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 RALLY
OIL @ 60 = GREEN SHOOT
OIL @ 100 = IMPORTANT RECOVERY SIGN
OIL @ 20 = TAX BREAK

As much as I would like to think that you can use fundamentals to predict the market, it just goes to show you how difficult they are to use in reality. But before you jump to conclusions and say “this is why we should use technical analysis”, the real moral of this story is the DOW is quite illiquid at the moment because most big funds are sitting on the sidelines.

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 is a nice broker for trading M5G cyborg with.  So I am waiting to see what IBFX actually implements by the end of the month.  If IBFX is still workable for M5G cyborg, then I will leave it running there.  Otherwise, I think I might move it over to Alapri or FX Pro.

If anyone has experience with FXPro or Alpari and M5G cyborg I would love to hear about it.  Heck drop me a line about what you think you will do with your US accounts.  I am keen to hear.

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.

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….)

• CFD and Stock Trading Books
• Options Trading Books

The series itself is yet another reality show out of the BBC sausage factory; in hedge fund terms a million dollars is small fry; and the trading methods used are nothing to write home about, but I must admit I enjoyed it immensely as all the psychology issues involved in trading came out.

Like many hedge funds the trading approach involved each trader being allocated a risk limit based on their past performance. As their performance improved they are allocated more money. As a trading group each morning they would start the day at 6AM and review all the major markets and talk about different strategies for how to trade the market (mainly based on support/resistance and major themes in the news). The objective of each trader in the group is to build a portfolio of long and short positions (mainly in stocks).   The objective of the hedge fund manager is to have a stable of traders all trading different styles and different positions in order to minimize his risks.

The series itself was shot at a really interesting time in the market when the credit crunch was unfolding, so trading was not easy and most of the street were loosing money. The best thing about the series is we have all the classic archetypes in trading, including the usual bad trading archetypes:

• The risk hungry trader who over trades his risk limit and still has an itchy trigger finger
• The most intelligent person in the room with all the best ideas for trades but just could not pull the trigger on a trade
• The know it all trader who expected the market to operate to his rules and lost on just about every trade
• The trader who had one big loss and never really recovered and just dug himself in deeper
• The “ethical” trader who could not cope with what is required to be a true capitalist

The good trading archetypes:

• The cool as a cucumber trader who methodically worked their portfolio
• The trader who looks at price action and just sees the push and pull of greed and fear
• The trader who looks at the market as a whole and sees it as a big chess game and wonders what the next move will be for the central banks and the big funds

Most of the series focuses on the five negative archetypes as there is just so much angst and emotion in this group, which makes for good television. You barely hear a peep from the other traders who are the positive archetypes. They just keep their heads down and work their portfolio. Watching these people winge and moan at times was painful, but sooooooo instructive, because you learn so much about yourself by watching them.

Probably the best moment in the whole series is when the Hedge Fund Manager (HFM) ejects one of the weaker traders for failing to pull the trigger on her trading ideas, and then half the trading room walks out with her (probably using the opportunity to get out themselves and avoid the painful situation of being ejected by the HFM). In that moment the top trader just kept on trading. Sign of a real pro.

Anyway if it comes on the telly in your parts give it a look, otherwise you can watch some parts of it on You Tube.  If you have seen it yourself, drop me a line and let me know what you thought.

Episode 1 Trailer

Episode 2 Trailer

Episode 3 Trailer

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 provides them with more frequent trading opportunities. James cautions against this as the entry patterns are more reliable on higher time frames.

Entries

James focusses primarily on buying the dip in trends (James does not deliberately trade against the trend as he believes the quality of entry is poorer). James uses price action (PA) around significant prices on the chart to find his entry points. These entry are based on a combination of 3 – 4 bar based reversal patterns clustered near points of confluence.

The bar based patterns used for setups include:

• Inside bars
• Pin bars (PB)
• Bullish outside vertical bars (BUOVB)
• Bearish outside vertical bars (BEOVB)
• Two bar matching lows with second bar making a higher close (DBHLC)
• Two bar matching highs with second bar making a lower close

Of these setups the Pin bar or “Pinocchio Bar” is by far the most commonly employed entry method. The pinbar is effective a swing high or swing low. A good pin bar has  a long nose (and a long nose relative to the open/close/low); a nose protruding a long way from the prices around it (it ‘sticks out’) and the open / close both near one end of the bar.

Once we see this bar setup we look for areas of “confluence” which is where two or more of the following are at/around the bar setup:

• Expontential moving averages (there are many but the 150 and 365 are very popular)
• Fibonacci levels
• Support/Resistance pivots
• Pivot point / Swing lows/highs
• Trend Lines

To illustrate how the pieces come together have a look at the following chart. The example entry is in the direction of the trend (bearish). A pin bar has formed at a point of confluence between 2 different fibonacci retracement levels calculated from 2 different highs.

The initial stop for a position is generally placed 10 pips above the high bar in the entry pattern on a bearish entry or 10 points below the lowest bar of the entry pattern on a bullish entry. For example, have a look at the diagram below:

When a trade is on, the James16 traders will open up 3 to 4 small positions and seek to close the first trade out as soon as a small profit is locked in and then scale out of the remainder of the positions as the price moves further in their favor. The ultimate target is usually something like a fibonacci extension or some other feature on a chart. Other traders on the thread will just trail a stop loss behind the entry.

Position Sizing

When trading using the James16 method most traders will never risk more the 2 to 3% on any one trade and if they ever loose more than 30 – 35% of their account then they stop trading and go back and demo trade for a while.

Performance

I have never traded this method myself, so I cannot comment on the performance first hand. However, is an equity curve of pure james 16 trades by one ofthe list member over an 8 month period.

How Best to Trade This System

In describing his system James acknowledges that two people can base their trading on the same trading methods and one will lose and the other will win. The variables in trading are endless and therefore the outcomes can be quite different.

James admonishes his reader that to to succeed in this business not only do you need a sound method you also need common sense, discipline and a rock solid understanding that if you do not treat this as a business you have a ZERO CHANCE of long term success.

After 25 years of trading, James has learned that once you have these pieces in place, the difference between success and failure is: YOU SIMPLY MUST LEARN TO BE PICKY ABOUT YOUR ENTRIES. James is picky to the point that he is almost mental about it.

The other thing James does is he believes in demo trading as it is an essential tool to proving to yourself you are able to trade his methods. The problem with most demo account traders is they don’t take it seriously. The way he takes this seriously is that he suggests making a demo trading account suitably large so that you can easily see how a major loss would really hurt by how much you earn in your current day job.

Closing Thoughts

You might be wondering why I wrote this article. After going around the traps a bit I occasionally run into full time traders. In the last 12 months I have met 2 full time traders who have been trading live for a while and survived more than a couple of years and both of them trade methods based on James 16’s approach. Given this, I would say that James’s methods are worth a deeper look.

I will probably manually back test this approach over the next few weeks and deepen my research. I will let you know the outcome. If you have tried his methods, I would love to hear from you.