¥€$ Trader's hEdge

We're moving

2011-09-02T15:54:00.000-04:00

I think it's time to move ... to evolve. All future posts will now be at http://www.tradershedge.wordpress.com. All old posts have been moved as well.

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Where's the Beef?

2011-06-12T02:21:00.004-04:00

In 1982, Wendy's came out with a hit commercial Where's the Beef? I find myself asking that whenever I hear about a real bottom in our economy...I'll come back to this.

Now, I'll share a quick technical analysis on the daily EURUSD chart:

TD_sequential 9 has signaled a turn on the end of the day this past Wednesday. Demarker divergence is signalling further USD strength with support at 1.3966. I'd buy USD and aim to 1.4123.

The fundamentals scream dollar strength. We are deflation mode for now. The end of QE2 is being priced in and the S&P500 has decided to take a downward trend for the past 6 weeks. The unemployment rate is at 9.1% and that's assuming the BLS is legit and not stuffing the birth/death rate model.

What's next, I will have to credit to John Mauldin. If you don't get newsletters from him then do so now. He is very connected, balanced, and experienced and the only economic analyst I follow.What is shared by Mr. Mauldin is originally from economist Kash Mansori at http://streetlightblog.blogspot.com/2011/06/betting-on-pigs.html It is about default insurance exposure of US and European financial firms to PIG's pending death default. Here's the most important takeaway quote from the article, "In essence, European firms have been betting that a PIG default will happen sooner rather than later, while US firms have been betting that default would happen later or not at all." Lovely.

Please read this article at Zerohedge about a $600 billion stealth bailout of foreign banks by the FED before going on.

Done? Are you angry or skeptical? It is fair to be either, but you'll only be one for only so long. According to the Zerohedge article, the wool was pulled over our eyes again with QE2 and QE3 is a certainty. It explains PIMCO's treasury short. Expect dollar strength in the short run and dollar weakness in the long run when QE3 is announced.

A recent paradigm I received in discussion with an uncle of mine was over how the world's economy will be fine because of financial relativity. According to him, if everyone inflates equally and in coordination, everything is okay and the rest is numerical illusion and fear. That might be theoretically correct, but in a time of persistent unemployment, depressed housing asset values, stock market manipulation, declarative/distractive media, predatory private educational loans, too-big-to-fail banks and reckless greed on a global level, I have to ask first, where's the beef? The numbers are going to end in blood or revolutions. Wendy's may have asked "where's the beef"? but it is Notorious BIG who defined "what's beef"

I'll leave the pertinent lyrics of here [with my explanation in brackets]:

What's beef? Beef is when you need two gats [wars] to go to sleep
Beef is when your moms ain't[isn't] safe up in the streets
Beef is when I see you
Guaranteed to be an ICU [IOU=T-bill=risk free rate], one more time [QE3,4,5,6,7?]
What's beef? Beef is when you make your enemies start your Jeep [export your manufacturing base to foreign countries]
Beef is when you roll no less than thirty deep [$30 mil.from hyperinflation]

And yes, I just ended my financial blog article with rap lyrics. I'll leave you with this article to ponder about.

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"Let The Children Guard What The Sires Have Won."

2011-06-02T14:40:00.002-04:00

I recently went to an Market Traders Association meeting in Boston with another Fx Trader Clair Wyant. Its good to meet other Fx traders near you and if you live around the Boston area feel free to drop a line, we can grab coffee.

Anyhow, Vikram Mansharamani, author of Boombustology, spoke of some interesting indicators that he found that would uncover boom and bust cycles. His examples consisted of Sotheby's stock price, a new world tallest skyscraper and actual prices of items bought in auctions compared to the appraisal price. He highlighted a ancient Chinese vase that sold for an absurd amount of 43 mil. GBP. Lesson learned: a bloated prosperity concentrated in few, combined with your taxi driver talking about high tech stocks was a good highlighter of a boom about go bust.

After his presentation and the networking time afterwards I met a few interesting people but one of them made me want to throw a vase at the establishment so to speak. It wasn't his fault. He was a nice individual. It was more so the scam I felt I was a victim of. John Doe was a junior at Boston University and worked at a small <10 person hedge fund in Boston. It was ironic because he admitted he didn't know very much about economics, equities, fx, investing, or trading for that matter and it made me really frustrated that I couldn't relate to someone my own age, and in my own major. Its difficult to find competent, impassionate people even in my university... unless its connected to homework, papers, or exams, no-one wants to hear it.

As you can tell now, this scam I felt a victim to was the formalized public and private education system. It may be harsh that I call it as such and to be truthful is only partially so. I will have to give credit that it can do a great job educating you to become ~~someone's bitch~~, a successful employee for some firm. I for one, have been increasingly disillusioned the more years I've spent in this system and I've just about had it. Call it an inverse relationship. Educational Loans are just enough pathway to becoming an indentured servant/ slave. I call shenanigans!

I'm still an obsessive reader and no longer care for the confines of introducing/ intermediary university classes. Informal, passionate learning-by-doing is the only way to go. I started reading Fooled by Randomness by Nassim Nicholas Taleb and I cannot help by feeling elated for the sense of vindication I get from realizing that thinking in a probabilistic manner instead of historical biases is going to be a good way to go in the long run. It has officially gotten me interested in Monte Carlo simulations and I look forward to embedding them in equity curve simulations.

As you all know, the world is in a bit of a sovereign debt debacle. It can't end well in a formula where accumulation of wealth is the primary objective of all actors and representative forms of government lead to abuse of power..its only a matter of time when the bills of Karma come due. The invisible hand is only invisible because it was chopped off for stealing from their neighbor.

So while Greece remains broke, America is in denial, China admits its evil, Japan is in nuclear ruin, Anonymous without it's hacker heads are targeting the IMF...while Strauss-Kahn is waiting for trial. What a punchline.

Shakespeare created Tragedies and Comedies as life is a reflection of both aspects. I'll sit here laughing and crying surreptitiously as I write the epic poem of all of humanity's potential futures in hope that I may have a hand to change it for the better. Wait 'til I flip that hand, because we are nation of Facebook and Google and even as Machiavelli's the Prince taught modern leaders how to lie to their public, our forefathers never had the internet.

Your "burning down the great-firewall ~~of bullshit~~ non-analyst" analyst,
Darren Tseng

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To QE or not to QE? That is the question.

2011-03-28T15:03:00.001-04:00

In regards to an earlier post I will admit that a prediction date is rather amateur and will refrain from making such specific calls in the future without a specific reason. However, I will not rescind my opinion that the market & DXY will tank like a heart of 700lb fat lady on a triathlon.

There are those who are convinced that the economy is improving as QE offsets the deflationary pressure from the subprime and credit crises'. There are those who are convinced that the FED's QE is causing inflation abroad through devaluing our currency towards hyperinflation (I'm in this). We all know the unemployment numbers as well as new home sales and Case Schiller are not really improving. QE has certainly pushed the yield curve to a normal healthy looking curve in which case POMO does the rest, shooting amphetamines into the equity markets artificially sending the indices higher.

The gap between headline inflation and core inflation are concerning because people can't eat their ipads. It is also argued that supply shortages are the reason for oil & commodity prices shooting upwards.

But what's the truth? Probably a combination of all concerns above. We'll know on June 30. The end of QE2. Will the FED start QE3 or not? Yes, because of Japan + Europe? No, because the economy is improving? I call time-out. Who's going to pick up the slack once the FED stops purchasing US treasuries? I share this question with PIMCO's Bill Gross and you should too.

I think the FED has got its fingers on the pulse of Money Velocity and as it keeps falling along with all the other important economic numbers, they'll have a marked propensity for more QE. Bernanke is a deflation/ Great Depression expert he is far more averse to a deflationary environment. The FED has stronger controls on inflation with interest rates and reverse repos. Letting the air out of the tire is far easier than working to pump it up.

As QE causes an artificial boosts in equity prices and causes revolutions abroad with inflation, where's the beef? Rotting because it was left out on the counter too long. Putting it back in the fridge won't make it any safer to eat. You know what I mean? My fear is, this stimulus is nothing more than a temporary fix to buy us time and we are in a situation where we must QE towards hyperinflation and dollar destruction or NoT QE and head into a deflationary spiral.

Such domestic and international discontent may end with the international dollar's decline. So as the military industrial complex finds reasons for war caused by revolution (Libya & MENA) to boost the dollar (risk aversion trade) and as QE may keep going on to weaken the dollar and boost the domestic equity markets, the international community will eventually call bullS**t and the cards will all fall.

In the meantime, look for George Soros to make a big fuss [Bretton Woods II ]and watch all the nations ignore him on April 8th.

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Daily Bundle

2011-01-13T11:00:00.000-05:00

Social Finance: The New influentials

View more presentations from Marco Nappolini.

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The Grain of Rice that will tip the scale

2010-12-22T15:28:00.001-05:00

I already made my prediction in the last post. However, I just gave a time frame of when it may start to drop. This information may be sufficient for an investor who wants to sit do things longer term, but as a trader I personally would like to know exactly second when to switch my bullish positions to bearish positions. Sorry to be so schizophrenic; the markets require it! The following chart should be of fundamental interests as it highlights the 10 year treasury yield vs. foreign holdings.

The drop in foreign holdings while the increase of yields causes express concern to me. It means the trust of foreigners in our government finances are dropping as the cost of borrowing for us is increasing(particularly for mortgages).

Tipping the Scale
It is the moment where enough "vigilante" bond traders refuse to keep buying treasuries without demanding higher interest rates. If and when that moment in time occurs, the scale will tip from bulls to bears. The major media news outlets will report it but I'll be specifically looking for a one day drop in the S&P500 greater than 3% to switch positions or a period of 3 days in a row which the S&P500 declines greater than 1%.

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The Calm Before the Storm

2010-12-21T15:17:00.000-05:00

They call it the Christmas rally. I call it the calm before the storm. VIX was at 17.39 on December 16th while put/call ratios signal extreme bullish positioning. All this while the muni-bond markets were getting hit and risk of defaults were talked about all last week. With a rise of unemployment to 9.8% in November(9.6% for the 4 months before)and 1.3 million discouraged workers and 2.5 million marginally detached workers, I don't see why a US equity rally is sustainable with the current situation.

This rally is a direct cause of QE2 as Bernanke has the FED buying more T-bills causing the dollar to rally and gold to also sink back... all relative to EU's debt crises. Yields are also supposed to go down because of Quantitative Easing..Why aren't they? This subsequently increases the cost of borrowing and makes it more difficult for potential home buyers.

5 minutes in front of a Bloomberg terminal and I'm convinced my last weeks call that the US equity markets may start crashing from 3% to 30% in the next 40 days and extend to 4 months isn't as ridiculous as it sounds. I'll quote:

Analysts at Citi FX says stocks might sell off in Jan: charts of post - Christmas suggest 'that 2011 will not be a good year for the equity market,' just as they suggested 2010 would be OK. Their favored technical comparisons are 'the spooky chart' of 1929-1939,'1966-1976, and the 1906-1909 period. Average market fall in these periods is -48% over 19 months. So beware Jan 3, 2011!

I think those Citi Analysts are also referring to the Hindenburg omen!

Citi also warned of a "fresh wave of bank failures and sovereign defaults in Europe unless the EU lenders come up with a credible response to the crises."

Lesson: If you have a systemic risk...solve it and don't avoid it with liquidity. I'll be waiting for the Dominoes to fall.

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EUR/USD Short

2010-03-17T18:12:00.001-04:00

The Eurodollar is over due for a 3 wave break downward after its most recent correction identified in the daily and hourly charts below. Entry is at 1.3634; TP is at 1.3218. Fundamentally, I'm thinking that the Greece issue will spread to Portugal and Spain and they will need to be bailed out as well.

EUR/USD Daily

EUR/USD Hourly

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John Bogle: The Free Market's Moral Crisis

2009-10-16T15:55:00.003-04:00

John Bogle, founder of the Vanguard Group talks to Columbia MBAs about the financial crisis as a question of ethics in the financial services industry. That as a group, managers in industry have veered from stewardship to salesmanship; and shifted focus from long-term investment, to short-term speculation. Excellent insights courtesy of fora.

EURUSD; USDJPY Daily Technicals

2009-10-14T21:15:00.008-04:00

Today I received a call from my mother telling me the Dow broke 10000. If she's getting all excited about this from what she heard on the news it sounds like a media contrarian signal to me. It may retrace, I'm thinking it could fall and close the gap first...however fundamentally and technically if it doesn't fall back hard in the next few days, I see the dollar going to pre-crisis levels and above.
EURUSD
Momentum seems to be putting itself into an possible bearish divergence. Today's candle jumped over the resistance of September 22nd 2008 at 1.4874 and it is now at 1.4949 I now consider the dollar's decent unstoppable...now let's look at the daily JPY
USDJPY
I've drawn out the bullish convergence on momentum. If it breaks the topside channel I see it going back up to July 13, 2009 support but now resistance at 91.72. Other wise I see it drop to January 21, 2009's 87.13.

I also saw today's Boston Metro on the T ride to classes. The headline read: "More Debt, Less Work for Grads" I certainly hope that is a contrarian signal!!!

Liar's Poker

2009-10-14T19:41:00.005-04:00

Michael Lewis, author of Liar's Poker, speaks to the Hudson about the financial crisis and his career. This is the man that chronicled the culture of junk bond traders at Saloman Brothers during the late 80s. Highlights include calling phone sex lines and broadcasting them over the company's intercom, gambling on every perceivable thing (including how long it took certain trainees to fall asleep during lectures), and ordering absurdly large amounts of food for lunch. Lewis attributed their behavior to the fact that the trading pit required neither finesse nor advanced financial knowledge, but rather, the ability and desire to exploit others' weaknesses, intimidate other people into listening to you, and generally the ability to spend hours a day screaming orders under high pressure situations. He referred to their worldview as "The Law of the Jungle."

He also noted that, although most arrivals on Wall Street studied economics, this knowledge was never used—in fact, any academic knowledge was frowned on by traders.

Velocity of Information

2009-09-19T01:27:00.003-04:00

Watch this video of former FED chairman Alan Greenspan and his opinion on our crises'. In addition to what he said, what Greenspan doesn't seem to realize is that regulations and properly implemented policies serves as a form of "checks and balances" within a network that is becoming over-efficient but less effective . If policy makers and capitalists do not realize that a balance is required, the human network as it becomes more efficient and faster in terms of the velocity of information, will still lag in the physical sense (unless we invent teleportation of raw materials and humans). So as there is an acceleration in information(or as financial markets grow too fast vs. physical markets), the rate of change of national economies, (overall market volatility) will increase at a rate that is physically and psychologically unbearable and unsustainable. The rate of booms and busts will be more frequent and it can become extreme to the point of violence. This innate increase to unbearable volatility can also be seen as the expansion of credit at a rate much larger in relation to monetary aggregates. Thus, as we borrow and electronically print our way out of this to catch up to and bring back the velocity of money. Eventually, there is a fork in the road that we must choose over in the face of uncertainty, when is it too much spending? $118.16 Trillion...is a lot of money. When will China get sick of our ways? Will bond traders pull the plug? My personal opinion is that of cautious optimism. We are seeing improvements in the markets (4x, equities, bonds), but it is once when I see the number of unemployment decrease to pre-crises levels that I will feel fully confident in our economic system.

Tracking and Improving Discipline

2009-08-27T22:39:00.002-04:00

Often times than not the word discipline is thrown around a lot. Well in terms of trading what does this mean? Discipline is the ability to control your own behavior. How do you quantify and improve trading discipline? Use a journal. Keep track of certain metrics. <--Its a must read!! There is a reason to measure certain aspects of what your doing when you trade so you can compare and improve yourself trade day to trade day. In addition to keeping track of those metrics, print out or keep a digital copy of your trade before and after and with different time frames(depending on what kind of trader you are). On the chart, make note of your entries and exits, keep track of the optimum exit and optimum entry point and the difference between your actual exit and entry points. What's the average range the currency fluctuates in an hour, daily, weekly? Compare to the execution of the trade. Did you execute the trade too early or a little late? Average the (optimum entry - actual entry) and the (optimum exit - actual exit) and categorize into winning and losing trades based on time frame. Now ask yourself what technical indicators and/or parameters can be used to get a more precise entry/exit? Also ask what you did right, what you did wrong, and how you can improve based on all the information you gather from these metrics. If more time is spent applying these methods than actually trading as beginner you'll find your improvement rapid. Now doing all this stuff is really tedious, in written form it takes a lot of printing. Digitally it can be a hassle to start to gather all this information from data. I would personally like this to be done automatically on a real time basis from execution of entry to exit trades. In the mean time I'll be working on an excel version of all this and although it won't real-time automatically update, it will be usable enough.

Rate of Change on BB Width

2009-08-22T00:38:00.006-04:00

Tonight I was thinking of a way to create better exit signals with my CMDT system. So I was thinking of a decline in volatility would mean a consolidation in price movement, hence a slowing of the current trend. Pondering how to pick the tops and bottoms I went ahead and wrote down three raw formulas in my notebook to test out in code. I coded on Dealbook360 chart studio the one I thought most fitting, the rate of change of Bollinger Band Width. As you can see in the chart below CMDT will give me the entry signals but as far as exiting, having ROC(BB)allows me to pick the point where Bollinger Bands will top out in width and start its decline.

Click to see clearer EUR/USD 10Minute

Here's the code for GftForex's Chart studio platform:
//--------------------------------------------------------
indicator Bollinger_Width_ROC;
input price = close, period = 100, deviations = 2, displacement = 0;
draw ROCBBline("ROCBBW",solid_line,blue),Hline("H",solid_line,red);
vars i(number),tmp(series),xline(series);
begin
tmp := displace(deviations * stddev(price, period), displacement);
xline := (((sma(price, period)+tmp)-(sma(price, period)-tmp))/(sma(price, period)));

for i := front(close) + period to back(close) do begin

ROCBBline[i] := (xline[i]/xline[i-1])*100;
Hline[i] := 100;

end;
end.

//-----------------------------------------------------------------

In periods of consolidation, Bollinger Band Width will be very low while the ROC(BB) will flip flop across the 100 line, so this indicator is really only useful for exit signals of trending systems. Also, I use 100 period Bollinger Bands on my system so if you want more sensitive signals you'll have to change it.

This is your brain on Forex

2009-08-20T15:41:00.005-04:00

Humans and nature on nonlinear in creation and action. The way your brain forms as a network of neurons as well as your circulatory system and bronchial in your lungs are evidence of fractal geometry, and power-rule formulas. From the micro networks to the macro networks this is universal. The widespread use of Fibonacci ratios in trading is because of this.

After reading "This is your Brain on Music: The Science of Human Obsession" by Daniel Levitin all you can do is wonder how this knowledge could be utilized into a functional medium. After looking at different music programming languages(playing a song = programming a computer), I was disappointed in the lack of intuitiveness required by the translation of music to code. So I decided not to dive too deep into that area and decided that a functional medium could be derived through Fibonnaci sequences in relation to musical theory -> forex trading. In other words. how could I literally listen to the charts in a proper mathematically equivalent manner that I could maybe predict the next moves in a market just like musical "expectations" in a song.

To those who may doubt an unconscious connection to music... Watch this video of Bobby Mcfarrin hack the crowd into singing a full pentatonic scale while only referring to a few notes
You will no doubt change your mind very quickly. Also, "McDermott and Harvard evolutionary psychologist Marc D. Hauser found in earlier studies that tamarin and marmoset monkeys have the ability to discriminate between different types of music to the point of noticing pieces written by different composers.(Monkeys hate Techno)"

Creating a custom indicator that plays music based on Fibonacci and Time can be very useful in terms of human pattern recognition. There is a major link between that and memorization as well. You'll be able to recognize patterns that you cannot see and remember them better. Thus, I'm looking forward to creating an MT4 custom indicator based on this concept.

Discovering Sentiments

2009-08-18T23:52:00.002-04:00

I just read through "Sentiment in the Forex Market" By Jamie Saettele, to get to the heart of the matter - the COT index. For those who do not know the CFTC has a report that comes out weekly which gives the net positioning of speculators and commercial interests. It also includes open interest which combined with volume studies = a trading system based on sentiment. Check out Jason Alan Jankovsky's article detailing it. Since I'm a trader working with Currensee, a forex trading network that links the power of social networking with forex trading and social analytics, naturally I've come to take interest in gauging social psychology. Now every trader should know that it is the banks and the corporations that move currencies, how can we fully gauge market psychology without gauging their sentiment? Well we can't. So we must use COT; the complaint I have is that its a WEEKLY report which will disapoint short term traders. I want to find out how the CFTC puts this report together and if there is anyway to speed up reporting. I'm assuming this data is fed from the traders, marketmakers, corporations to banks.

Regardless, I'm not dissuaded by this shortcoming...I'll be experimenting with other technical analysis formulas(code word for: I know which ones buts its a secret shh!) in combination with the COT to see if I can get clearer signals. By "clearer," I mean the intrapolation in time frame scaling of price as a parallel to the COT. Combine some speculator sentiment data from Currensee and BAM!! we'll have take off in terms of a new social indicator. Now you'll ask, how the hell will do you know if this works? Answer: I'm merely speculating in creativity... we'll only know once we finish.