The Markets, Trading & Charts Thread

[kevsta]

To prevent the gradual ingress of my trading charts into every thread, and because I want to look deeper into actual market structure and mechanics, I've started a specific thread and promise to stop littering all the other threads (except where very relevant of course) and try to keep it all in one place from now on.

The Forex market http://en.wikipedia.org/wiki/Foreign_exchange_market in particular, fascinates me because of it's sheer size and unavoidable importance globally to every aspect of international business. Just imagine taking even a small spread on a small portion of the $1.5 quadrillion worth of transactions that occur there annually. I've been reading up about the structure of Forex and will list all links at the bottom of this post but lets start with some givens.

1. What is a "market" ? - a market is simply a price feed that shows the current buy and sell price, known as the "Bid" or the "Ask". that is all. Wiki Bid Ask Spread

2. How does the Forex market structure work? - the definitive essay I have found on this, is here

http://www.forexfactory.com/showthread.php?t=7484 with quotes.

Market Structure:

Now that we have established why the market exists, let’s take a look at how the transactions are facilitated:

The top tier of the Forex market is transacted on what is collectively known as the Interbank. Contrary to popular belief the Interbank is not an exchange; it is a collection of communication agreements between the world’s largest money center banks. To understand the structure of the Interbank market, it may be easier to grasp by way of analogy.

Consider that in an office (or maybe even someone’s home) there are multiple computers connected via a network cable. Each computer operates independently of the others until it needs a resource that another computer possesses. At that point it will contact the other computer and request access to the necessary resource. If the computer is working properly and its owner has given the requestor authorization to do so, the resource can be accessed and the initiating computers request can be fulfilled. By substituting computers for banks and resources for currency, you can easily grasp the relationships that exist on the Interbank.
Anyone who has ever tried to find resources on a computer network without a server can appreciate how difficult it can be to keep track of who has what resources. The same issue exists on the Interbank market with regard to prices and currency inventory. A bank in Singapore may only rarely transact business with a company that needs to exchange some Brazilian Real and it can be very difficult to establish what a proper exchange rate should be. It is for this purpose that EBS and Reuters (hereafter EBS) established their services.

Layered on top (in a manner of speaking) of the Interbank communication links, the EBS service enables banks to see how much and at what prices all the Interbank members are willing to transact. Pains should be taken to express that EBS is not a market or a market maker; it is an application used to see bids and offers from the various banks.

The second tier of the market exists essential within each bank. By calling your local Bank of America branch you can exchange any foreign currency you would like. More then likely they will just move some excess currency from one branch to another. Since this is a micro-exchange with a single counterparty, you are basically at their mercy as to what exchange rate they will quote you. Your choice is to accept their offer or shop a different bank. Everyone who trades the forex market should visit their bank at least once to get a few quotes. It would be very enlightening to see how lucrative these transactions really are.

Branching off of this second tier is the third tier retail market. When brokers like Oanda, Forex.com, FXCM, etc. desire to establish a retail operation the first thing they need is a liquidity provider. Nine in ten of these brokers will sign an agreement with just one bank. This bank will agree to provide liquidity if and only if they can hedge it on EBS inclusive of their desired spread. Because the volume will be significantly higher a single bank patron will transact, the spreads will be much more competitive. By no means should it be expected these tier 3 providers will be quoted precisely what exists on the Interbank. Remember the bank is in the business of collecting spreads and no agreement is going to suspend that priority.

Retail forex is almost akin to running a casino. The majority of its participants have zero understanding how to trade effectively and as a result are consistent losers. The spread system combined with a standard probability distribution of returns gives the broker a built in house advantage of a few percentage points. As a result, they have all built internal order matching systems that play one loser off against a winner and collect the spread. On the occasions when disequilibrium exists within the internal order book, the broker hedges any exposure with their tier 2 liquidity provider.

and here is a schematic of the structure of the market place

- The main players in the Forex market

Commercial And Investment Banks
Let's start dissecting the bigger players: the banks. Though their scale is huge compared to the average retail Forex trader, their concerns are not dissimilar to those of the retail speculators. Whether a price maker or price taker, both seek to make a profit out of being involved in the Forex market.

What is a market maker? To be considered a foreign exchange market marker, a bank or broker must be prepared to quote a two-way price: a bid price which is the market makers' buying price and an offer price is their selling price to all inquiring market participants, whether or not they are themselves market makers.

Market markers capitalize on the difference between their buying price and their selling price, which is called the "spread". They are also compensated by their ability to manage their global FX risk using not only the mentioned spread revenues but also netting revenues and revenues on swaps and conversions of residual profits or losses.

There are hundreds of banks participating in the Forex network. Whether big or small scale, banks participate in the currency markets not only to offset their own foreign exchange risks and that of their clients, but also to increase wealth of their stock holders. Each bank, although differently organized, has a dealing desk responsible for order execution, market making and risk management. The role of the foreign exchange dealing desk can also be to make profits trading currency directly through hedging, arbitrage or a different array of strategies.

Accounting for the majority of the transacted volume, there are around 25 major banks such as Deutsche bank, UBS, and others such as Royal bank of Scotland, HSBC, Barclays, Merrill Lynch, JP Morgan Chase, and still others such as ABN Amro, Morgan Stanley, and so on, which are actively trading in the Forex market.
Among these major banks, huge amounts of funds are being traded in an instant. While it is standard to trade in 5 to 10 million Dollar parcels, quite often 100 to 500 million Dollar parcels get quoted. Deals are transacted by telephone with brokers or via an electronic dealing terminal connection to their counter

So clearly, not all banks are equal here? the 25 or so that trade the majority of the $1.5 Quadrillion market volume and often post 100% trading quarters might seem to have an edge of some sort?

Trade Mechanics:

It is convenient to believe that in a $2tril [written in 2008, nearer $5 trillion now] per day market there is always enough liquidity to do what needs to be done. Unfortunately belief does not negate the reality that for every buyer there MUST be a seller or no transaction can occur. When an order is too large to transact at the current price, the price moves to the point where open interest is abundant enough to cover it. Every time you see price move a single pip, it means that an order was executed that consumed (or otherwise removed) the open interest at the current price. There is no other way that prices can move.

As we covered earlier, each bank lists on EBS how much and at what price they are willing to transact a currency. It is important to note that no Interbank participant is under any obligation to make a transaction if they do not feel it is in their best interest. There are no “market makers” on the Interbank; only speculators and hedgers.

Who are the main players in the Forex market

Businesses & Corporations

Not all participants have the power to set prices as market makers. Some just buy and sell according to the prevailing exchange rate. They make up a substantial allotment of the volume being traded in the market.
This is the case of companies and businesses of any size from a small importer/exporter to a multi-billion Dollar cash flow enterprise. They are compelled by the nature of their business - to receive or make payments for goods or services they may have rendered - to engage in commercial or capital transactions that require them to either purchase or sell foreign currency. These so called "comercial traders" use financial markets to offset risk and hedge their operations. Non-commercial traders, instead, are the ones considered speculators. It includes large institutional investors, hedge funds and other entities that are trading in the financial markets for capital gains.

In an article taken from the Forex Journal, a special edition by Trader's Journal magazine in November 2007, Kevin Davey details in funny words why you should mimic non-comercial traders:

One automobile company recently attributed a large portion of its earnings to its Forex trading activities. These groups should strike fear into the little minnows because these groups are the professional sharks. These organizations trade day and night, know the ins and outs of the market and eat the weak. Big moves in the market are usually the result of the activities of professionals, so following their lead and following the trends they start may be a good strategy.

In the same waters that the professional sharks swim, there are also a lot of minnows. They are also your competition, so knowing their tendencies can help you exploit them. For example, unsophisticated minnow'traders are likely to put stop-loss orders at obvious support or resistance levels. Knowing this, you can exploit this tendency and feed on them.

Also, think about the first sure thing chart formation that you ever learned about. Chances are that new traders are just learning about that formation now, so you could fade their trades and likely do all right. Think of it this way - defeating a foe sitting at his desk in his home office trading the Forex market in his bunny slippers is probably easier than defeating an MBA with a $5000 suit who trades via complex neural network arbitrage programs. So, try to mimic and follow the sharks and eat the minnows.'This is where having a plan to make you a more agile 'minnow' or even turn you into a 'shark' is critical.

3. How does "retail" trading work? (as it's all most of us are ever going to be able to do)

what we do know:

1. it is a zero sum game, actually less because of spreads/fees.
2. hence for every winner, there must be a loser, and vice versa.

an EDU study of a sample set of day trades gives some interesting stats

http://clem.mscd.edu/~mayest/FIN360...ding at a Retail Day Trading Firm.pdf?ptid=16

Losing Accounts

Eighteen (18) of the twenty-six accounts (70% of the accounts), lost money. More importantly, all 18 accounts were traded in a manner that realized a Risk of Ruin of 100%. That is, 70% of the accounts would almost certainly lose any and all funds put at risk in them.

..

Eleven (11) of the seventeen (17) day trading accounts lost money. More importantly, all 11 accounts were traded in a manner that realized a Risk of Ruin of 100%. That is, 65% of these accounts would almost certainly lose any and all funds put at risk in them.

Winning Accounts

Eight (8) of the twenty-six accounts, or 30% of the accounts, were profitable.

Despite being profitable, three of the accounts A2, A24, and A29, were traded in a manner that realized a high potential Risk of Ruin (A2 –74%, A24-24%, and A29-84%) and low average trades. More importantly, however, the performance of each of these accounts is highly dependent on just one trade.

...

Only six (6) of the seventeen (17) day trading accounts made a profit. Four of these six accounts realized a significant risk of ruin. Account A10- 27.6%, A18- 57.5%, A24-45.2%, and A28-45.2%. Clearly, accounts that have over a 25% chance of ruin are not successfully traded accounts.

The largest winning trade is a significant number as it relates to the net and gross profit. Trading (or a trading system) has a serious problem if a major portion of the profits comes from just one trade. The rule of thumb is that no more than 25% of the net profits should come from the largest trade.

Conclusions (Short-term Trading)

If this analysis is representative of short-term public trading, the individual and cumulative results show that most public traders will lose money attempting to short-term trade. In fact, this study shows that 70% of the public traders analyzed will not only lose, but almost certainly lose everything they invest.
Only three accounts of the 26 analyzed (11.5% of the sample) illustrated trading results and techniques sufficient to profit from short-term speculation. In sum, based on these findings, the vast majority of retail public investors (88.5%) would be best advised to refrain from short-term speculative trading.

So the big question (for me anyway) is not really so much who is winning all the time, (as we can never know, only speculate) but how are they doing so, and why is it so difficult for anyone else? Some believe its all random (Taleb etc), but I think it's actually more difficult than profiting from chance, much more, as the stats above seem to back up, after all, it's not a 50/50 distribution is it?

Trading introduces you to powerful emotions you might never have felt before, and certainly not in this context (unless you are progressing from gambling addiction ) , and many defer to their reptilian brain to actually make their decisions, while deluding themselves that they are acting logically. (I have been this retail trader and been caught in every way possible) It is actually incredibly difficult to retrain yourself to buy low and sell high, as the human psyche is programmed to chase moves, not press the buy button while the price is plummeting. I previously have illustrated this exact moment full post here and chart only shown below

2. now we have seen the real manipulation, a sudden spike out well through the lows that rapidly retraces during the same bar, right where we want it. I took it immediately again on the close of the manipulation spike that got me at 1/3 size. ..price then loiters around a further 2 bars looking to all the world ('s retail traders) like it's about to fall off the edge of the world..

that http://fxpro.ctrader.com/c/b5B5n right there, is manipulation captured in action, all the early longs (me) have been stopped out already and are scared now, some of them even go short. ..this has been going down 4 days now, every indicator in the world is biased short, meanwhile, smart money are now out of their day's positions, as once again they were buying retail's sells and selling retail's buys, and the muppets just never seem to get it.

as history proved me correct, that was always a buy, but I guarantee you lots of the Herd were caught shorting at the bottom again, that's what they do. So logic (and studies) would therefore assume that most people should not even think about trying it, and of those who do, only a tiny percentage are going to get there, (but as I personally also have a long history of being that one in ten thousand and hate failure, so stats like this just motivate me more)

Anyway, all of the above I was mostly aware of, what I am struggling to find exact information on is HOW a trade actually works, ie what is traded, what money is transferred around the system during the trade. Because I have a strong inclination that in fact nothing is actually exchanged or moved around except instantaneous credit from the shadow banking industry, except at cashing out time whereby NET (win / loss) profits are paid, because:

The "Spot" FX markets are also just a 2 day currency future that is usually rolled anyway http://en.wikipedia.org/wiki/Foreign_exchange_spot

A foreign exchange spot transaction, also known as FX spot, is an agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on the spot date. The exchange rate at which the transaction is done is called the spot exchange rate.

and currency futures and just longer versions of the same thing http://en.wikipedia.org/wiki/Currency_future

A currency future, also FX future or foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date; see Foreign exchange derivative. Typically, one of the currencies is the US dollar. The price of a future is then in terms of US dollars per unit of other currency. This can be different from the standard way of quoting in the spot foreign exchange markets. The trade unit of each contract is then a certain amount of other currency, for instance €125,000. Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. However, most contracts are closed out before that. Investors can close out the contract at any time prior to the contract's delivery date.

and nobody takes any notice of what goes on in there anyway because nobody has any power to regulate it.

“The FX market is like the Wild West,” said James McGeehan, who spent 12 years at banks before co-founding Framingham, Massachusetts-based FX Transparency LLC, which advises companies on foreign-exchange trading, in 2009. “It’s buyer beware.”

The $4.7-trillion-a-day currency market, the biggest in the financial system, is one of the least regulated. The conflict banks face between executing client orders and profiting from their own trades is exacerbated because most currency trading takes place away from exchanges.

...

While U.K. regulators require dealers to act with integrity and avoid conflicts, there are no specific rules or agencies governing spot foreign-exchange trading in Britain or the U.S. That may make it harder to bring prosecutions for market abuse, according to Srivastava, the Baker & McKenzie partner.

Spot foreign-exchange transactions aren’t considered financial instruments in the same way as stocks and bonds. They fall outside the European Union’s Markets in Financial Instruments Directive, or Mifid, which requires dealers to take all reasonable steps to ensure the best possible results for their clients. They’re also exempt from the Dodd-Frank Act, which seeks to regulate over-the-counter derivatives in the U.S.

“Just because Mifid doesn’t apply, the spot FX market shouldn’t be a free-for-all for banks,” said Ash Saluja, a partner at CMS Cameron McKenna LLP in London. “Whenever you have a client relationship, there is a duty there.”

..it shouldn't be, but it is my contention that it very much is, but that's another thread really. and from the first paragraph again..

The top tier of the Forex market is transacted on what is collectively known as the Interbank. Contrary to popular belief the Interbank is not an exchange; it is a collection of communication agreements between the world’s largest money center banks.

Big Four - Bloomberg

While hundreds of firms participate in the foreign-exchange market, four banks dominate, with a combined share of more than 50 percent, according to a May survey by Euromoney Institutional Investor Plc. Deutsche Bank AG (DBK), based in Frankfurt, is No. 1, with a 15.2 percent share, followed by New York-based Citigroup Inc. (C) with 14.9 percent, London-based Barclays Plc (BARC) with 10.2 percent and Zurich-based UBS AG (UBSN) with 10.1 percent.

So in summary, what have we got? A few powerful banks dominating their own unregulated opaque OTC market, which just happens to be one of the biggest in the world, through which all international trade must pass.

And when we look at what they're doing, all they're actually doing is supplying a bid/ask price via their black box HFT algorithms, whereby traders take a "position", based on shadow bank leverage on a Contract to Buy/Sell some currency at some point in the future (which for traders, never ever happens as the positions are just rolled over) through the interbank market ultimately, which is not an exchange, just a collection of agreements between the banks involved.

ie we watch these red and blue lines, but there is never any actual USD or EUR involved in that movement, only the value of a digital realm only proxy trading "instrument" (which isnt covered by any of the financial instrument rules) quoted by a few banks in their own opaque marketplace which isn't even a marketplace, but a bunch of communication agreements between themselves.

Nice business if you can get it, eh? clearly then, as a trader, we have only 2 options, either attempt to trade as the dominant market-making banks do, or lose.

although apparently threat of regulation and competition from private HFTs means it's not as good as it used to be, if they are to be believed, anyway..

Banks are retreating from market-making, managers warn

Source: Risk magazine | 01 Mar 2012

Forex investment has became more challenging, as market-making banks facing new regulation have become less willing to take risk, say buy-side firms

Investing in currencies has become significantly more challenging as banks have reduced their market-making activities in preparation for new requirements for bank capital, as well as the proposed ban on proprietary trading under the Volcker rule, according to buy-side speakers at the FX Invest Europe conference in Zurich earlier this week.

"Banks that were accustomed to being market-makers in the forex business were also accustomed to being lenders of last resort - or warehousers of risk - and operated as a valuable and timely shock absorber to moves in the foreign exchange market.

Regulatory changes and the potential introduction of the Volcker rule have diminished the opportunity for banks to run proprietary risk, and this has without question had a substantive effect on market characteristics,"

said Paul Chappell, founder and chief investment officer at UK currency management firm C-View.

Sources

http://en.wikipedia.org/wiki/Foreign_exchange_market

http://en.wikipedia.org/wiki/Currency_future

The Structure of Forex Brokers (Forex factory)

Structure of the Forex market FPA

The Main Players in the Forex Market - FXStreet

How Trading works Forex & the Interbank FX Street

An Analysis of Public Day Trading at a Retail Trading Firm - mscd.edu

Traders said to rig currency rates to profit off clients - Bloomberg

Banks retreating from market-making [lulz, as if] - Risk Magazine

 

[kevsta]

Market Price "Gaps"

These are a bit of a mystery it seems. often, at a market open or around news events, the price will "gap" from where it was, to a new level, and then more often than not, re-trace back to where it gapped from, eventually, depending on the timescale you are viewing.

http://en.wikipedia.org/wiki/Gap_(chart_pattern)) wiki don't even begin to try explaining what causes them, just talk about types and trading strategies, apart from this one line of interest

A gap is defined as an unfilled space or interval. On a technical analysis chart, a gap represents an area where no trading takes place

there also appears to be no definitive explanation on cause, really just opinion pieces, primarily along the lines of sudden surges of orders.

http://www.ctrustnetwork.com/a60/bu.../interpret-trade-price-gaps-stock-market.html

I personally find this very difficult to believe, because whatever orders flow, should result in linear movement/time even if the oscillation is violent, it should be a solid line, ie the price should trace an analogue line over time, not transport itself Star-Trek like to a different place in zero time elapsed.

this post would seem to make more sense, because of course if the price has continued trading elsewhere and is now different, opening for trading again it must gap to the new level.

http://www.forexstrategysecrets.com/blog/market-gaps.htm

What causes the market to gap? Most brokers close for the week end but the market is still moving because the banks are still trading. When a currency pair has a gap it is because the market was trading in a direction which moved away from the price the brokers closed at. This causes a gap in the price of the currency because the broker’s closing price has to align with the banks prices at the time the broker opens.

If you have a stop loss on an order that is open over the week end the market will gap past the stop loss and the order will not be closed at the stop loss price it is closed at the next available price. In most cases the stop is filled at the price the market gapes to. If you have a buy or sell stop and the market gaps past the market order you will be filled at the next available price. This is the price the market gaps to. If you have a sell or buy limit order then it will be filled at that exact price when the market hits the exact price of the limit (pending) order.

This is why many traders do not like to leave trades open over the week end.

indeed, "gotcha"

his explanation of what happens at the broker is completely factual, ie if you have a stoploss in place, you get stopped at the gapped-to price, wherever that may be. whether it is because the banks continue trading among themselves out of hours, well.. who knows.

But we know from the first post, that:

1. Only market makers supply price bid ask feeds and have the capability to adjust price.

2. My broker will try to stay neutral exposure-wise internally, but if my trade is too big, will hedge it off through their liquidity provider and likely direct into the interbank market from there.

So if I am a (big) retail trader, with a leveraged $10 million trade on, (say $1 million account) I am very likely taking a position with a major market-maker as (one of) my direct counter-parties.

say I am long GBPUSD and just into profit last week, so I left it on over the weekend. my risk : reward is very good, I am only risking 1.5% per trade and have a spreadsheet that sets my parameters, the stop loss is 15 pips (0.15%)

100 contracts x $100,000 = $10,000,000 exposure.

and so this particular evening, if GBPUSD gaps against me 55 pips at open, past my stoploss at 15 pips (-40 pips past it) only one of 2 things will happen, either I'm stopped out at - 5%, (-$40k ish) or I might see it in advance and lift the stoploss, and then my account is potentially wide open to that 100% loss from the data above.

Cool huh? those pesky speculators probably deserve it though anyway, but then to add insult to injury, price usually (eventually anyway) comes rolling right back to where the gap happened. and everybody just seems to accept this is the norm. "just shut up whining and fade it dude"

I would say this kind of thing is one of the reasons that make it much harder than chance to succeed at, and if anybody could substantially and authoritatively explain price gaps to me, I'd be very grateful.

 

[kevsta]

and on a lighter note.. this is just the funniest "retail trader" video ever.



If I only have to beat this lot (including most of the the mentors) it might turn out alright after all.

 

[kevsta]

The way markets move

For those who are not familiar with my many disparate posts about trading across multiple threads, here's a little history. I got the bug in Dec 2011 and with a few successes along the way, basically lost (a smallish amount) of money steadily until the end of August 2012 until I was basically on the point of giving up, because it was just impossible. In September however I stumbled across a trading education organisation, who although membership based, put out a lot of free information, and was stunned to find that when I started following them daily from mid-October onwards until December, they correctly called that coming day's likely direction (of EURUSD & GBPUSD) for the best part of 2 months, up until the Xmas holidays.

Through this period, even whilst not trading their actual system, I (of course) found that a prior bias in the right direction for that day's trades made all the difference in the world. I found that my accounts (demo only by now) started to go back upwards again, regularly, for the first time ever, So of course I joined up. It's not a secret who it is, it's these guys and this video fully explains their beliefs about the markets, behind their strategy.



This is very long, the first 15 minutes explains in detail the reasoning for why they believe what they do, ie retail traders are being systematically ripped off (manipulated) daily. and for those who won't watch videos, I'll briefly summarize whats in it

• 10 banks control 70% of the volume in the Forex markets
• because of this there is a daily struggle for liquidity to match their large transactions
• hence they need to induce the market to do the opposite of what they want to do (buy/sell)
• there is a reason why before a big uptrending move starts, you always see a break of the previous lows, and vice versa for a big downmove, the price will almost always break (or have recently broken) the most recent highs before falling.
• retail traders are trading using rearward looking indicators on (hugely expensive to develop and license, but free to them) software supplied to them by their brokers
• Retail traders lose all the time, so to win, you have to:
  • not do what they do
  • study what they are doing, wait until you see them lose en masse and then bet in the opposite direction to them.

Now, as lomiller said here yesterday

Kvesta’s specific approach seems even less credible to me.

I certainly had my doubts a year ago. Now I'm utterly certain that this how it works. Whether the reasons are why we assume, we can never know, and so are just theories and remain unproven, as lomiller carries on

First it assumes yet un-proven market manipulation without any real evidence

without any real evidence in this case, however as the posts above show, nobody is (traditionally) looking for evidence in this area, and are unable to regulate it anyway should they find any. but these same banks have been fined over and over again for manipulating virtually everything else they are involved with, so surely nobody thinks they wouldn't, if they could get away with it? you'd have to be pretty naive IMO.

also, you really need to be a trader and get manipulated a few times, to understand this particular type of evidence, and the lack of accountability anywhere for total and utter daylight robbery at times.

second it assumes “smart money” is driving certain trades, again without any real evidence

as above, we know almost all traders lose, so lets just define the smart money as the 10% who win consistently, and are therefore always on the other side of retail's trades, that never work? whether they drive the trends or not (they do) we can assume at least they are on the right side of them? they must be, to be winning while everybody else loses, no?

third it assumes there is a way to take advantage of this “information” but against here is no clear reason why the strategy should be successful even if the above premise turned out to be true.

surely, if you have the ability to be facing the same way as the winners, by one means or another, the strategy should at least be more successful than that of the losers? now whilst I fully understand the doubts of people on this board:

"some guy on the internet reckons he's worked out how the markets work"

the 9 long months that I have spent studying and practicing the strategy is now producing multiple accounts, first demo and now real, that are consistently going up. and so whilst I or nobody else has any proof for or to the contrary, what I do have are numbers and stats that are continuing to back me up.

yesterday shorting GBPUSD from Level 3 = +2.99% account size. purple lines are expected manipulation points (where retail traders have their stop losses and breakout orders) and the yellow ovals are what we term "manipulation" the price is pushed up through the area the orders are in, and immediately sold back down hard, closing below the expected line. game on. if they come back and do it again, it's most likely a winner.

So I don't know, maybe it isn't actually manipulation, maybe its just a normal market function and a complete coincidence that all these newbie traders always get ripped off at these places before the major trend then starts in the other direction. I however, am skeptical.

Much of the strategy is not new, like the observation that markets tend to trend in 3 pushes, they do, this is factual and in no doubt, it's always been this way, it's what Elliot and his nonsense waves https://en.wikipedia.org/wiki/Elliott_wave_principle has been trying to make sense of all these years.

the screenshot above shows the first push on Cable (GBPUSD) so today us manipulation traders (if we had been here at the time) would be looking for manipulation higher and the second push down.

and here's the Nikkei playing along nicely too, and yet again, as with the day before, stopping and bouncing ON the line thats been on my charts for weeks, for the second day in a row.

you can quite literally see this in almost every market when you start looking, different markets show it best at different timescales, ie Forex 15min and 1hr charts are the best view, gold oil and others are best in 4hr charts, but this 3 push thing is there in every single market, and always has been. why is that do we think?

The Euro is currently sitting in a similar situation, however this one I would not short yet because I think it very unlikely that all the orders above 1.33000 (psychological round number, retail love them) would not first be taken, before a new downtrend commenced, and as you can see price has not put any pins through there yet. let's see.

we also have a big news week this week, so there will be plenty of movement, but careful traders wont be in (new) positions unless they are already deep into profit, prior to releases, because that's when you see the biggest stop runs of all.

 

[Fast Eddie B]

Much of the strategy is not new, like the observation that markets tend to trend in 3 pushes, they do, this is factual and in no doubt, it's always been this way, it's what Elliot and his nonsense waves https://en.wikipedia.org/wiki/Elliott_wave_principle has been trying to make sense of all these years.

I have to be reminded of the old canard that celebrities tend to die in groups of three!

...you can quite literally see this in almost every market when you start looking, different markets show it best at different timescales...

As a skeptic, I'm sure you're aware of the concept of "cherry picking". This kinda sounds like that.

Here is what I realize is an "argument from final consequences", but...

If one can consistently profit from trades such as these, and...

...if one an compound those gains over time, then...

...there should be a group of fabulously wealthy individuals who can place the source of their wealth as "day trading" or "speculating" or "technical analysis" or whatever you call this sort of thing.

Can you point to anyone on the Forbes 400 let's say, that does so?

(looking at that list now, more than a few list "Hedge Funds" as the source of their wealth. Am I correct in assuming that te wealth comes from managing the funds rather than direct investment? I don't remember seeing so many in prior lists.)

Maybe there are a handful there now. But when perusing it in the past, it seemed bereft of such individuals.

But, as I've said in other threads, I hope for the day when you can post here that you've broken into the Forbes list!

 

[kevsta]

and as everybody loves predictions, lets stick my neck out with some Nikkei movement predictions too. I drew these yesterday, and am not saying, and cannot say that each arrow will be perfect, however the principle is virtually always correct, and that is:

that if the price is going to break out back higher, it will first suddenly and violently penetrate the lower line, and that until you do see that any rally is likely to be short lived.

or, if the price is going to go lower, it will bounce and first look like it is going to break out higher, but then rapidly retrace leaving only pins, where once there were big blue spikes upwards and lots of Herd pressing "BUY" to try and jump on.

and that until we see the (disputed term formerly known as) manipulation, at either higher or lower levels, all we will see is price consolidating in that triangle for a while.

we don't need to know which way it's going to move, only where you are and how it moves once it starts.

lulz, and re the Euro 1.33000 prediction from the post earlier

Im actually not right until its a clear stop run and reverses though, at which point I will endeavour to make some money from it.

 

[Racklever]

Do you know what a martingale is ?

 

[kevsta]

Do you know what a martingale is ?

doubling up you mean? I should only do that with proportionally tighter stops to maintain the same risk per trade, and then only if I'm very confident and just get tagged by a pip or 2.

I've certainly done that the wrong way on my Trading Education MKI and know all about why it doesn't work when it needs to. because now, I would know Im facing the wrong way on Push 2 of the cycle and get out, as opposed to thinking it might ever come back BEFORE I cashed out in dispair lol

edit, afterthought, that's not what was going on in the EU GBP trade above if the position sizes make it look so, that was 2 separate entries at 0.5 contracts each, cashed out at different points in tranches.

 

[kevsta]

I have to be reminded of the old canard that celebrities tend to die in groups of three!

As a skeptic, I'm sure you're aware of the concept of "cherry picking". This kinda sounds like that.

well, to be fair I can only show you what I'm actually looking at? its pretty much EURUSD, GBPUSD, Nikkei S&P Gold and occasionally Yen, but I have spent a lot of time looking at other things in the past.

Here is what I realize is an "argument from final consequences", but...

If one can consistently profit from trades such as these, and...

...if one an compound those gains over time, then...

...there should be a group of fabulously wealthy individuals who can place the source of their wealth as "day trading" or "speculating" or "technical analysis" or whatever you call this sort of thing.

Can you point to anyone on the Forbes 400 let's say, that does so?

(looking at that list now, more than a few list "Hedge Funds" as the source of their wealth. Am I correct in assuming that te wealth comes from managing the funds rather than direct investment? I don't remember seeing so many in prior lists.)

Maybe there are a handful there now. But when perusing it in the past, it seemed bereft of such individuals.

But, as I've said in other threads, I hope for the day when you can post here that you've broken into the Forbes list!

heh, I would suggest that you should look into the banking families for the proceeds from day trading its not realistic that I will ever be in Forbes, and even thinking like that pretty much means you're too greedy to ever make it as a trader.

as you say consistency and compounding is the way forwards, slowly slowly milky muppets

 

[Fast Eddie B]

Do you know what a martingale is ?

I did not.

I do now.

Thanks!

 

[kevsta]

One of the reasons it is so difficult to consistently win, is time. it is nothing to the 24hr shift teams and machines that run market making to delay a move, run the price a bit higher first, and then run the move when you're not there.

for carbon based traders however time and real life events are serious constraints on performance. as an example, hopefully nobody disbelieves me too much when I say I had a reasonable idea what the high probability setups were here today..

however, I am involved in neither of these. (which means they will likely be huge)

 

[The Central Scrutinizer]

Can you point to anyone on the Forbes 400 let's say, that does so?

Sure. They're right next to the gold bugs!

 

[kevsta]

lulz

so, does the fact that I see this happening all day most days mean anything or not?

can people at least see that when we do get it right, we get in right at the outer edge of the range, with the main move still ahead for the day?

(lomiller why this strategy might be superior if true etc) small risk, high potential reward.

the strategy also forces you to buy low and sell high based around the daily ranges. interesting huh?

I do know one thing for certain, anybody buying those trendline breakouts as the desks change over feels like this (again)

 

[kevsta]

ok, a theoretical poser.. ..what about if I instead claim that I'm using psychic powers to predict these things to this level of accuracy, and can score consistently higher than 50/50 on direction and levels, without actually putting on positions.

do I get the $1million?

 

[kevsta]

GBPUSD update, taking screenshots all the way through with commentary

Ok so the strategy says that we've seen push 2, so we are looking for manipulation at higher levels to go short for push 3. However this morning the price comes out of the Asian box and heads straight down.. so its most likely it's a fakeout lower with manipulation at the lows to then push up higher for the big move later.

The advanced guys take these counter trend bounces all the time, I'm just about getting to the point where I can see and take them now.

the last (largest 0.5 contracts) tranche just hit the TP (take profit) @ +0.75% account size, the other 0.5 is spread across 2 more slices. however once the first tranche is home, even if the second two retrace all the way back and stop me out, this is still now +0.25% account size, while waiting for the real move.

second tranche hits TP +1.2% account size and last stop to breakeven. time for breakfast

I dont think the 3rd push starts from here, so staying in long with last part yet, when I see the actual short setup from higher I'll close the long and reverse short for the main trade of the day.

 

[kevsta]

update update

out at breakeven - slightly negative actually as didnt account for charges, but 80% of it hit TP and stops were very tight (only 6.8 pips on the 0.5 contract)

there are 2 schools of thought about moving stops to breakeven, as price will very often come back and get you before running your way, but if you are taking higher risk:reward profits on larger slices and only losing (zero, breakeven) on the smaller slices, you can still come in at more than 2:1, which is the operational minimum

so now it's back to wait n watch again here, meanwhile, EURUSD is making another run at 1.33000 again, watch this space

 

[Fast Eddie B]

Ok so the strategy says that we've seen push 2, so we are looking for manipulation at higher levels to go short for push 3. However this morning the price comes out of the Asian box and heads straight down.. so its most likely it's a fakeout lower with manipulation at the lows to then push up higher for the big move later.

For a theory to be scientific, it must be falsifiable.

It sure seems that after any unpredicted move, you are post hoc reaching to find a reason for that move. That just screams "special pleading" any time a price moves in the "wrong" direction.

Now that I know what a "martindale" is, one of those two schools of thought sounds a lot like that - systematically increasing a stake in the hopes of getting back to even.

I still see "noise" as the price drifts in a very arrow range, made to look significant by the scale chosen. And you're discovering transaction costs are "non-trivial", as they say.

But keep up the chronicle - its a fascinating insight into...something.

 

[kevsta]

For a theory to be scientific, it must be falsifiable.

It sure seems that after any unpredicted move, you are post hoc reaching to find a reason for that move. That just screams "special pleading" any time a price moves in the "wrong" direction.

it's not the wrong direction, it's actually the right direction for the cycle. the issue is whether we will first see manipulation, to allow a safe entry into the trade. or, if as this morning, there is the opportunity for a counter trade in the meantime to relieve the boredom.

if as I said yesterday, I were able to just make money from knowing the next direction without the difficulty of getting in and out safely without being robbed (like going to Stockwell) it would all be very much easier.

Now that I know what a "martindale" is, one of those two schools of thought sounds a lot like that - systematically increasing a stake in the hopes of getting back to even.

this has nothing to do with what I'm doing. the total position size allowable per trade is 1.0 contract at up to 20 pip stoploss. so whether I pile all in one go, or buy in weighted tranches further down the manipulation spike is up to bravery and skill. if Im wrong, and the floor just drops out, the total loss would be the same either way.

in that instance, because the likely bounce range was less than the likely short range from higher up would be, and because I was both confident and skillful on that occasion (and lucky with the stoprun too, on the first entry at least) I was layering in with tighter and tighter stoplosses on the higher position sizes, overall risk on the trade was €58. (0.5% account size)

the advantage of doing it like this is that:

1. if you're wrong, youre wrong, loss is no different
2. you get better and better entry prices with bigger slices and get to put another stoploss in a little further down. sometimes price tags your first stoploss (for the smallest amount) and then the other 80% runs really well.
3. even if price gets the first 2 stop losses, but then the 3rd (biggest one) runs, you're back into profit again as soon as youre up to the original entry point.

it really does have nothing to do with doubling up, it's just a more intelligent entry and exit system. you cant always do it, but when you can, it can work well.

I still see "noise" as the price drifts in a very arrow range, made to look significant by the scale chosen. And you're discovering transaction costs are "non-trivial", as they say.

heh, I know you love this fees excuse for failure, but really, if I had set the stoploss 1 pip higher than zero to cover the charges as I normally do, this would be the non-issue it always is. the figures you see are NET.

the last 20% of the trade lost €3.42, taking the overall win from 1.21% to 1.18%, so it IS pretty insignificant.

But keep up the chronicle - its a fascinating insight into...something.

ha, thanks, I intend to, until some of you can look past your preconceptions and see this working continually day after day, or it proves me wrong and you right, by a reducing not continually increasing account balance.

because it is definitely an insight into "something" as you say..

 

[kevsta]

and push 3 goes without me again.

although in one way I am happy because not taking this trade, is exactly what I should have done, an entry at the previous dubious looking short signal with no clear manipulation above at least the Asian highs like that, has a very high probability of running higher and stopping you out before the main trend starts.

out of 100 times, I will be better off not taking those unclear setups, although 100 pip gap downs are always hard to watch when you wanted to be in but couldn't by your ruleset.

so once again, hopefully you can see I was always very clear ultimate direction was down (push 2 seen, look for push 3) but the actual doing of it, is a different thing to the seeing of it in advance.

 

[The Central Scrutinizer]

But keep up the chronicle - its a fascinating insight into...something.

Is "nonsense" the word you were thinking of?

But you're right, it is entertaining and educational. In a "what not to do" kind of way. Didn't Shermer write a book about this sort of thing?