1. Kondratieff Long Wave Theory
2. Stock screeners revisted
3. Very, very, very bad trading!
4. Does coaching of trading psychology, require a successful practitioner?
5. How do market makers adjust prices?
6. Do you have a Top 5 list of recommended Trading Psychology books?
7. Is there a way to guage when a market will break out and which way?
8. Are traders golf enthusiasts that drink, chomp on cigars and where fancy watches?
9. Does The Essentials of Trading cover strategies related to E-mini S&Ps?
10. Is stock short selling really restricted?

The list above is based on page views, externals links, comments, and other measures.

Money market rates have been distorted as banks parked money overnight, with overnight funds rates far below the Bank of England’s 5.0 per cent rate. However, as of Thursday, money borrowed for three months on an unsecured basis was trading at a crisis high of about 1.5 percentage points above the three-month forward overnight rate, known as SONIA.The Bank said it would continue to drain reserves from the short term money markets to help keep those rates in line with its Bank Rate

what do they mean by drain reserves from the short term money markets ?

Central banks add and withdraw (drain) reserves as part of their market operations to keep their target rates in line. Basically that means they are controling the supply of reserves (money banks are required to have on deposit against the loans they make) to offset the demand situation. If the market rate is below the target that means there are too many reserves on offer, so the CB will drain reserves by selling short-term debt instruments (generally government).

When we talk about adding and withdrawing reserves It means draining reserves from the banks - bringing money into the central bank. That takes it out of the banking system. This is a very simple supply/demand thing. If there’s more money out there avaiable to be loaned, interest rates will go lower.

When the a central bank sells securities the banks pay for them with money (reserves), thus the reserves are taken out of the banking system and cannot be used to support lending. Aside from staying in the good graces of the central bank, the other banks will buy the securities to earn a better return than they would have been able to otherwise.

Note that these actions are only really designed to impact that overnight rate. They won’t generally impact anything more long-term than that.

Learn more here.

http://www.hulu.com/wall-street-warriors

You may need to register, but I believe it’s free otherwise. I haven’t had the chance to check them out myself, so I look forward to hearing comments and impressions from those who have either seen the broadcasts or watched the videos online.

I am a newbie, have been reading forex stuff for about 6 months on a daily basis.

I am now interested in trend trading over timeframes of few days to a week or so. Where I can make a trade and come back when I need to close, without having to watch the charts all-day long.

After a lot of reading through the forums, I am not very interested in technical analysis or price action, but more on the fundamentals/news etc. Personally I believe most of the TA is bs.

So, should I start studying macroeconomics? I am already a university pharmacy student, but I would like to study economics on the side, out of interest.

Could anyone advise me on whether I should go ahead with this, and also whether there are any good books or resources I should go to for studying this subject matter.

The purpose of studying economics would be for me to have a deeper understanding of the world and of price moves in forex - since right now I’m not all that certain about many economic issues. Also so I can understand other markets like commodities etc.

Thanks.

The biggest issue this individual has with their plan is the timeframe. Fundamental analysis can be very useful, but it’s only applicable in timeframes that are generally measured in months or longer. You cannot trade fundamentals when making end of day trading decisions in the forex market. The big picture things which drive trends just don’t change that frequently.

Now, if you’ve been reading this blog for any length of time you’ll know that I’m primarily a technical trader and market analyst. Clearly I don’t think technical analysis is “bs”, though there certainly are many technical methods which I personally find to be based on flimsy logic, but then I just don’t use them. At the same time, fundamental analysis plays a large role in my stock market trading, though significantly less when I trade forex and other markets.

Getting back to the trader’s question about studying economics, the answer is clearly “Yes”. But for a market like forex that means focusing on macroeconomics. The micro stuff and subject matters related to social planning and whatnot might be interesting, but don’t really help the forex trader.

John,

I would like to make a swing strategy for FX market, any advice on this?

Just 4 major currencies - nothing to complex for a start.

Thanks,

Adam

First of all, sticking with the major currency pairs is definitely a good idea for new traders. The more regional ones are harder to trade profitably, especially in the short-term, because of wider spreads. Any combination of the EUR, USD, GBP, CHF, and JPY will be very tradeable, and you can toss in the CAD and AUD as well, though some of the crosses with them are less meaningfull (not many folks trade CAD/CHF).

Don’t feel like you have to stick to just the USD pairs, however. The crosses can be at least as tradable, and for your style of trading potentially a better option. My recommendation there is to experiment and see what pair or pairs you feel most comfortable with.

Beyond that, there are basically two types of trading. One is focusing on ranges. The other is focusing on trends. Both types of trading can be effective in any timeframe. The former tends to have higher win rates, but the latter has the bigger winners.

This is a personal trade off. Some traders can’t handle the sizeable drawdown and long losing streaks that trend trading can produce. Others can. As an individual you need to look at the way systems of both styles work deep down to make the best choice for you. This may mean working with them live - but that should be with as little money as possible.

Simplicity is the key, so what do you suggest is the best way to trade fx markets? Daily charts and what indicators if any?

Firstly, I’m going to agree that simplicity is generally a better idea for most traders than complexity. That’s not going to be the case for everyone as some traders thrive with complex methods and ways of evaluating markets, but an awful lot of traders would do better thinking more simply about things. There is a tendency to think that more is better when oftentimes it isn’t.

As for the best way to trade fx, there is none. There is only what’s best for you. The process of becoming a good trader is largely the process of figuring out the optimal way for you to approach trading and the markets. That’s why I spend so much time laying the groundwork for doing just that in my book and course. Without knowing quite a bit about someone, I can’t really make any judgement about what’s best for them. It’s a very personal sort of thing.

Here’s an example related to Garry’s question about daily charts and indicators. I personally am not a great fan of indicators. Some very successful traders swear by them, but I’m primarily a chartist. They only indicators I look at in any meaningful fashion are ones which provide me a relative reading on volatility. You could argue that those aren’t even proper indicators the way others would define them. They’re more like statistics. And as for the daily charts, I very often look at the weeklies (or longer) because I like to do more position trading than shorter-term stuff, but then I also look at shorter term charts if I’m looking for a shorter term opportunities.

Hi John:

My name is Brent and I am relatively new to the world of futures trading.  I majored in finance in college, so I have a basic understanding of some of the principles and verbiage… but it’s been about 10 years since I’ve been in the classroom.  I have been searching the Internet looking for information about futures trading, and I was really impressed by the “non-intimidating” approach of your website. I presently find myself in a position where I have the opportunity to pursue a career in trading.  I have a few friends that have been moderately successful trading e-minis, and I think their success has awakened the “inner trader” in me… LOL… 

My question to you is:  Does your book cover strategies and techniques as related to E S&P Minis?  Even though some of my trading friends have offered to “mentor” me, I am a person who needs to be able to understand things conceptually. I am taking a huge risk by stepping out into the trading world, however with that risk there comes the possibility of a great return.  My desire is to do everything possible to ensure that I realize those great returns.  I look forward to being a productive member of your trading forum!!

Answering Brent’s question directly, I would firstly say that The Essentials of Trading is not specific to any market, including the mini S&Ps. Nor does it lay out specific trading techniques, except where they are used as examples to demonstrate things or make a point.

That said, the book (and by extension the Essentials trading course) definitely does fill the need Brent describes as “…to be able to understand things conceptually”. The material is very much intended and designed to be foundational, allowing one to learn the core trading concepts and have them as a strong basis for then moving on and developing a personalized approach to trading. Outlining the requirements of a good trading plan is a key part of the presentation.

I’m a little confused by the use of the phrase “career in trading”. I don’t know if that’s just Brent’s way of talking about getting into trading seriously, whether he’s planning on going after a position in the industry, or whether he’s planning on trading for a living.

As for the part about taking a huge risk, the statement I would make is that in trading you can take whatever risk is right for you. It need not be something extreme. Actually, it shouldn’t be. A healthy appreciation of the risks is definitely a good thing, though.

I just wanted to ask your perception of how the broader markets seem to be viewing the “meltdown”, “nationalization”, “bailouts”?  - pick your buzzword of the day.  I am a forex guy, not so much bonds and equities.  So I tend to miss some of the pulse of the broader markets.

OK. Let me see how I can describe things.

First of all, the short-term fixed income market (money market) was really going nuts last week before the bailout stuff came down. At one point there were negative yields on short Treasury Bills, meaning a trader would have had to pay more than par value for the Bills. That’s a clear demonstration of how scared people were. They just wanted to make sure they were some place safe.

Once the bailout plan started to get leaked out on Thursday afternoon, the pressure on the money markets eased. It wasn’t all the way at once, but gradually the market has gotten back to more normal pricing. Basically, participants are no longer worried about a major meltdown.

The money market pattern was fairly similar to the one in the stock market. It was getting really ugly on at mid-day Thursday. People really thought there was going to be a major blow up. The VIX - the so-called fear index - was at it’s highest level since 2002. Stocks that hadn’t been on anyone’s radar before were getting hammered.

When the bailout talk started Thursday afternoon we got a sharp short-covering rally that carried into Friday morning. After that, though, things stablized. There are a lot of things going on with short restrictions, the details of the plan, money market fund protection, and all that. The market is trying to digest it all. All this stuff hasn’t brought the buyers back into the market - at least not yet.

Oil started rising Wednesday and hasn’t really stopped. Gold, however, has been all over the place.  It was rallying during the meltdown in a flight to quality situation, but reversed like T-Bills did. I think the implications of the bailout have helped turn the metal higher again, however.

It’s a bizarre situation. After the initial reaction, it looks like traders started to look at things and wonder. There clearly wasn’t a great deal of thought given to the non-short list an it’s implications. How that all unwinds when the ban is lifted is going to be very interesting. I’m guessing there are a lot of folks who have just pulled out for a little while.

My general view of things is that this massive bailout plan is a recipe for problems down the line. I said to my colleagues that the movers on this don’t appear to be giving much consideration at all to the future. They’re just trying to stablize the system right now. I’d like to know if they even considered an alternate plan like the one I outlined on Friday.

Hi, my name is Chuku, i am a Nigerian. i trade Nigerian Stocks and the Forex Markets. I understand that short selling in the NYSE has been banned. How true is it? and what could be it’s implications on the forex market.
thank you

As most traders probably know by now, there are restrictions on the shorting of financial stocks in the US. There’s about 800 stocks on that list designated by the SEC. These limitations are in place until October 2nd, though they could be extended for up to 30 days.

Actually, the US wasn’t the first to do this sort of thing. In the U.K. the FSA made an announcement on Thursday that it would be putting in short restrictions. And of course since that time several other countries have followed suit.

Now for my thoughts.

I’m not a fan of this action at all. Aside from it being a constraint on the free movement of markets, it’s something which probably hurts individual traders most. Institutions have the sophistication and capital to take advantage of other strategies to accomplish the same end (options, credit default swaps, futures, etc.)

At the same time, we are very likely to see considerable volatility around this whole situation. The lack of shorts means a reduction in buyers during downswings - something which could tend to support the market. It also no doubt messes up some of the algo trading going on out there. And who knows what’s going to happen when the restriction comes off. The pattern with these things is that the markets tend to go a little wild in those circumstance.