Saturday, March 30, 2013

eur/jpy short

yesterday, i posted an initiating short trade on eur/jpy in mytrade. the reason i like this is that the pps indicator threw a sell signal on eur/jpy near the top of its 52 week range just as my seasonal projection study (sdi_seapro5) is showing a consistent seasonal downturn in this pair is due. here's my chart:


i plan my entry to be a small retrace into the body of last weeks candle and will hold into the fall. the target is a retrace to the midlevel the 52 week range, around 110. this is a 10 yen retrace or 1000 pips (note: yen crosses all have a 1/100 yen pip because 1 yen is the smallest unit of currency in the yen.)

mind the carry-trade. the carry-trade is, supposedly, the interest rate differential between the two countries of the pair and is applied to a currency trade during the daily mark-to-market rollover. surprisingly, this can be asymetric, penalizing one side of the trade more than it is rewarding the other side, and this is the case for eur/jpy - while short eur/jpy does not pay so much on the carry (like 1cent per mini per day), the long eur/jpy side of the trade is disproportionately penalized on the carry (~50cents and more per mini per day.) this creates a catalyst for short eur/jpy, imho.

on the thinkorswim platform you can see these daily rollover rates in the marketwatch tab. i look at the columns marked long p/l and short p/l - these are the actual amounts paid or deducted from a currency trade on a particular day. index backward on a pair you are interested in and see if there are any asymetries between long and short that are persistent over time.


Friday, March 29, 2013

forex is for smalldogs but be careful ...

forex, the foreign currency exchange spot market, is enticing for the retail investor. you get 50:1 leverage, no or small commissions, no daytrading regulations and taxes on fx gains qualify for 60/40 (long term/short term) tax treatment (with minor caveats.)

i dumped 3k into an fx account a few years back and within a year traded it down to $50, which i am told is not an uncommon story. at the time leverage was 100:1 on fx accounts, the smallest unit of transaction was the mini (10k) and i was attempting to daytrade fx. after losing 2,950, i swore i would not add any more money to my fx account and i let my account languish with a $50 balance to remind me.

however, that didn't stop me from continuing my fx experience. several things changed during the languish period. first, the leverage on fx was reduced to 50:1, which is far more workable for retail traders. secondly, the micro was introduced (1k) and lastly, i developed my seasonal projection study.

at 50:1 on a micro, one needs only $20 of margin to support an fx trade. i had 50. that meant i could trade 1 micro with the effective leverage of 20:1 with some room to spare on margin-calls. there is a commission on micro trades of $1. daytrading was out but that's ok because i just wanted a back-burner trade. i looked for currency pairs that set up nicely in my seasonal projection and used the pps (john person's proprietary signal) indicator on the thinkorswim platform on a weekly chart for a trade signal.

today, my fx net-liq is $600 and i am long 9micros (15:1) on aud/usd. while it is encouraging that i was able to rise so far from the grave so quickly, i am humbled by the fact that i am still far away from break-even.  trade small, be persistent, never-say-die - good words for us smalldogs.

Wednesday, March 20, 2013

wot bernank say

caught a snippet of ben bernanke's press conference in the car today. he said something to the effect that the dow was not all that high when corrected for inflation. take a look at my preceding post about the dow/gold ratio for clarity on this.