system and why it fails. In this third and final posting I want to unpack an example of someone who has made a bucket load of money, how they did and why it works.

Introducing Mystic Genie
In November 2007 Mystic Genie made the following posting on forex factory:

It may sound impossible, but I turned 1k usd to more than 100k usd (126k to be precise) in a wk—I am attaching the statement from my real account (after removing the account no. et al.)–Caution to newbies, please do not trade this way—I call my this account ‘wild thing’ which boosts my overall return—I trade another account conservatively as per proper MM—Btw, I did the almost the same thing last mth as well turning 400 usd to 60k within 2 wks—with some experience in forex trading & a decent trading system, I believe, this feat achievable atleast few time a yr—after all, I am only risking 1k of my capital (rest is house money).

The forum participants at first refused to believe the outcome. Enough of them had failed to know that this guy probably isn’t the real deal. I doubted it myself as well. I mean Rob Booker didn’t even claim that. He didn’t claim 1K to 100K in a week, he only promised it in a year. But the fact that he did post his actual account statement, means we should just give him the benefit of the doubt and assume he did it.

In Mystic’s own words this is how he trades:

The strategy is very simple with some fine nuances which I’ll not be able to explain fully as I also use my intuition a lot. I use simple trend following strategy based on 4H, daily & wkly TF (PA as per James 16 thread)— I use 1H TF for entries & exits—I also apply candlestick pattern, laguerre (see Imransait’s thread) & Demark lines (Mouteki thread) for estimated target points—now I do not use any firm SLs—if the position goes a/g me (say by 100-150... [Read More]