The trend is not our friend

boris petit

By Boris Schlossberg @FXflow, CEO and founder of BKForex

So there is so much to talk about this week. I could talk about how the SNB nearly destroyed the FX retail business in a matter of 24 hours. I can talk about how much fun I had in VT trading chat room where we banked so many pips that I stopped counting by end of week. I can talk about how I went from sheer elation after being on the right side of the EURCHF trade to complete panic when FXCM announced that they were basically staring into the abyss of bankruptcy to absolute relief when they found a White Knight just before the close of business on Friday.

But the most interesting thing to cross my desk this week was actually a throw away article on Marketwatch that revealed something fascinating about how money is actually made in the capital markets. In a piece titled Easy way to get rich: Buy the most hated stocks Brett Arends basically lays out the case for contrarian trading. Arends looks at 10 worst ranked stocks in the S&P 500 as named by Wall Street analysts and discovers that 100,000 invested into 10 most hated ideas every year since 2008 would have turned the portfolio into 270,000 dollars. Just investing into the broad S&P 500 you would have made 170,000 dollars.

That is a massive difference and I think it says a lot about how alpha is really generated. Don’t get me wrong. I am not arguing that the way to riches is just to blindly bet against the trend. That in fact is the way to ruin. And if you are a long term investor who really doesn’t have the time or inclination to follow the markets them the old and boring dollar cost averaging strategy of buying a fixed amount of index funds every single month come rain or shine is the absolutely best way to make your money grow. In the long run the trend does win.

But if you are a trader, the profit does not lie in the trend. Of course the obvious can sometimes be incredibly lucrative. Shorting oil as it continued to fall or selling EUR/USD as it broke 1.2000 were both great trend trades that made gobs of money. But the problem with those examples is that they are very much like lottery tickets — incredibly seductive but utterly disappointing for 99.9% of us who try them. Just as the lottery trots out the winners and lets us vicariously wallow in their good fortune while conveniently forgetting about the millions of wasted tickets, so does the trading industry love to pull out massive multi-year charts of trend moves with very conveniently tagged labels — if you entered here and exited here you would have made ten trillion percent!

BKforex-petit-300x93

Click here to read the full article on BKForex

Read More

China struggles to support CNY & avoid exporting disinflation

laidi

By Ashraf Laidi, Chief Global Strategist at City Index

The People’s Bank of China is increasingly resisting traders’ weakening of the Chinese yuan, by announcing higher rate in its daily central reference rate. But as Chinese data continue to weaken across the board, FX traders have no choice but to bet against the yuan (pushing up the USD/CNY rate). 

The chart highlights the divergence between the PBOC’s falling reference rate, known as CNY fixing price as set by the China Foreign Exchange Trading System (red) and the spot rate in the interbank market, the fluctuations of which should not exceed +/- 2% of the average price.

Trade the Chinese yuan with City Index here 

Aside from signs of China’s slowdown shown in retail sales and consumer credit, last night’s release of Nov PPI contracting by 2.7% — below zero for the 13th consecutive months — and the 1.4% CPI being the lowest in five years underscores the threat that China’s hard landing story is at its most credible status since misplaced warnings have begun in 2009.

The adjacent chart highlights China’s deteriorating capital account balance, which tumbled to a negative $601 million in Q2 as a result of surging capital outflows. We patiently await the release of capital account breakdown for Q3.

city index

Click here to read the full article on City Index

Read More

A Guaranteed Way To Control Stupid Trades

boris petit

By Boris Schlossberg @FXflow, CEO and founder BKForex

This is going to one of my shortest, but probably most important trading column ever. In all my years on Wall Street I have never, ever used this word before, but today I will. I can guarantee you a way to avoid every stupid, impulsive, account wrecking trade you have ever made from this point on.

Before I tell you how let me be clear. I am not saying I can stop you from losing money. I am just saying I can stop you from losing money in the stupid let-me-just-try-this-trade-because-I-am-bored-and-now-I-am-wrong-and-now-I-am-going-to-add-to-my-position-until-I-get-margined-out way that all retail traders lose their money.

How many times have you had great weeks, months, quarters only to squander it all away on an idiotic idea that made you fight the market in size too large until they carried you on stretcher? I’ve done that at least a dozen times in my career. And guess what? There is no way to prevent it.

But there is a way to control it.

Professionals on Wall Street always use a process when it comes to trading, which means that your entries, exits, sizing and any adjustments are all pre-planned and well established before you click the screen and place a trade. But as traders we are always going to be tempted by risk. Sometimes those ideas will pan out sometimes they won’t, but the unifying factor of all those trades is that they stand outside of your process and are therefore vulnerable to the possibility of ruin.

So here is my solution to controlling the non-process trade. One unit. The minimum trade. Yes for most of you on retail platforms that means .01 of a standard lot and 10 cents per pip. Here is the key point.

BKforex petit

Click here to read the full article on BKforex

Read More

GBP/USD poised for further potential breakdown

jamespq

By James Chen @JamesChenFX, chief of technical strategy at  City Index

 

GBP/USD (daily chart shown below) continues to be weighed down in the face of renewed US dollar strengthening against major global currencies, and appears to be poised for a further breakdown.

Currently nearing the one-year low of 1.5584 that was just established earlier in the week, GBP/USD is firmly entrenched within a strong downtrend that has been in place for more than four months since the 1.7190 multi-year high in mid-July.

The sharp drop since July, which represents more than a 9% decline down to this week’s noted 1.5584 one-year low, has consistently traded underneath a well-defined downtrend resistance line as well the 50-day moving average.

2014-12-04-GBPUSD-530x273

Having recently consolidated in a bearish flag pattern, the currency pair has since made a slight break below that pattern, tentatively confirming a continuation of the current downtrend.

Click here to read the full article on City Index.

city index

Read More