Pearls Before Breakfast

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

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

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

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


Enjoy Joshua Bell/Puccini.

Weekly Update : Consolidation

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

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

Monthly Chart Update

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

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

5 Fatal Flaws of Trading

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

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

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

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

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

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

EUR/GBP : 2nd Chance

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

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

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

Results 2Q09 : Still Struggling

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

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

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

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

2 positives :=

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

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

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

GBP/USD : Timeframes, Noise & False breaks

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

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

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

Fortune : Best Advice I Ever Got

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

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

USD/CAD : Risk Appetite Back ?

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

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

Nikkei : Watch Monthly Trendline

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