Too Much Reading, Not Enough Writing

intro

So last week I walked into one of those "what the fuck is going on?" headaches. I felt overwhelmed by information and uncertainty over the true macro/geopolitical driving forces.

issue

I read the FT on the weekend and MoneyWeek / ZeroHedge/ Twitter throughout the week. This may sound like a lot but honestly it's quite manageable. The FTWeekend is consumed on the couch or coffee shop, avec wife.  Money Week is my Monday - Friday 10 minute "commute read" and twitter is light entertainment when I'm taking a dump.

It's not so much the quantity of "news" I'm reading but the "news" itself that is causing the headache.
In the last two weeks I have noticed two things: One, the distinct lack of news and regurgitation of articles. Two, a plethora of opinion pieces. Both of which piss me off because repetition, by definition cannot be "new" and opinion, by definition isn't "fact", so neither are in anyway useful.

However what I believe is the main cause of my befuddlement, is not my reading sub-par articles but the lack of time I've spent writing about what I've been reading over the past few weeks, I haven't been formulating my own ideas. Of course I'm confused.

summary

Like the title says, I'm reading too much and not writing enough. To put it another way I need to make more regular visits to this blog. Admittedly there are less trades to chronicle now that I'm trading off W1 charts but that doesn't mean that there aren't ideas that need to be documented.

(rant and self flagellation over)

Start of Year Update... 2017: Be The Gatherer

Apologies for my prolonged silence, since starting the day job I have had to adapt the ways and times I go about trading.

I am now starting to view my trading almost as "short-term investing". Often when seeing an entry I think "would I hold this for the next 3-6 months?

charts

I now use W1 and MN charts for building my primary positions. I want MN stochastic to have crossed in the direction that I am trading and for price to be at a MN/W1 area of supply/demand, with a nice candle pattern. I feel I am then trading with long-term momentum, at good supply/demand imbalances with a stronger signal. During the week I try to monitor the daily charts of pairs I am already in to see if I can add or build to them but this isn't always possible.

prep

My technical prep is done over the weekend (MOTR etc) but I now spend a lot more time throughout the week reading and pondering on geo-political and macro events, which are now the basis of almost all my trade ideas. My main sources are MoneyWeek, Pippa Malmgren and ZeroHedge.

setups

I am currently not finding perfectly matched MOTR (momentum and trend) pairs useful. The reason being is that I am often ready to trade a pair before MOTR is completely lined up. Having said this I always try to match an idea to the strength/weakness matrix.

Due to not knowing if I'm going to be in a good state to trade each evening, my mindset is, "get in tentatively when you can and start building" rather than, "wait for perfection" because "I could well miss the move".

The day job and the exhaustion it can create means that I'm sure if I'm going to feel good enough to trade each evening. So I would rather save my major entries for the weekend. I guess this is the price I have to pay. My hope is, with experience and practice that I  might be able to average down in the future.

metaphor

I'm seeing trading and investing as a metaphor of the Hunter/Gatherers of past.

The Trader is the Hunter: spending huge amounts of time and energy stalking prey, setting traps and failing often.
The Investor (long-term trader) is a Gatherer: She simply walks through the fields each day and notices what is beginning to germinate, flower, bloom or wither. She knows what is going to feed her today and has a good idea of what is going to feed her in the coming months.

summary

I feel I am relating strongly to the gatherer. I want to get in slowly when a market is germinating (turning), I want to add to my position as it begins to flower (trends) and take profit once it's bloomed (begins to turn again),  I use momentum to help me predict the seasons, the timings aren't precise but that's quite nice as it takes much of the pressure off "being perfect" which was something that flagged up strongly in my Tharp Report. 

Thinking like a Dealer Part 2

intro

This is something my coach has been talking about particularly in relation to day trading.

The idea is to try and keep in mind that the dealer/broker only gets paid when orders are triggered.  As such they are constantly trying to push price into areas where the most amount of client orders sit.

plan

When planning our day trading strategy we need to approach the market as both a bull and a bear.

Where is a bull/bear most likely to have an order to start building a position? and where will they have their stop and take profit orders?

Once you have a general idea of where the major orders will be, try and place your orders where there's a convergence of bull and bear orders doing the same thing...

For example get short at an area where bears will be looking to build a short position and bulls are either taking profit or getting stopped out. It is at these points that  market players are in a form of "unity" and you increase your probability of success.

Geopolitics & Trading Sentiment

Over the past few months my coach (Paul Wallace) has been emphasising the importance of geo-politics. He recommended I read Barton Biggs - Wealth, War and Wisdom -  and believe it or not I'm finding that a "geopolitical framework" is starting to crystallise. What follows are my thoughts to date.

my framework

My basic concept is really very simple; the market is more or less in one of two states.

1. Uncertainty (supply): Uncertainty of course exists in all markets. What I mean by "uncertainty" is an "opaque" risk / one that is becoming increasingly difficult to define and size. These events often build progressively, think pre Brexit, the 2008 GFC or 2015 crude supply glut. 
2. Stabilised Uncertainty (demand): Uncertainty still exists but it has been stabilised by an event or action, making a "transparent" risk that is easier to measure. Think post Brexit Carney /BoE promising £150B in QE, the Fed delivering $700B in QE in March 2009, Or in January 2016 simply the news that OPEC were finally talking about reducing crude output.

What is important here is news doesn't necessarily need to be particularly uplifting or downbeat, just less bad or good than it was previously. Biggs uses the Battle of Midway as an example. Despite WWII being far from over, the US Navy defeating the Japanese Navy was better news than had came before (Pearl Harbour). This marked the lows of the US stock market and the start of its recovery during that period.

brexit example

certainty - a predictive state

My final thought on sentiment is that I think it's fair to say that markets are always moving towards some kind of climax, this I see as two kinds of certainty.

1. Certain optimism: when the market and main street get to the point of believing something is genuinely amazing, the market is often overbought/topping. (Bonds and Equities)
2. Certain pessimism: when the market and main street get to the point of believing something is completely doomed, it is often oversold/bottoming. (Crude)

When things are at their unimaginable best/worst, there's really very little room for markets to climax further. Working on the Biggs premise that you only need slightly better/worse news than previously to turn a market, you can start to preempt tops and bottoms. Such as the DotCom bubble in 2000 or oil lows in 2016.

To be clear I'm not suggesting that one would trade "certainty", I see it more as a preemptive tool to start preparing for options in the other direction, if and when they are confirmed by events and price action. Actually it was this very thought coupled with a few events and technicals that made me want to get long crude last week.

summary

To me there is a catalyst that gets everyones' knickers in a twist, causing "uncertainty"(supply), then there is a "stabiliser". This doesn't eliminate uncertainty but creates a "stabilised uncertainty"(demand) that markets can rise in. Finally as a predictive tool I believe listening and looking out for when the market/world is in "certain" optimism or pessimism is a very useful tool to start preparing for a top or bottom.

Maybe my views will change again in time but at least for now this is how I believe markets work. What I like about this is that I have always believed markets move due to supply and demand. From a technical perspective I think I have a relatively good grasp of this but on a sentiment front this has always been lacking. Identifying what supply (uncertainty) and demand (stabilised uncertainty) look or feel like has strengthened my commitment to my strategy as it is starting to flow through the market in a more holistically way.

Missed a Crude Long Opportunity Due to Size

I originally posted this in a private group last week. However as it is part my trading strategy and it will also relate to a post I am putting up shortly it felt important to reblog it here...

ORIGINAL POST 080816

initial idea

I've been watching crude for the past month or so "collapse" and twitter bang on about what a turd it is. This reminded me of something Paul Wallace (my coach) says: when everyone is certain, this is often the time to look the other way.

prep

Because this was a counter trend trade, technically it wasn't STAM (STAM is a method my coach has taught me and so am unable to go into details), but it fits all the parameters I like to see. This coupled with better than expected NFPs, an increased rig count and potential demand from India made a bullish engulfing pattern (at lots of support) on the daily chart very appealing.

issue

The size, even at 0.10 in a micro account meant a £300+ stop which didn't remotely fit my risk requirements. In the end I just took a screen shot and put a tweet out for my records.

I don't particularly want to go down a timeframe, for this kind of trade I want to stay long term. I was wondering if anyone knew if there is an alternative instrument I can trade which might let me trade smaller?


Tweet screenshot (D1 and W1)

Crude as of 1917 this evening (080816) (D1)

Speculation or Gambling?

An internal debate I often have with myself is; is trading gambling or speculating? and isn't "speculating" gambling anyway?

my definitions

I define gambling as an action that relies entirely on luck, akin to betting on a horse because you like it's name or the colours its jockey wears, a coin toss.

While I define speculating as an action that is based in preparation and risk management. Knowing where the horse is running, on what surface, who the trainer is and sizing the potential bet in relation to the odds offered. Many bets will be prepared but few will be placed, as midway through the prep a horse maybe shown to have no edge (a good flats horse may be useless on jumps). This in theory leads to an educated guess that still requires a bit of luck, similar to a hand of poker.

So to answer my initial question; yes speculating is gambling, but it is gambling (like any business) with a defined risk, an edge. You're trying to be the casino.

All this has lead to a further thought...

two aspects of speculation

To carry on with the metaphor, in trading I see the setup as the horse; and the first aspect of successful speculation is defining whether "it" is on the right surface for it to be effective (1) before entering. 

However in trading we have a second aspect, that being the luxury of (2) in bet management; being able to close a bet early or add to it late. The latter of which is missing from my plan (as mentioned here). This is a void that I urgently need to fill to help improve my results. 

summary

Ultimately in any form of gambling or speculating there will always be risk. To me however speculating requires that you know when you have an edge, when your edge is fading and as importantly when it is strengthening.

Personally, I know what my edge looks like when it's failing (before it hits my stop), so I can cut my losers early but I do not know what it looks like when it is succeeding (before it hits my target), to ensure it is held or even added to. My plan to combat this is to examine the largest MFE of my losing trades. This should hopefully act as a good basic benchmark/line in the sand/distinguishing factor between a successful and fruitless endeavour. 

MOTR Trade 10 R+0.2

So I got long the NZDUSD...

prep

Technically this pair met all my criteria, momentum and trend both up and price experiencing a deep pullback.

On the macro point of view there was an issue, Fed policy was due in 2 days however my trade plan allows me to trade this, provided I close a few hours before the data is due, which is what I did.

thought

Price initially went my way by R+1 or more, then fluctuated before the fed announcement (I exited just prior to the durable goods report). I do wonder if price initially goes in my favour by quite some way, whether I might be able to hold on to this kind of trade in the future (as you can see the MFE on this trade was R+4.4).

This thought alone shows a hole in my trading plan/strategy; I don't know at what point (before hitting my target) a trade is a success. Definitely something for me to mull over and research! Ultimately my numbers are going to have to dictate my action here.

NZDUSD Long