Proprietary Trader

Secret of My T4L Marathon

2009-07-08T13:33:00.023+08:00

This is the last post (#1072) of this blog; a happy post containing the one secret of T4L success that I have never divulged, and yet, it is probably the most important ingredient of all. It is a very personal matter but I hope I have earned your indulgence for my efforts of the last 18 months.

Office for me is my study at home. From where I sit, I have CNBC (but more often than not, football) on my RHS; computer monitor directly in front; and 30 deg off on the LHS out the doorway, I look into the living room where my dear wife is. She is a full time housewife and understands absolutely nothing of the markets, but the unwavering support I get from her is what gets me through the many difficult times when markets have me "weary and bruised to the bone". Every night while I am watching the markets, she does her own thing in the living room - watching TV, reading, playing games or surfing on her Macbook, whatever. It is often a lonely existence for her, because even though I am physically just yards nearby, I am mentally miles away when I am concentrating on work.

She has one quirky habit which endears her to me no end. Every night, she sleeps in 2 stages. Stage 1 - on the living room couch in front of the TV (on) while I am still busy with the markets. A few hours later, Stage 2 - when I am done with work, I half-wake her up (very difficult!) and sleepwalk her, in full stupor, carefully and gently through the clutter of living room furniture, and into the bedroom. This is a ritual we go through every single working night, sometimes taking 5 -10 minutes to get her to bed, much like taking care of a drunken friend. (I can't carry her because she is bigger than me). And why can't she just go to bed first like everyone else? She is not able to help in my trading; "waiting up" for me is her way of showing solidarity with my cause. And I love her so much for that. It makes me want to be responsible and make sure that I can provide for her a better life. It gives me a reason to make sure T4L works.

T4L is very very tough. But I have my own secret weapon. Someone to trade well for. And I feel much loved. That's what it's really all about, isn't it?

And on that happy note, I bid thee farewell. Much enjoyed being here. Thank you + Best Wishes.

Going Private

2009-07-08T08:28:00.010+08:00

Below are some very negative comments in response to my post on 5 Fatal Flaws of Trading :=

"It's utter crap - that one should start out aiming for such a MEDIOCRE performance as simply NOT losing your capital."
"I do NOT buy intimidation, scare tactics, empty philosophical gobbledygook, "well-intentioned" advice by old timers to make you fall back in line."
"Yes, F***K them!! Just had to choose the period that I'm doing things right to give "well-intent" warning about fatal flaws, and never a word of encourage EVER (not that I expected it!). But it's my fault that I'm affected. I can't help but be irritated by CONCERNED old timers and vipers.I really HATE false teachers!!!"
"We have our own beliefs and theories surrounding the topic in question - I didn't force mine on you, and I didn't like it that you forced yours on me, as if having someone to believe what you believe would somehow make what you believe a biblical truth."
"To hell with people who cannot bear to see others NOT going through the same mess they've been through when they first started out."
".. I smell an insecure inferior *bleeping* asshole from a mile away. People who have desperate need for attention. People who need to impose their ideas on others so they can be praised for it. Eww!"
"Well,giving advice or telling people what to do in blogsphere...is really some sort of ...egotistical masturbation act..."
"So stop throwing your "fatal flaw" advice in my face!"

Needless to say, I am disappointed to the extreme at this, coming from people who I thought I was trying to help. I do not feel either the need or inclination to reply in my own defence. What I do feel is a weariness that I do not deserve, for sharing my ideas out here in the blogosphere.

I started this blog in Jan08, initially to share what I thought to be relevant to T4L with friends and anyone else who might be interested. Along the way, it has somehow evolved into a trading journal of sorts. I have always been completely open with my ideas, methods, trades, motives. My intentions were always pure - to share my passion in trading with others less experienced and hopefully to inspire them to pursue T4L with some success. For me, the reward has always been a sense of satisfaction in sharing with others some of the joy of that trading has brought me.

By and large, I think my objectives for this blog has been achieved and I have imparted much of what I know about T4L here. Thus, after much contemplation, I have decided to call it a day on public blogging. I have started a new personal blog, purely for imposing trading discipline on myself, and for my eyes only.

This is my penultimate post here. I do not like bad endings so I am working on one last happy post to say farewell to those of you readers who have enjoyed the journey with me. Thank you.

Position Update : Suffering on All Fronts

2009-07-07T19:14:00.007+08:00

Since the weaker than expected NFP last Thurs, my core book has been suffering enormously. Only good trade going is the long Bunds/short UST10 year spread. Technicals have not changed sufficiently for me to exit however. Until that happens, system is keeping me in the Green Shoots trade. Tight risk control is key now. P&L is ugly. But as always, I trust my system, in good times and in bad. And Rule #9 Never Add to Losers. Sit Tight. The money will come back if the trades are the right ones. No need to rush it.

Bunds UST spread : Watch +26 Next

2009-07-06T21:55:00.008+08:00

Currently at +23. This time round (no unlegging!), I am in at average of +12 now, size 2% EAR. On the weekly chart, there is a previous high at +26. If we do manage to close this week above that, I will increase position to 3% EAR. Remeber on the monthly chart, the double bottom objective is miles away at +89. Yum yum ...

The component yield charts are below. To my naked eyes, it is "obvious" that Bunds are more bullish than UST (price-wise).

Pearls Before Breakfast

2009-07-05T12:47:00.018+08:00

Was reminded of this old Washington Post article by an email newsletter today from David Kotok of Cumberland Advisors.

Quote from the newsletter - "This is a true story. Joshua Bell playing incognito in the metro station was organized by the Washington Post as part of a social experiment about perception, taste, and people's priorities. The questions raised: in a commonplace environment at an inappropriate hour, are we able to perceive beauty? Do we stop to appreciate it? Do we recognize talent in an unexpected context? One possible conclusion reached from this experiment could be this: If we do not have a moment to stop and listen to one of the best musicians in the world, playing some of the finest music ever written, with one of the most beautiful instruments ever made, how many other things are we missing?"

What is this life if, full of care,
We have no time to stand and stare.
-- from "Leisure," by W.H. Davies

Take time out. Smell the roses. And to my very good friend - stop watching DVDs with your finger on the remote fast forward button.

Joshua Bell playing Puccini. Enjoy.

Weekly Update : Consolidation

2009-07-04T11:38:00.006+08:00

Weak NFP notwithstanding, charts all look like in consolidation mode. US10YY looks like it has room to come off further.

USD index : From 79.89 to 80.45 (+0.7% w/w).
US10YY : From 3.54% to 3.50% (-4 bp w/w).
S&P500 : From 919 to 896 (-2.5% w/w).
Gold : From 938 to 931 (-0.7% w/w).

Monthly Chart Update

2009-07-03T16:52:00.004+08:00

Apologies for this late posting which should have been put up on 01Jul09. No comments other than that USD index is the only thing that looks mildly interesting (downtrend) chartwise. [Due to late posting, the current candle on the charts is for Jul09].

USD index : From 79.28 to 80.16 (+1.1% m/m).
US10YY : From 3.47% to 3.54% (+7 bp m/m).
S&P500 : From 919 to 919 (unchanged m/m).
Gold : From 979 to 926 (-5.4% m/m).

5 Fatal Flaws of Trading

2009-07-02T10:11:00.038+08:00

Great trading advice from Jeffrey Kennedy of Elliot Wave International (brought to my attention by my friend AG. Thanks!). Link here. For me personally, it is #4 that I need to work on.

T4L beginners should take special note of #3 Unrealistic Expectations. Looking back now, I wished that someone on the road before me had told me that "the goal for every trader their first year out should be not to lose money. In other words, shoot for a 0% return your first year". Unfortunately, I started out unrealistically, trying to make my [bank salary+bonus+a lot more to make the switch worthwhile] in T4LY1 and blew myself up on the way. My life now would have been so much easier if I hadn't lost a very substantial chunk of my risk capital in 2006. To be completely honest, I was within a hair's breath of giving up T4L and going back to working for others (=my nightmare scenario).

[Subprime trending markets, especially in USD/JPY came to my rescue - see sell signals labelled (1) and (2) on chart on LHS). For this, I shall be eternally grateful].

So - would be T4L beginners - take heed and good luck.

Addendum 05Jul09 6:03 pm : Completely taken aback by a fierce, no, venomous, reaction from someone whom I had sent a link of this post to. This is someone who I had exchanged many emails with regarding trading before. I had gone out of my way to try and help this person see that there are other styles of trading that could be worthwhile exploring. Unfortunately, it seems that all my previous actions are now perceived as .. insulting and meddling? (But yet the exchanges went on for a period of months.) Does anyone else reading the above post think that what I am trying to tell them is that they should not expect to make any money trading and that I am insulting their trading/style? I, for one, was certainly most appreciative of the article and my friend AG for forwarding it to me.

Am deeply disturbed by this incident and how, with the passage of time, I am now perceived to have done harm when my intent was purely to help. Going forward, I can only resolve to follow JL's words closely "I do not volunteer advice and I never give tips." How sad ... but by and large, the blogosphere has been wonderful and I shall not let this one bad experience ruin it for me. We move on.

EUR/GBP : 2nd Chance

2009-07-02T09:59:00.002+08:00

Having missed the sell signals at 0.8790 and 0.8635 due to unfortunate circumstances, I finally jumped in short EUR/GBP at 0.8464. As usual, when drawn into trades in this manner of capitulation, it went wrong almost as soon as I got in and I could feel it in my bones then even as I was executing it. Thus, I only put it on in 1.2% EAR, a relatively small size.

We have now backed up to 0.8573. On the weekly chart, this pair remains a big sell around 0.8635. I will increase the position to 3.0% EAR if we do get anywhere close to that level.

Addendum 3:57 pm : Added to short at 0.8626. Position size now 2.5% EAR.

Results 2Q09 : Still Struggling

2009-07-01T11:03:00.023+08:00

2Q09 qoq : +14.7%
2009 ytd : +21.5%

2Q09 was mostly about the round trip in the "green shoots" trade. Given that I was late to buy into "green shoots" and still involved now (charts not turned yet) even as markets are questioning its validity, it is a given that my results for 2Q09 are mediocre at best. Returns figures above are based on risk capital in futures margin account only, which is where I really "go for it". Based on current risk capital level and assuming negligible returns on my passive portfolio (passive=75% TNW; SGD interest rates=near zero; risk capital=25% TNW), I need to make around 4%-5% per month in T4L to cover living expenses and other costs. Thus, I am currently quite some way behind budget. Need to be nearer to +30% ytd to be on track.

2 big trading mistakes during the quarter, both made in Jun09 =

Ran the short ED futures position for too long and incurred an unnecessary big loss. Its intended presence as a hedge against short USD/fx positions did not work. And I lacked discipline in taking corrective action when the latter became apparent. My previous interest rate trading "experience" was more of a hindrance than help in my new T4L environment in that it gave me a false confidence in my ability to read the market.
Failed to invoke my rule #11 and press the eject button on 12Jun09 when P&L exploded suddenly and unexpectedly. As someone once commented here, I guess I held myself hostage to the comments I made earlier that very same day about following JL and sitting tight (incredible coincidence and timing). Going forward, I must not feel embarassed to take a completely opposite course of action to what I have stated here if circumstances change.

2 positives :=

I was able to separate my thinking from my trading. To this day, I still do not fully believe in the recovery story. But it is pleasing that I was able to NOT let that personal view affect my trading which is purely chart based.
Riding the long GBP/USD position from 1.49 to current (1.6430) in a disciplined manner (no greedy pyramiding, no pre-mature exit); this is basically the trade that saved my quarter. Also proof that JL works. SIT on trends.

Still half a year to put things right for 2009. Must think positive!

[Aside : I guess in T4L, one's prime objective for each year should be to cover all costs thus NOT having to dip into savings to fund living expenses. Only when that is achieved can one start thinking about building wealth. In other words, don't start off being too ambitious.]

GBP/USD : Timeframes, Noise & False breaks

2009-06-30T22:55:00.010+08:00

Thus far today, cable's trading range is Op 1.6550 (appx) Hi 1.6744 Lo 16423. Intra-day, we have had 2 big developments on the daily chart :=

Broke triangle formation on topside at 1.6589 and traded to a high of 1.6744. Anyone watching this surely would have concluded that the break was for real, without having to wait for the daily close to confirm
Along the way we took out a significant previous high at 1.6661 as well.

And yet, we are now trading some 300 pips lower at 1.6476 as I write (lo 1.6423); a pullback of this magnitude just hours after a seemingly valid upside breakout would surely have killed a lot of short term traders. This is the reason why I do not like to trade off daily time frames. There is too much noise and for T4L practitioners operating "blind" without seeing flows, it is important to formulate one's trading strategy to compensate for such disadvantages. For me, this means trading in "SMALL" and extending one's time frame to weekly and above to rise above the short term noise. Half the battle is about preserving holding power to see one's view out through the chop.

Fortune : Best Advice I Ever Got

2009-06-30T16:06:00.006+08:00

Link here. Words of wisdom from the likes of Colin Powell, Jim Rogers, Mohamed El-Erian, Julian Robertson, etc.

Tiger Woods - "Keep it Simple" : "When I was young, maybe 6 or 7 years old, I'd play on the Navy golf course with my pop. My dad would say, "Okay, where do you want to hit the ball?" I'd pick a spot and say I want to hit it there. He'd shrug and say, "Fine, then figure out how to do it." He didn't position my arm, adjust my feet, or change my thinking. He just said go ahead and hit the darn ball. My dad's advice to me was to simplify. He knew that at my age I couldn't digest all of golf's intricacies. He kept it simple: If you want to hit the ball to a particular spot, figure out a way to do it. Even today, when I'm struggling with my game, I can still hear him say, "Pick a spot and just hit it." When I'm making adjustments during a round, I know some of the television commentators theorize that I'm changing this or moving that, but really what I'm doing is listening to Pop."

USD/CAD : Risk Appetite Back ?

2009-06-30T14:39:00.010+08:00

Market currently feels to me like risk appetite is back in fashion eg look at rallies in AUD, GBP, EUR, Copper etc. One currency that seems to have lagged recently is CAD. If market is really back in risk taking mode, it is likely that USD/CAD will roll over on the daily chart and commence a fresh down wave soon. (Last 1.1538). Watch for signals eg close below 1.1474.

Also makes me wonder if it is time for range traders to go long USD/JPY too. (Last 95.52).

Nikkei : Watch Monthly Trendline

2009-06-30T09:34:00.006+08:00

Long since 01Jun09, courtesy of the double bottom break on weekly chart. Monthly chart has a downtrend line which cuts Jun09 at 10290 and Jul09 at 9920 (see marking on chart). We are now at around 9980 so if we stay around here into July, we would get an automatic break of the trendline tomorrow. It goes without saying that we would ideally like to see some decent upside price momentum to get excited about this (default break not exciting). Nevertheless, an interesting technical development to look out for.

GBP/USD : Triangle - breaking out

2009-06-30T09:09:00.006+08:00

Trading at 1.6624 now, above the triangle at 1.6589. Interesting to see if we can close above that today thus confirming the break. I have decided to stick to my "Trading Rule #8 - Limited Pyramiding" and be content with what I already have ie around 4% EAR. The only reason why I have managed to survive this recent chop around 1.60 and 1.66 is because I kept discipline on maintaining position size. I will stick to that, given that it has served me well. So no increase in spite of fresh trade signal.

GBP/USD : Daily Triangle 1.6286 / 1.6589

2009-06-29T23:13:00.006+08:00

Generally do not pay too much attention here to daily charts given my trading time frame and long term holding style. But nice technical pattern forming on daily chart that warrants a mention for a short term trade. (Last 1.6550).

Monthly : Unsure. Probably has come back too much for one to keep looking at downtrend.
Weekly : Uptrend intact. 1.7043 is possible target from monthly chart.
Daily : Triangle being formed. Boundaries are now at 1.6286 and 1.6589. It is the latter chart-point that is of interest given that triangles are continuation patterns. IF we close above 1.6589 and there is follow through to the upside (by no means guaranteed), the triangle target is 1.7439 which coincides nicely with a previous chartpoint at 1.7445 on the weekly chart.

Contemplating ramping up risk here if we do break the daily triangle. I hesitate because cable is my biggest position already, long since 06Apr09 (Rule #8 Limited Pyramiding). Also as a rule, I prefer to rely on weekly and monthly patterns than daily (too much driven by noise). Keeping an open mind for now.

EUR/GBP : Stop-in Short below 0.8397

2009-06-29T17:50:00.003+08:00

EUR/GBP last at 0.8485. Will add to existing short on close below 0.8397 this week. Weekly triangle remains valid.

Outlook for S&P500

2009-06-29T17:18:00.007+08:00

Results of poll conducted by my favourite blogger Prieur du Plessis (Investment Postcards from Cape Town). Sample size 615 - big enough to be a good statistical representation of the overall market. Link to the full post here. [Contrast the difference in outlook for the period to 30Sep09 and 31Dec09]. Short term outlook quite negative, which hopefully means that it is going up.

Weekly Update : Much Pain

2009-06-27T10:55:00.001+08:00

Bad week, suffering from large drawdown due to short Rates (asset class) positions gone sour. Good example to illustrate the futility of over-analyzing every single nuance of price action (candlestick tails, etc ... what a waste of time). Best to stick to the overall big picture and not look too hard for reasons why a trade is good. If it works, it works. If it doesn't, so be it. Cut and move on.

USD index : From 80.31 to 79.89 (-0.5% w/w). Still consolidating, awaiting downside acceleration.
US10YY : From 3.79% to 3.54% (-25 bp w/w). Biggest mover of the week, to lower yields. I hesitate to make any kind of call in this now. Feels stupid to say that it looks like its heading down now.
S&P500 : From 921 to 919 (-0.2% w/w). Boring sideways.
Gold : From 934 to 938 (+0.4% w/w). As per S&P. Yawn.

Bunds UST 10 year spread : Try Again @ +13

2009-06-26T18:45:00.006+08:00

Messed this up big time the last round (legged out of long +2 and +11 at worst possible time). Intra-month high seen +31. Pulled back to +13 now where I have just gone long again (long Bunds/short UST) in 1.3% EAR. This time I intend to run this purely as a spread all the way through. Recall pattern is a double bottom at -67, neckline at +11 = objective +89.

Position Review : Mixed bag

2009-06-26T08:37:00.018+08:00

Got the risk appetite/yields correlation badly wrong recently and it has been costly. Here's what I have left now after stopping out all my Rates positions (which were supposed to reduce my overall market risk exposure - they didn't) last night :=

long Nikkei - has pulled back somewhat but looks fine
short USD/CAD - has come back an awful long way from 1.0782 but downtrend looks alive (just about)
short EUR/GBP - poor entry timing
long GBP/USD - uptrend intact although might not feel that way if one is too close to the action
long Soybean - re-entered double bottom neckline (where I am long) but prepared to give this some leeway; has to reclaim 1040 soon to prove itself.
long Copper - chart as per Cable and Nikkei. Like it.

Most in danger of going wrong now = CAD + Soybean.

[RIP Moonwalker]

Stopped Out Rates

2009-06-26T03:24:00.009+08:00

US10YY traded below yield support level of 3.58% (my so called show hand level) and EU10YY below 3.44%, re-entering yield double bottom neckline. Thus I have stopped out of all my (short assets) Rates positions tonight. Hard to understand - stocks up + yields down. Could be that lower yields in the driver seat now. Just hope that risk currencies resume their rally as per usual correlations.

US10YY : Show Hand @ 3.58%

2009-06-25T11:40:00.018+08:00

Chart in uptrend. Again we bounced off 3.58% last night (twice now). Move to lower yields not sustained for 2nd week in a row. Going forward, see either yield uptrend continuation or for this region to be bottom of a yield range. Either way, trading TY from short side is preferred to long.

[Aside : Long buying and selling tails on candlestick charts are a bit like Sherlock Holmes in "A Scandal in Bohemia". Recall in the story that Holmes staged a fake fire to trick the blackmailer into revealing where she had hidden a certain compromising photograph. The trading parallel is flushing out the intentions of long term hands amidst market chaos. This is what creates the long tails.]

Bunds : Outright Short

2009-06-24T21:05:00.007+08:00

On the Bunds weekly yield chart, there is a double bottom with neckline at 3.44%. Broke out to upside a month ago, reached a high of 3.75% and have today pulled back all the way down to 3.44% where I have just gone short (Sep bunds @ 120.36) in 0.9% EAR. [Note this is entirely seperate from the Bunds/UST spread I messed up earlier this month.]

USD index : Line Chart

2009-06-24T16:33:00.007+08:00

A much cleaner perspective of the USD index (central to my core book) - a line chart plotting weekly closes only thus stripping out all the intra-week noise. From this, I see :=

a double top
broken below neckline (marked in bold purple)
pulled back to test the neckline once already and failed to re-enter
close this week below 79.28 confirms down trend continuation. (Last at 79.64).

In the light of recent large drawdown and scary P&L volatility, I need to constantly remind myself of what is really going on underneath all the noise and not get shaken out pre-maturely (Type 1 error). Not an easy task but the potential downside (73.39) relative to upside (>80.90) makes this a worthwhile pursuit. Keeping the faith!