No Brainer Trades

Identifying Entry Points Within Price Patterns

2010-07-30T06:59:00.012-04:00

This is a follow-up discussion regarding materials covered during my participation in the recent workshop with Chris Lori. There were many great topics discussed though I found this area to be particularly relevant to everything we cover here. Please note that there are mentions of a couple price movements that some of you might not yet be familiar with, and they will be covered in greater detail in the new site. If you have any questions in regards to particular strategy, please be patient and rest assured they will be covered in the future. I am aware that attendees are the only ones that have seen some of this info from me thus far.

Chris also has many materials in which similar strategies/like patterns are already discussed, ready for viewing, if you prefer. You can access his site by clicking here. In the video, I reference 2 other articles on this site as well as one section...here are the links to those:

http://www.nobrainertrades.com/2010/05/all-about-diagonal-trendlines.html

http://www.nobrainertrades.com/2010/05/brushing-up-on-chart-patterns.html

http://www.nobrainertrades.com/search/label/PPTS%20Main

Thank You, Australia

2010-07-29T18:37:00.027-04:00

Just a quick note to say "thank you" to everyone overseas for showing me the best hospitality I think I have ever experienced and joining us for a great weekend in Sydney. Chris and I had a really great time and no surprise, we had a very astute group of traders join us. Follow up materials are on their way and FX-Stream.com has seen some good progress in the meantime.

Some of you were telling me about all the great things I could do in the last two days I had to spend. Here's a glimpse of what surfaced:

From the hotel room:

If we had possums like these in Central Park people would be running for their lives:
Warning: tourists will take your picture at ANY time.
A walk through the Blue Mountains' forest:
Holy mother of cockatoos....these guys are everywhere:
Katoomba Falls from the cable car:
Skyride, anyone?:
Parrots replace pigeons...one of the finer quirks of Australia:
Hands down the oddest bird I have ever seen in my life. It is as tall as I am and looks like it could inflict some serious damage with that beak. It's a black-necked stork, sometimes called a Jabiru:
Life is too easy for this guy:
The birds....yes, they rule:
Took a bit of a liking to these guys....just don't try to touch them or apparently they don't like to let go:
The Rocks at night....nice view of the Opera House from this perch:
Had some dinner down here both nights....can't beat the Monday/Tuesday steak deals:
And I thought California had some serious cliffs....this one off of Shelly Beach could leave you in a bit of pain if you slipped:
Manly Beach town center...in and out:
On the ferry to Manly; saw a school of dolphins following the boat:
Little bit of a walk through the Strand:
Downtown....what a structure. Some of the interior renovations on these older buildings is truly impressive. Other cities should take note:
Walk through the gardens just south of the Opera House...government building in the background:
Wasn't exactly prepared for the weather so I needed a jacket...the Queen Elizabeth Building came in handy for that:

Non-Farm % Payroll Change, This Recession vs. Past

2010-07-02T16:48:00.010-04:00

Just another wake-up call in terms of this recession, chartoftheday illustrates the trend of % changes in nonfarm of recessions spanning 1950-1999 versus the current. Unemployment picture at 9.5% today yet most leading indicators coming in negative.

Chart courtesy of chartoftheday.

Something Is Wrong

2010-07-02T15:26:00.015-04:00

Abnormal movements like the ones we have seen in the past couple of days are rarely classified as good because volatility, in general, is the equivalent of holding up a massive sign that says "Something Is Wrong".

First, the figures: As I write, EUR/USD is up approximately 1.34% this week, which all things considered, isn't insane compared to past volatility. What is, of course, the bigger deal is Euro's ascent to get there over the past 2 days. Yesterday's range hit approximately 345 pips, as one level after another got taken out on one of the most aggressive buying campaigns we have seen in a while. Of all the items I read on this topic the last couple of days our always righteous friend over at zerohedge.com seemed to sum it up fairly well. I agree with him: nothing seems very "positive" about this move at all. One thing lead to another yesterday and there were a lot of "any reason" moves going on.

Definition of an "any reason" move: Traders look for any minuscule reason to keep price heading in one direction. Every little, tiny, most-of-the-time insignificant trendline get used as support and keep pushing on price. While most people aren't advocates of looking at smaller timeframes I say many times here that you mine as well if it's going to help. In the case of yesterday, smaller timeframes were all that seemed to be getting used.

Yesterday, I took a 1 minute trendline and watched it hit umpteen times without breaking until that 1.2480 area. I wrote briefly yesterday that 1.2500 was swarming with activity. This level hasn't been seen in quite some time and in addition to a slew of option strikes sitting upon it you have resting orders all over the place from traders of every walk of life. Hits on levels like this aren't fades, they're "be there or be square" and strong hands do the pushing.

What usually happens is you get a run on the level and some form of reciprocated fade, which it did, right back into that 1.2480 area I wrote about yesterday, the former resistance. The run beyond the level went to the 1.2540 area, which is good enough to take out stops, limits, and all other wondrous things sitting above the figure.

The fact that we sat on that 1.2480 level today and kept on pushing shows the business plan is in good effect. Adding to the pile is our friendly neighbors at the SNB whose exports linger on the edge of destruction by the freely floating currency. One thing is certain, that they own a whole bunch of Euros right now and share the mentality of Mel Gibson in Braveheart for not giving up. While they never comment on strong movements, that kind of volatility typically insinuates only certain things as they have made their policy clear in the past and the language hasn't changed. EUR/CHF is up about 300 pips from its low of appx. 1.3072.

EUR/USD has resistance ahead in the 1.2646, 1.2670, and 1.2740 areas. One step at a time, and we'll see where this goes. Look for use of local support for continuation and breaks of higher highs/higher lows for correction.

Had Enough Fun, Euro?

2010-07-01T11:11:00.005-04:00

What a day for Euro. EUR/CHF also climbing the ladder for the first time in a while. New month, gloves come off.

A Trip to the Casino

2010-06-29T23:06:00.014-04:00

Imagine having a trading system that could handle markets that trade up, down, sideways, or in the most volatile or non-volatile conditions. While many gurus would proclaim that their strategy will do just that, common sense and simple statistics dictate that this is truly a rare event, if it ever happens at all. Consistency over extended periods of time is indeed the most challenging aspect to trading and those that accomplish it go down in history as "legendary" traders that have uncanny abilities to forecast price and adjust their risk models at the appropriate times.

Losing money in this market is a more common event. Greed overruling logic is perhaps a more common thread in today’s society when it comes to this kind of quick decision making. While I hate to make analogies to gambling when it comes to investment, perhaps no where else can these basic psychological impulses be witnessed to a greater degree than on the floor of a casino. Impulses and quick decision making based on greed are seen everywhere, repeated over and over again on any given day. With the "house" having the upper advantage, people still don’t seem to care, and the rush of a single win seems to override several, if not all, losses accumulated throughout one’s visit.

On what was to be a non-event weekend, I took a break from the norm and decided to head out with a friend of mine (he's also a trader, but for a bank based here in NY) down to Atlantic City. Atlantic City is known as the Las Vegas of the East and is basically swarming with casinos. We settled on one of the newer ones and went in with some "donation" money intended for the casino, and not a lot at that. Personally, I hate the idea of gambling.....every experience I have had I think I'm going in with a hundred bucks to "have fun" and no matter how much "fun" I have at the casino, I'm leaving ticked off because I lost some hard-earned money on odds I knew were silly in the first place, so now I don't even bother.

But my friend, well, he went in with another strategy. We sat down at a roulette table, and he started to play. In the game of roulette you can bet all over the board and if your number hits, the payout is 35:1, but you usually have to risk quite a bit just to get to that point in the first place. We sat at a table that had a minimum of a $10 bet, so that's all he risked every single time, and he always bet on the same portion of the board. It would mean that he would have to win one out of every three spins just to come out ahead by a little, still holding onto the risk of an ugly losing streak wiping him out. But he played, and played, and played, until three hours went by and he still sat there a little over breakeven.

While we sat and played, people came, and people went. In our three hours sitting at that table, there were roughly 20 or more people that came by and actually played. Out of the twenty, only 2 people made money. They came, they played, went on a rapid winning streak and left before their odds changed. The longest one of these people stayed was approximately 20 minutes. But the other 18 were part of another breed altogether. They came, they won, and they bet more, and more, and more, until everything they had put down initially was wiped into the hole on the table.

While my friend's conservative approach wasn’t exactly a clear path to unbelievable profits, he stayed alive and walked away without losing a dime. But for all of the other methods being used while we sat, one common thread existed and that was the simple impulse to keep on betting and turn their small amount into a fortune in a matter of minutes. Of these people,

• One man put $500 on "20 black" three times in a row before walking away and losing it all

• Another man bet one thousand dollars across the table two times before he lowered his risk and started to win. He made back about half, and walked away

• One woman, who at first I thought "had it" bet one hundred dollars across the board as my friend did, won several times, and then doubled her betting size. The pyramid collapsed and she lost her initial one hundred dollars, so she put down another. With the same double size, she went on a losing streak and lost that, as well.

• One man kept trying to ‘fade the trend’ of black numbers getting hit, betting on red. After three consecutive black numbers got hit, he started to place his bets. The trend continued for approximately 5 more spins until the man walked away losing over one thousand dollars from doubling up after every loss. He walked away and naturally, the next spin landed on a red number.

.....and so on and so forth. Of course, the first thing that came to my mind was: "Are these people insane?" But it wasn't just one person, or two people, that seemed to do absurd things. It was about 90% of them. And while you sit and read and say to yourself "tell me something I didn't know", how in the world could this many people do so many foolish things and yet we get shocked when we read that about the same statistic of traders lose money?

So is it really poor strategy or just a complete lack of common sense? While everyone hunts the internet and books for the next "no lose", killer trading strategy how many of them are just exercising poor judgement and triggering their greed impulse at every chance they have?

We're not talking about and edge, or the fact that you can have more tools in trading under proper methods, or anything of that matter. We're talking about pure psychological impulses that start with good intentions but show reality in a completely different light. You can see these examples all over the place and this is no different.

Call me naive or whatever other terms you might want to use, but rarely do I sit with other traders and watch them clean out their trading accounts on overleverage or completely miscalculated trades. On the casino floor you can easily witness people doing simply nutty things, however, and in just about every second you are there.

About a couple weeks ago, I posted an article regarding trader performance, and measuring your own versus the industry. When you look at those numbers from a comparative standpoint, the performance looks weak, but its a simple, base reality. Big or small, we are all humans, and I have seen $50mm wiped out on one book just as easily as I see novice traders "going for the gold" and ending up in the dumpster.

One thing that we discuss over and over again here is risk management, and how position sizing and sticking to a system will keep you ahead of the pack and that simple logic overrules all. People can't stomach drawdown, and one horrible event leads to another under overleveraged circumstances. When I went down to North Carolina to Chris Lori's workshop and told the crowd that I only risk about 0.25% per trade, I didn't get the reaction I thought I would. People seemed to be surprised more than anything, but I think it can be linked back to everything we read out there from self-proclaimed gurus telling you that 5% per trade is "moderate" risk. Moderate for who, I wonder, suicide victims?

No matter how you interpret this information, for myself, it was a bit of a wake up call. As I pour through the pages of blogs, research materials from brokers, forums, etc. all dedicated to trading, you have to wonder how many of these people can actually sit down in front of a machine and maintain some very basic discipline that is actually going to help them and not destroy them.

While it would be nice to have the perks of a casino in front of me while I trade: give me free drinks while I draw support and resistance levels, comp. me a penthouse hotel room when I go on a winning streak, offer me a glamorous magic show after I'm done, or decorate my office with lights and a 50-foot billboard of Carrot Top, we are talking about two very different environments. Regardless, humans are humans and the psychological impulses are all still very much the same. Maintaining disciple and simplicity when it comes to position and money management are actually not that hard to achieve when you don't think it's such a big deal. Learning the hard way isn't much fun, so if you haven't started yet, you mine as well get going.

The Interest Rate/Equity/Dollar Correlation

2010-06-22T00:20:00.006-04:00

While I make an attempt to be as all-encompassing as possible in my work here I admit that there are oftentimes aspects deliberately overlooked in terms of what gets posted. Today I wanted to discuss a relationship that rarely gets discussed here, and that’s the one that exists between equity markets and interest rates.

Some sophisticated investment models monitor this relationship heavily as a general meter of optimism and pessimism when flows find their way in and out of the market. Particularly when Fed activity is expectedly on the rise (cutting or raising) do you see this relationship start to get monitored to a higher degree, and many models take a look at these rates in terms of an indication that lower rates mean future positive flows in terms of the equity market as more projects are able to get accomplished on lower borrowing rates.

While I don’t like to provide any general rule of thumb in terms of these two sharing any form of positive or negative correlation, for the most part, they remain positive. When they start to get out of synch with one another do you really get signs of an excited or optimistic market, as was the case in recent weeks.

Below is a chart of the S&P 500 and 5 year t-notes, with just a few notable peaks and valleys marked up to help with my explain that follows. First it is important to note that the short term yields are more likely to correspond with better behavior as the longer the term the less prone to short term fluctuation in relation to the stock market. Particularly in downswings, it is visible that the correlation starts to lose track with 5 years leading the index by several days or weeks (they begin to decline, while stocks maintain upward momentum). Subsequently, stocks “catch up” to the t-notes, heading into similar declines. Peaks in yields followed by decline have, in recent times, indicated that equities are likely to follow through.

Conversely, bottoms in t-notes have typically corresponded with a seemingly tighter correlation in equities; in other words they have essentially remained tightly wound with one another in terms of bottom days, and would reverse literally on that day or very shortly thereafter. In periods of consolidation or racing bull market weeks you start to see things unravel, as was the case at the end of February and March of this year.

Generally speaking (as always is the case when you discuss correlations) market optimism ensues when the correlation unravels and equities incline. Pessimism ensues when the correlation remains intact and equities decline.

But while all correlations provide broad strokes of activity, they all either lose it simply get tighter at one point or another. In terms of currencies the reason we care, of course, can be linked into risk assumption or aversion. Broadly, since the beginning of this recession the dollar index has shared a negative correlation with world equity indices. As equities decline, the index goes up as investors run away from higher yielding currencies and assets to seek a safer route of investment. EUR, AUD, etc. declined during 2008 for the most part, as a result of this peg. Conversely, as equities go up, the index declines as investors assume a greater degree of risk, as witnessed in very recent days.

Chain linking one instrument to another, and to another, might seem like a unnecessary task, but like anything else awareness trumps all and simply having the knowledge of these types of relationships carry weight over the long run. But I stress that one shouldn’t get too ‘married’ to one particular relationship over another. Eventually, they all unravel to some degree, as individual inputs driving the prices of each instrument takes over and things eventually unwind. Regardless, I believe it’s worth noting, even if only in a broader sense.

Live Broadcasts

2010-06-17T04:56:00.010-04:00

NBT has grown quite a bit over the years and through the course of the site's existence I have witnessed a need/desire on behalf of the readers for a more interactive experience. Live broadcasts will allow myself and peers to share commentaries, updates and tactics in a live environment.

In an attempt to provide readers with sound and manageable ways of trading currencies with a concentration on risk, the goal of NBT from the beginning has been the abandonment of outlandish claims made in books and online from people simply looking to sell their products as opposed to those seeking the well-being of its users. From the beginning I have written and spoken about the same strategies used by major institutions and have never tried to 'sell' my readers on anything else.

FX trading is risky, and through the years I believe there has been a lack of realistic or sound ways of explaining the trading process in general, particularly to the retail segment. Therefore, please do not confuse these broadcasts with a 'signal' service or anything of that matter. The goal is to provide viewers with a better understanding of fundamentals and price action and just 'hear a voice' from time to time.

We should be starting live broadcasts next week once the technical kinks are combed through. I have been looking at several providers and there are few out there that offer what we are looking for without requiring 100% of your CPU's power (streaming video is very CPU heavy for the presenter, and the trading applications don't help) For now, we intend on placing the live broadcasts on a dedicated page or, while speakers are presenting, right on the homepage of nobrainertrades.com.

These are not to be confused with webinars. There will be no sign in required and the environment is casual (so feel free to wear your blue jeans). While from time to time I will offer structured materials for the most part they will be 'just talk' about everything going on in the world of FX.

Becoming a Presenter

If you have any interest in becoming a presenter please contact me at your earliest convenience. Your trading and analytical skills should be top-notch and experience level advanced. We consist primarily of an English-speaking crowd so if English is not your primary language all I request is that you are clearly understandable with little accent. Please include any telephone numbers/skype ID's so we can talk and discuss. Specifically I am looking for traders to cover circa the NY session (but any session helps) as I am usually very busy during that time of day and I won't be able to share much during that period. This isn't a paid gig but if you are simply looking for exposure or like to teach others/be heard I would be happy to have you on board. Traders helping traders is the philosophy.

Schedules will be relatively loosely structured so we will roll the ball and see how it plays out over time. This is an experiment, so we will see how it goes. Comments/suggestions are appreciated.

Thanks very much,

Steve

Update: A new website is being created for these and we will keep you posted on any developments via email, Facebook, Twitter. We decided that the content didn't 'fit' within the context of this site and as such, decided to simply put together a new one.

EUR/USD Intraday Price Action

2010-06-10T21:50:00.005-04:00

Just a recent chart of EUR/USD explaining some areas of current interest leading into the high.

Your Performance vs. the Industry: Comparing FX Traders

2010-06-09T18:02:00.028-04:00

Everyone needs a reality check every once in a while to take a step back from what they are doing and reflect on their strategy, risk, and overall trading methodology. One of the easiest ways to do that is to compare yourself to the rest of the industry and take a look at what other comparable traders are doing.

So getting aside from the huge, one page ads offering you a 50,000% return in 5 months using their trading system, let's take a look at some other traders in the world and see how we measure up.

The Barclay Currency Traders Index is a "composite of managed programs that trade currency futures and/or cash forwards in the inter bank market"1. (and it's usually great if you ever need an ego boost).

Barclay Hedge does a good job of attracting money managers into their database, as their products are used by a large number of IB's and investors worldwide. While a broad stroke of the market, their indices provide investors with an arsenal of knowledge about who is doing what and can potentially bring a lot of 'dark horses' into the light. Be aware that not every managed currency account is going to get listed on this index. Only those who opt in actually get listed, and some of them don't necessarily list all of their programs. If you follow the links at the bottom of this post you can see how many are actually reporting, broken down by index. Regardless, it provides a good stroke of what is going on in the world of these accounts.

So enough chit chat, let's look at the numbers. Everything below is represented in the traditional industry standard, or VAMI (Value Added Monthly Index or Previous VAMI x (1 + Current ROR) based on a $1,000 hypothetical investment. You can see that for the past 10 years the index has fared relatively well, while tapering off a bit since the credit crisis. But compared to the equity markets, I think it is safe to say that most people would have preferred this performance.

Source: BarclayHedge

Trying to Buy a Mansion With Enough Capital for a Bus Ride

As a writer who has had a lot of contact with traders of all shapes and sizes, the first thing that comes to mind when I look at this information is how skewed the market is, particularly the retail market, in terms of out-performance of other investment vehicles. In other words, people seem to think that they need to triple their investment in a month before they can even think of being considered "good" based on all of the things they read. It's an elementary mentality. Taking a look at the numbers above provides a more realistic perception of where the market stands.

This "striving to be the best" typically results in complete decimation of accounts, driven by uneducated input, a race to trade and poor risk management. Risk management is key to all psychological inputs that drive future actions, and the more the risk goes on the more likely the individual is likely to react negatively when he/she is trying to move ahead.

Holy Smokes, That's a Smooth Equity Curve

The second thing that comes to mind is relatively unrelated, and it refers to the general lack of volatility seen in the first index. It shows us that over time, diversification of all of these traders has been producing a curve that is relatively smooth. For myself, a smooth equity curve is paramount. With as little disruption as possible, you are able to maintain focus and continue moving ahead. While I have a primary method of trading that I stick to regularly, many of you are also aware that I use systematic strategies. It's highly technical, analytical work packed with trial and error that I genuinely enjoy doing, and when the market gets quiet I usually dive in.

The unseen benefit to this is diversification of strategy. While I adhere to my primary method, I have others that execute based on entirely different variables than I would manually. And I notice that as a result of these separate systems in place my equity curve has become a lot smoother. As long as my portfolio exposure and risk are in check and everything looks good on a 30-day cycle, I only see benefit to this type of allocation.

Huge Gains and Mammoth Losses

The third thing that comes to mind takes looks at volatility in the other direction, or on a smaller scale. Below is a snapshot of the index showing the highest and lowest ROR, with the average listed right in the middle. You can see that we are dealing with some enormous swings in terms of performance, and while these numbers might very well be anomalies, they are still the numbers of accounts actually being traded.

Source: BarclayHedge

Whatever systems the biggest gainers and losers are using, the fact of the matter is that in either direction, its a lot. And given the fact that the average falls right above the unchanged mark, it proves that a controlled methodology in terms of risk and fundamental strategy can outperform this index when implemented properly.

Conclusion

While we all love to hear the 'big fish' stories that get posted in newspapers, books and online, reality of the norm is an entirely different story. People tend to focus on these extremes, whether they be good or bad, more than casual, industry-standard performance. When we look at the averages and the volatility in the returns of other traders we can get a real sense and gauge of some true outcomes and position ourselves to swing ahead of them. Consistency over time is what most traders compete viciously for and regular reality checks can help achieve that momentum.

1Source:

Barclay Currency Traders Index

BarclayHedge Alternative Investment Database

2010

http://www.barclayhedge.com/research/indices/cta/sub/curr.html

The Rise and Fall of the Euro

2010-06-01T20:57:00.008-04:00

Interactive graph from Spiegel Online highlighting some key movements for the pair. Click the chart to go to the source.

Also related from the same site is the following showing ECB shares according to capital. No surprises here but it simply demonstrates the amount of weight distributed across EU nations.

Source:

Spiegel Online International

"The Rise and Fall of the Euro"

June 2, 2010

http://www.spiegel.de/flash/flash-23323.html

Source:

Spiegel Online International

"German Central Bankers Suspect French Intrigue"

June 2, 2010

http://www.spiegel.de/international/europe/0,1518,697680,00.html#ref=rss

Asia Fading USD Strength

2010-06-01T18:48:00.005-04:00

A huge spike today on more rumors, speculation and order flow resting below the 50% retracement punched EUR/USD up to the 1.2350 area. Going back to the use of diagonal trendlines, we got a direct hit on the highs today before the major intraday fade ensued (point #1 on embedded chart). We're now closing above the key 50% retracement, giving the pair a little breathing room for now.

This spike hit its peak in the middle of the US session and has been fading ever since. When Asia rolled around, we were trading just above the 1.2200 handle, which had a lot of recent confluence from horizontal support, fibs and diagonal trendlines.

The chart below illustrates what to look for when you continue to see lazy, directionally biased price action heading into a session turnover (point #2). Without any significant retracement seen back up to the highs, EUR/USD dropped 150 pips and barely looked back. With this type of movement, you can expect price to relax at some point and move in the direction of the previous day's underlying price action.

As I write we're just about 33 pips away from 1.2200. We would like to have this move continue trading higher, back up into the range of today's high and the Asian low and form some type of a channel. Should it grind lower before doing this, we're likely to see some near-term support levels get quickly eaten up; given today's harsh movement its always a possibility, but to remain long we are at least protected in the event of any adverse moves based on this setup alone.

Some Textbook Eur Activity Tonight

2010-05-28T05:03:00.012-04:00

End of month protection = standard at this point and lows were unable to get violated on Wednesday. 4th touch of the last trendline (bottom circle on chart below) failed as momentum swung through; possible entry long, if not long from the end of the Asian session.

Top of the channel was just hit in a strong momentum play past the former 1.2433-1.2445 key level.

Most of the time these stick extremely well, as noted in examples across several posts now, though end of month activity could provide some further upside as key areas remain above, particularly circa the 1.2500 handle. Below are links to recent articles discussing this in further detail.

For the day, EUR has already gained a substantial amount (appx. 170 pips) but with 300 pip days not uncommon lately, shouldn't rule anything out, especially towards the end of the month with so many open gaps above. Regardless, the above is well worth noting.

http://www.nobrainertrades.com/2010/05/all-about-diagonal-trendlines.html

http://www.nobrainertrades.com/2010/02/price-symmetry-highs-and-lows-step-by.html

Just some very quick thoughts if you have any other info please feel free to post below.

Sydney, Australia: Steve W. & Chris Lori Joining Forces for an Intensive Weekend of Training

2010-05-27T01:49:00.006-04:00

I'm pleased to announce that both Chris Lori and I will be teaming up for an intensive weekend of training in Sydney, Australia from July 23-25. The workshop consists of 3 packed days of training from two experienced foreign exchange money managers with fundamentally similar yet varied investment approaches.

I'll be covering a wide range of materials that I have never written nor discussed, with technical and fundamental methods used over an intraday and long-term period. In essence, my portion will be a rundown of simplified method combined with organizational skills that are intended to ease your mind and gain a new clarity of market movement.

For those of you new to Chris, he is a four time Olympian and now professional trader, currently managing FX books for institutional clientele based around the world. His methods and skills are distinct yet harmonious with price action principles and basic order flow that elude many traders. Chris will shed new light on crucial yet commonly overlooked market nuances through a structured, fundamental approach..

Attendees will receive access to:

-Chris Lori's ProTrader'sClub Complete FX Course

-Chris Lori's 'Inside the Banks'

-Subscription to Chris Lori's ProTrader'sClub

-Resource Manuals from Steve and Chris, with hundreds of pages of materials including proprietary methods for entry, management and organizational technique

For bios, synopsis of presentations and general overview please follow this link:

http://www.chrislori.com/sydney-workshop.html

While I realize it is rare for me to show up at an event such as this, I'm excited to do so and look forward to meeting some of you I have come to know well through the years.

Steve

5 Tips for Trading Volatile Currencies

2010-05-22T08:24:00.016-04:00

These days you have to keep in mind that this isn't the market we were dealing with 4 years ago, or even 4 months ago. Taking one look at the JPM G7 Implied Volatility Index will quickly let you know that things can change in an instant. Last week the Index peaked as currencies reached for extreme gains and losses in what proved to be a very short amount of time.

During times like these, some traders will simply stick to their guns, while others will adjust their style and methods to conform with the current market. Little forecasting is required to know when things go beyond a certain level of normalcy. Reacting to these events demands good common sense and action based on simple, global principles, which ironically enough, are disregarded by some of the most complicated trading methods and algorithms in existence.

Your trading style should be "simply complex", meaning simple while requiring a minimal level of complexity, but not too much. It allows you to adapt and adjust to all environments without binding you in to a rigid set of rules. Most poor trading systems go bust from this point alone.

Source: Bloomberg

1. Adjust your position sizing

Adjusting position sizing alongside volatility isn't exactly a new concept; in fact its widely practiced by a lot of major discretionary portfolios and quantitative models for the simple fact that former techniques simply don't work as well under extreme conditions.

And I speak as a first-hand witness. At the last hedge fund I worked for there were literally hundreds of models being used. The ones that adjusted themselves withstood the punches for the year and actually closed up quite nicely. The ones that didn't simply got hammered until it was too late, and essentially had to 'start from scratch' after assuming loss on their portfolio value.

For individual traders, you'll find a lot of this is true as well. Whether a discretionary or quantitative tactic, when things swing so viciously, models tend to fall apart. These swings we have been seeing come with little warning and with a lot of ferocity. It's not a bad thing to 'cool it' until the situation resumes a bit of normalcy.

2. Review your library of tactics

Traders are problem solvers, and when things tend to get wild that usually causes a problem for a systematic approach. Undoubtedly some tactics and setups hold up better in volatile markets than those that are less. Dig through your library of methods and see what might work best under such circumstances. Be selective, but not too selective; basic principles will still hold up (see item 5 below).

Also, be sure to write all of you experiences down, take plenty of screenshots so you have them for reference in the future.

3. Use more caution, but not too much

Your job as a trader is to assume a certain level of risk, though when tried and true methods appear to fall apart simply due to the nature of the market we're in you know it is time to take a breather. Be less liberal in your entries without sacrificing profit gained or lost on any positions.

As is the norm, take the easy ones, and don't do anything foolish in the meantime.

Widen your ranges and expect more overshoot than would be the norm. This could mean either modifying your entries or simply stops and take profits, but good money management will keep you afloat just fine.

4. Get on your toes; laziness tends to cause more problems than solve them

In recent days you have to think to yourself "now is not the time to get sloppy". Go through ALL the appropriate motions for the day and don't skip a beat. Plan your day out, write everything down, read and constantly monitor all news events and be fully aware of all potential scenarios of underlying order flow on your charts by drawing lots and lots support and resistance. Do it all.

Some of you might be better than others at 'doing your homework', but regardless of the size of your portfolio, traders big and small are all at some point guilty of letting things get loose. One of the biggest myths in the retail market that much of your daily motions are all so different than that which is done by institutional traders. We are all just human, and there is only so much information available out there, despite what many have been taught to believe. Stay on top of your game and your performance should remain consistent.

"Fatalism is a lazy man's way of accepting the inevitable" - Natalie Clifford Barney

5. Don't disregard basic principles

Not to be contrary to the 2nd item listed above, you have to keep mindful of the fact that basic principles will still hold up, even if they are witnessed at a larger daily price range than what you might be used to. Position sizing and variation of stop loss / take profit amounts could be adjusted, but it is up to you to decide what those values should be based on major price targets.

Spikes leading into areas of high order flow, whether continuous with a trend or against it, identification of key areas, price patterns, trendlines, etc., are no likely to instantaneously go bust in this market than in any other. How long they hold after-the-fact typically will, however. You'll notice a lot of "V" tops and bottoms occurring as opposed to consolidated price action due to the racing activity, but the areas, or levels, will remain the same.

If anyone has any other tips please post them below we look forward to hearing them.

Source:

Bloomberg.com

2010

Bloomberg.com: Personal Finance, JPMorgan Volatility Indices G7

Implications of Key Levels & Price Exhaustion Overview

2010-05-21T05:39:00.007-04:00

Main Points:

Price trades above a key area, buyers keep buying, price trades below a key area, sellers keep selling

Look for congregation or blocks of order flow and then confirm movement through subsequent activity

Be aware: draw trendlines and understand how they are being used on but a long and shorter term basis; everything happens for a reason

Watch price around certain times of day: 1. what price is doing leading into it and 2.what happens at that approximate time

Boot pattern is caused by a spike/drive lower or higher; at the base or top a local significant high/low causes the consolidation

Use price symmetry to determine feasible price exhaustion points to avoid getting eliminated on premature fades

Brushing Up On Chart Patterns

2010-05-20T16:35:00.000-04:00

Dicing up price into separate components allows us to make sense of, and bring clarity to what might otherwise seem like noise to the rest of the world. I all boils down to opportunity and opportunity comes through structure.

There are a lot of price patterns out there; oftentimes, more than we care to have but regardless, and as my mother used to say "organization is the key to success" (and a couple other things).

If you're looking for a concise overview on common price patterns I recommend you check out Thomas Bulkowski's site. Tom has written more than a few books on the subject including "The Encyclopedia of Chart Patterns" found on my Book Shelf.

They're just good to know, use, and have as a reference in the back of your brain. Tom has a thorough site which includes a visual index you can find by pointing your browsers here:

http://thepatternsite.com/visualcpindex.html

Source:
Bulkowski's Visual Index of Chart Patterns
THOMAS N. BULKOWSKI

2005-2009
http://thepatternsite.com/visualcpindex.html

The Greek Crisis Explained, Episodes 1, 2, & 3

2010-05-20T02:51:00.014-04:00

A web miniseries; something to watch while we wait for the saga to unfold ourselves and the creator has more to come. To be continued...

Episode 1:

Episode 2:

Episode 3:

Created by NOMINT

Weekly Redux Is Ticking Off A Lot of People

2010-05-19T20:23:00.017-04:00

I was out of town at the end of last week on some personal business, so I missed Euro popping into new lows and breaching volatility levels unseen for some time. Coming back this week, I find myself spending a lot more time than usual pouring over data and seeing how to best position myself for the longer haul.

Yesterday I stayed up particularly late looking at possibilities ahead and we are simply seeing a very high degree of event driven price action where fear and uncertainty is ruling the court.

Euro dropped to a low of approximately -15% from the beginning of the year, and while it's great for exporters, its frankly scaring the junk out of many of officials. Many traders share the feeling, and the rumors are flying abnormally hard. Today alone:

-Greek finance minister was rumored to say that separation from EU was a possibility

-A US think tank was reported to have said that the ECB might be ready to intervene on the currency

It is starting to feel like I'm listening to a hoard of pompous teenage cheerleaders gossip in the corner about the direction of EUR/USD. Actually, if you ever worked in an investment bank, you will know that they're pretty much synonymous.

Here's what the crowd is saying today:

On Reuters, regarding Euro's pullback, Dean Popplewell of OANDA was quoted as saying "We've got this rally in the euro and I think it's the market's understanding and fear that the G7 is concerned about the speed of the euro's decline".

On Bloomberg, Charles Wyplosz, head of the International Center for Monetary and Banking Studies, puts a 'fair value' on Euro at 'about $1.10 to $1.20', a view shared by strategists at UBS, Danske Bank A/S, Royal Bank of Scotland Group Plc and Bank of America Merrill Lynch. He also stated that, in currency markets, these levels tend to get overshot.

The Mad Hedge Fund Trader seems to agree as well, and is hiring Gisele as his head currency trader (I guess we'll have to go into a bidding war).

Intraday price action declared that we shouldn't be going short earlier today. Once 1.2233 got blown to bits, and then used on a retest, it was 'sionara' from there. Below I highlighted in red the key areas I was looking at today, and in yellow, potential pullback zones.

When you have a range from 1.2144-1.2233 created like that, especially after a large drive lower, 2 possibilities present themselves:

1. Its a 'boot; pattern or descending triangle, and price continues driving lower; usually hard and fast

2. A U shaped formation takes precedence, as was the case below

But regardless of today's activity, 'overshoot' seems to be the macro word of the day and with such a mighty stretch in the past week Eur has to cool it's jets. That key 50% retracement I discussed yesterday is a big trigger point. I noted that buyers were congregating down there just in case anyone got any bright ideas, and now that we're retracing, the level remains on the radar.

When you have a major level such as this volatility is sure to ensue, and it is why I said to look for post-confirmation of any directional moves before making any rush judgement. In other words, we're not in an environment that favors quick fades at pinpoint levels with minimal drawdown. It has been a runny, fear-driven market that should remain volatile for some time.

It's the not-so new normal.

EUR/USD's Eerie Hover Over Major 50% Retracement

2010-05-19T02:19:00.018-04:00

Like Frodo and Sam at the hellish gates of Mordor, EUR/USD is hovering eerily over its major 50% retracement of 1.2135-2 (appx. with variation due to bids). Key levels like this don’t come along too often, and if you’re not aware of it already, please let this post be a heads up that you do.

Yesterday's German ban on naked short selling delivered a brutalizing punch to the pair, which is now down approximately -15% from the beginning of the year.

Because of the massive range, there’s going to be a slight variation of pips, but Reuters is publishing it at 1.2135 (0.8225 all time low - 1.6038 all time high). Regardless of the outcome, the level is still there and its not going away and will be likely used in the short or long term provided any pass on or through it. Look for stacking brick patterns (fractals for Chris Lori followers) above or below the level on smaller timeframes .

Key buyers are noted preventing further decline below the level around the current low of 1.2142, but given the race of news events coming out lately further slide is being headlined on many fronts from a macro basis.

Even if they seem to be ignored the first time, levels like this are not forgotten about in either long or short scenarios.

Thoughts or outlook? Please feel free to comment below.

Trials & Tribulations of the Euro

2010-05-18T22:36:00.017-04:00

Visual Economics just posted this graphic a couple days ago (5-13-10) in regards to the current state of the Euro. Since the last trail of data and after last week's events / this week's German naked short ban this percentage drop has more than doubled. Catch up time?

All About Diagonal Trendlines: Variations & How To Use Them

2010-05-11T06:21:00.026-04:00

Diagonal trendlines can help us out tremendously when it comes time to entering and riding out an existing trend or entering a new one, but oftentimes deliver ambiguity and become confusing to a lot of traders who don’t know how to handle them properly.

Questions arise as to whether or not people should even be using them, but a simple glance at a chart will tell you that they do in fact get monitored heavily as price has tendencies to bounce right off of them.

Diagonal trendlines, with horizontal support and resistance, are one of the more widely looked after technical aspects of trading. In other words, the majority of traders across the globe monitor them for the same, sole purpose of defining price action and where to place trades.

The confusion with diagonal trendlines, as we have explained in previous articles, is that uncertainty oftentimes arises over which lines get honored (faded) vs. those that breakout. Here, I’ll explain the different types of diagonal trendlines and when they work best.

When used properly, we can either ride out existing trends or catch reversals. Below is an outline of what to look out for.

Overview

The first major rule when using diagonal trendlines is that when you are drawing them, they must be absolutely clear to the rest of the world. Ambiguity is not a word we like in trading. It takes two or more points in order to establish a diagonal trendline, which means that if it is honored again, it’s going to happen on the 3rd, 4th, 5th, etc. time. For a downtrend, you’re connecting lower highs and/or lower lows, and conversely for an uptrend, you’re connecting higher lows and/or higher highs. They’re visible on virtually any timeframe, though regardless of the timeframe the rules, in terms of when they are likely to be respected vs. not, don’t change.

Fanning

Fanning trendlines means to draw several trendlines in one direction, all with progressively steeper angles. Oftentimes trends will accelerate in terms of momentum, creating a sharper degree of price action. In order to compensate you want to draw multiple lines stacked on top of one another in order to assess all possibilities of trend continuation. As a general rule of thumb, the steeper the trendline, the less likely it is to hold. When you are drawing your third or fourth consecutive trendline, all at steeper angles, you can expect that the lower ones will eventually break.

When fanning trendlines, it’s very important to be precise in your connections of highs or lows. FX is an extremely technical market. Oftentimes overlooking just a couple of pips is all it takes for you to miss something that someone else of influence is seeing. Essentially, you don’t want to be sloppy when drawing your lines. Accuracy and careful analysis pays.

Hold vs. Breakout

When you are looking to determine whether or not a trendline is likely to hold vs. breakout, there are several things to look for. All of the below items should be considered when attempting to ride an existing trend or play a breakout / retest.

Just being aware of these factors alone should help anyone out tremendously in their understanding of why certain occurrences are happening from a technical perspective; being alert and aware of all factors is key in trading, and when it comes to diagonal trendlines, the rules are no different.

1. Angle of the Trendline

As previously stated, the steeper the angle of a trendline, the less likely it is to hold. When you’re “fanning” trendlines and price is in a steep and steady uptrend, don’t expect the steepest of these lines to hold the further you get to the top. The same is true for a downtrend, of course. Look for lines that are less sharp if you're looking to fade them directly. When price becomes parabolic, look for backward bounces/retests for reversal.

2. How Many Times it Has been Hit / The Number 3

Just like horizontal support and resistance levels, the more a trendline gets hit, the less likely it is to hold. It’s a common theme that is more or less standard and follows through not just any type of trendline but a variety of other technical indicators; things only work out so well for so long.

Typically, the number 3 comes into play as you’re looking to fade them on the 3rd touch or play a breakout after the 3rd touch. These conditions, and this number, could vary based on other factors described here.

3. Higher Lows or Lower Highs

Lower lows (for a downtrend) and higher highs (for an uptrend), tell us a lot about whether or not the trendline is likely to hold. When a downward-sloping diagonal trendline is being approached, check to see if the current trend is registering significant higher lows or not. Lower lows indicate continuation of the current trend. Higher lows potentially disqualify the current trend and let the trader know that it’s time for price to take a breather.

4. Confluence of Horizontal Support and Resistance Levels

When a diagonal trendline is being approached, one of the first things to look for is whether or not there is clear confluence with an existing horizontal support or resistance level. Simply stated, the more reasons people have to sell or buy into an area, the more likely they are to do it. Having confluence zones of support and resistance increases the probability of the diagonal trendline holding. Personally, I would consider this a requirement, though this is not always the case.

5. Confluence of Fibonacci Retracements

Its yet another reason people have to enter a position, so it could potentially help when you’re looking to fade a diagonal trendline, yet certainly not first on our list. Generally speaking, fibs found from longer timeframes will typically hold more significance than those on lesser. So the bigger the fib the bigger the relevance, and the more confluence of factors coming into play the greater the probability of the trade. Again, the more reasons people have to buy/sell into an area, the more likely they are to do it. Fibonacci retracements are just another one of those reasons.

Trendline Gets Surpassed, then Honored Again

It’s not uncommon that a trendline will register direct hits, get surpassed slightly, and then resume direct hits again. The simple explanation for this is that intraday noise occurs or price objectives are simply being traded into (support and resistance levels, outstanding orders, etc.) before the trend resumes. Don’t disqualify a trendline because it has been simply passed by a small fractional amount. For a downtrend, wait until price dips back above it (if drawn below), ensure that lower lows are being made, and wait until it gets approached again.

To disqualify a trendline it simply needs to get fully broken, and ideally used in the form of a backward bounce as support or resistance.

Larger Versus Smaller Timeframes

Like anything else, it’s recommended that you don’t get caught up in intraday noise if you’re going for longer term trades. Always perform a multiple timeframe analysis to make sure you don’t miss anything. Having the full picture is essential, and its one of the many reasons that many traders lose money on a daily basis.

It is recommended that, particularly when viewing smaller timeframes (eg 1 and 5 minute) , you draw only direct hits on trendlines. Due to the highly technical nature of what it is we’re looking to trade, sometimes just a matter of pips can mean the difference of something you missed versus what it is you have actually seen. Again, larger timeframes typically take precedence (1hr, etc), so don’t get caught up in the noise.

Using Them

Before you read this section, please read all of the above first. Like anything else in trading, missing pieces of information typically mean the difference of success or failure. This is a full-circle approach.

In practical use, these are the most common:

1. To judge the extinguishment of a current trend.

Fanning trendlines will give us a very good idea of whether or not a trend is about to call it quits. Many times, the current trend will become parabolic, at which point your trendlines become progressively steeper (recommended at least 3 or more). Drawing a trendline on the steepest of these moves will eventually lead into a major support and resistance level, which you’re looking to fade. When using this methodology, be sure you’re not being too liberal in the definition of the word ‘parabolic’. We’ve all seen it, and know very well what it looks like. Simply stated, after the third touch on the final trendline, and only in a situation such as this, you’re looking to fade.

2. To trade a reversal in a parabolic state

Just as in the example above, your trend becomes parabolic, and you’ve plotted progressively steeper trendlines (recommended at least 3 or more), but when price hits your major support or resistance level below or above, you miss entry or simply feel uncomfortable doing so (you’re not a ‘falling knife’ catcher). Playing a backwards bounce off of the steepest of these trendlines could help you out in this regard.

3. To ride an existing trend

It is recommended that you call it quits after the third touch on a diagonal trendline in terms of direct hits. 4th, 5th or 6th touches generally increase risk, though I might consider entering on a stacking bricks pattern in such a case should the touch prove valid. Like anything else, those found on larger timeframes will hold greater precedence, so try not to get caught up in the noise.

4. Breakouts

People generally associate the word ‘breakout’ with ‘something you don’t have to fear as much’ or ‘no drawdown’ because you’re moving in the direction of price, but the fact is that breakouts can be extremely risky if you don’t know what you’re doing. Most of the time they carry greater risk of loss due to the simple nature of the market. In fact even in the case of a breakout, you’re looking to get positioned ahead of the breakout on a pullback, which is in and of itself the form of a fade.

Breakouts on trendlines can certainly be done, but with skill and only under the right circumstances. In ANY circumstance, it is recommended that the trader gets positioned before the breakout occurs in the event that the breakout is false, and the trendline does indeed hold again. Like a normal support and resistance level, the more times a diagonal trending gets hit, the greater significance it holds. The greater the significance, generally speaking, the greater shot of a forceful breakout when it finally comes.

It’s generally not recommended that you play a direct breakout (different than a backward bounce or retest) as the majority of the time, price is in a consolidated phase anyway and will likely come back for a backward bounce or retest. Rarely, in larger timeframe circumstances, will price simply break out of a trendline without ever saying ‘hello’ again, but it certainly sometimes does.

For breakouts, the same rules apply as with any other…..more than 3 touches, the more the merrier, get positioned before it happens, in a downtrend: lower highs, in an uptrend: higher lows.

On smaller timeframes, these breakouts can become more prevalent, particularly around key area, though only after 3 touches have already been made. Additionally, breakouts on trendlines could many times simply mean that price comes up and attempts to retest a larger, more prevalent trendline.

Other Examples:

Diagonal trendlines can be used as both as guide or direct trading. In practice, it is suggested that you take time actually getting used to them before putting them in action. This usually requires may hours of observation before you truly get comfortable. Like anything else, look out for news releases that could potentially ruin otherwise favorable outcomes. Understanding them in conjunction with other tenets of trading can help you substantially, though more liberal practice and bending or disregarding rules typically has the opposite effect.

Chris Lori's Pro Trader's Club Market Analysis

2010-05-07T02:50:00.029-04:00

I regularly receive requests from traders seeking a more personal approach to aid in their FX trading learning curve. Though many of you are already aware that I don't offer any of these services personally, I have been actively trying to fill this void over the course of this blog's history. My biggest issue with this has been a lack of people that:

1. Have and offer a service that I could guiltlessly recommend

2. Are profitable

3. Share many of the simple price action based strategies we teach here (speak the language of NBT readers, not flood them with uneducated, 'rookie retail' market material)

4. Are from a professional, registered background

5. Have no ulterior motives themselves; everything is black and white, and they speak the language of dead honesty

You have no idea how hard it was to fill these requirements (or maybe you do). But I think I did.

After several exchanged emails and subsequent phone conversations, I had the pleasure of meeting Chris Lori at his workshop in Charlotte, NC. Chris manages funds on behalf of institutional clients worldwide. He offers private consulting services to individuals and institutions looking to diversify their portfolio relating to foreign exchange holdings and risk. He also manages a currency fund for clients booked overseas.

Chris has put together a robust course that covers a wide range of FX concepts, in addition to his Pro Traders Club materials which are published several times a week with video content. He explains fundamental and technical patterns, psychology, trade entries and management, as well as money management.

If you are seeking a little more structured guidance from a trained professional that practices what he preaches I encourage you to check out Chris' blog, Pro Traders Club Study Course or monthly subscription to his Pro Traders Club Market Review. Chris is very responsive and open with all of his clients and I couldn't recommend anyone more suited to for those seeking further instruction to gain a competitive advantage in their trading. As a mentor, he's dedicated to providing the same level of quality to his educational clients as he is in money management to his institutional investors.

Links:

Chris' Pro Traders Club Market Review, FX Course, and Complete Listing of all Published Materials

Chris' Blog

In Development: The NBT Trade Logger

2010-05-06T13:39:00.000-04:00

Pending Trades have not been posted for some time now, so I would like to announce the introduction of the NBT Trade Log. Currently in development, the Trade Log will allow users to log in and post pending levels under specific usernames. Users will be able to post their ideas with accompanying charts, and other users may comment with suggestions across the board.

It's an idea we have had for quite some time now and one of our very skilled readers is putting it to the test. Within the next few weeks we hope to have everything up and running so please stay tuned. I posted an entry seeking help about it a while ago and the response was very well received so we look forward to keeping the community open and sharing content and ideas.

Thanks to all of our readers for your suggestions and we look forward to keep the ball rolling!

Quasi Pattern, Price Symmetry, Highs & Lows

2010-02-08T06:03:00.010-05:00

Main Points:

Pay attention to higher/lower lows and highs (swing points) to assess the future direction of price.

A swing point is defined as: low surrounded by higher lows on each side, or, a high surrounded by lower highs on each side, though I stress you look at the bigger picture and connect these highs and lows with your eyes only, not solely on this objective reference.

Note the daily macro trend, and find confluence points on where to possibly reenter/ride it out.

Note the 50% mark on you last major swing; this is a general reference only. Sometimes these fades will occur previous or slightly lower than this level (61.8%, etc), but the most important requirement is confluence points (horizontal support and resistance) found in the middle of your range. Should price follow through or fail, you are typically in a good position to at least lock-in at breakeven in the even of a false follow-through. Additionally, monitor price steepness and the longer term macro trend leading into it.....probably the most important facet of this.

As usual, macroeconomic/geopolitical events, etc, could wipe out all of this, so pay attention to streaming news sources.

As a reference, here's the link to the original Quasi Pattern article: http://www.nobrainertrades.com/2009/06/over-and-under-pattern.html