Hello Traders

For those of you who have heard any of my lectures on trading, then you know of the importance I place on encouraging one to become an independent thinker. However, very few ever grasp the concept. Independent thinking comes through acquiring market knowledge, comprehending your experiences and adapting them through an experience feedback loop, and developing a clearly defined trading model. You will then build the confidence to act decisively and with confidence.
The following links describe the novice trader.

Good Luck with Your Trading, and don't be afraid to be an Independent Thinker!

Last week, I was speaking with a staff at one of the largest FX prime brokers, who made an interesting comment. I was inquiring about their current policy on taking a letter of credit from a client at another major private bank. What this basically means is that fx deals can be executed through the prime broker on the assurance that the client of the private bank is good for the money within the allowable margin. What is important is that the prime broker is presently not accepting LOC's from any major financial institution. Why are have they set up such restrictions for potential clients and increase in volume? It is the view of the prime broker that risk remains within the financial sector and that the bank may not be good for the money should a second wave equity and commodity selling occur. The view asserts that we may be in for another material correction and are therefore managing their own internal risk. This is a small dose of inside information that can be noted on a global macro view.

UBS, Bloomberg

Greece's budget did not impress markets greatly on Friday and despite the government's pledge to reduce the deficit to 9.1% of GDP, the Greece-Germany 10y spread jumped to more than 172bp, the highest since early July. Some of the widening can be attributed to fears that Greece's debt financing would become difficult if its banks were no longer able to participate in the ECB tenders. But looking beyond the "ECB carry", the 65bp move in the 10y spread since early October, when the tenders were a non-issue, reflects wider problems with macro fundamentals, which EURUSD longs may have neglected over the past few months due to the dollar's problems. Read More...

Novice traders will go through a stage in their trading that aims to seek out a trading strategy developed, by someone seemingly more knowledgeable then themselves, and attempt to implement its exact guidelines with hope of profit. What the novice does not understand, is that a successful strategy is best implemented by its creator. Enforcing the application of a foreign trading mechanism will push common sense out of the decision making process. I have seen countless developing traders fail in their attempts to apply someone else's specific "rules" and strategy. This is like enrolling in senior year engineering courses without having successfully completed or even attempted the prerequisite courses, at all. One must develop a core understanding the market as a whole, and more specifically, market structure. For intraday trading, I believe that understanding price and it's relationship to the psychology of the market provides an essential foundation to building strategies, models and position management core competencies. This is why i lead off all my courses with a module on understanding price, fractals, deal flow and institutional fx. I have just completed a full new version of this course which will be available in the near future and offered in connection all other technical courses.

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UBS Data on Hedge Fund Positioning

With the S&P500 and EURUSD close to their highs again after a brief foray lower, the question investors are asking now is whether we can eventually push higher through these levels or whether recent congestion is a sign that the rally higher is over. One key input to that analysis is positioning data. We think focusing on positioning and flow from fast money is the best indicator as to whether the big levels can be broken to the topside. Read More...

Mother of all carry trades faces an inevitable bust

By Nouriel Roubini

Published: November 1 2009 18:44 | Last updated: November 1 2009 18:44

Since March there has been a massive rally in all sorts of risky assets – equities, oil, energy and commodity prices – a narrowing of high-yield and high-grade credit spreads, and an even bigger rally in emerging market asset classes (their stocks, bonds and currencies). At the same time, the dollar has weakened sharply , while government bond yields have gently increased but stayed low and stable.

This recovery in risky assets is in part driven by better economic fundamentals. We avoided a near depression and financial sector meltdown with a massive monetary, fiscal stimulus and bank bail-outs. Whether the recovery is V-shaped, as consensus believes, or U-shaped and anaemic as I have argued, asset prices should be moving gradually higher. Read More...

Tags: Risk Appetite

Hello Traders

Please click on the Deutsche Bank Analysis link below for an excellent overview of the current and potential condition of real estate in the USA. This shifting crustal plate may be the root of of our next major repricing in fx trends. As witnessed in 2007, this asset class has the finger on the trigger of risk in the coming months.
http://www.scribd.com/doc/18206788/DB-Securitization-Reports-Drowning-in-Debt-A-Look-at-Underwater-Homeowners

FX Overnight

The G20 communique released over the weekend did not mention currencies, and the rest of its contents supported more appetite for risk.

The lack of FX talk may lead to disappointments amongst some participants, especially from the Eurozone. It is very likely that major emerging market economies asked for the exclusion but the issue is sure to re-emerge in different forums. Read More...

Tags: Risk Appetite

Hello Traders

Here is a recent update from Karl Schamotta, Market Analyst at Custom House Foreign Exchange

Ask Karl: Aussie Rules

This week, we turn to a nation that has a lot in common with Canada. Both countries are blessed with vast natural resources, are conveniently located close to their largest export markets, and enjoy sports that resemble unarmed combat more than civilized entertainment. Australia has one of the world's most vibrant and dynamic economies, with seventeen years of unbroken growth behind it, and a dominant position as the primary supply of raw materials to Asia ahead of it. It has sailed through the recent credit crisis largely unscathed, and among major currencies, the Australian dollar has posted the strongest performance in the world over the last year. Australia is an outlier among the world’s economies, and several readers have wondered whether Australia will be able to continue playing by its own rules in the future. Read More...

PTC members.. Please continue to study our Asian patterns, which have consistently paid. There will continue to be plenty of detail of the moves covered in Pro Traders Club video reviews.

Last week was rather ugly for risk appetite and this week threatens to add insult to injury with three of the world's most important central banks due to meet, and the G20 summit will be held where FX seems to be on the agenda for many of the participants. The financial sector is once again under pressure as a US lender finally filed for bankruptcy late Sunday afternoon US time. In addition, November commences and year-end position liquidation could also prove disruptive to capital markets as investors crystallise this year's gains. In short, how this week evolves could have major implications for FX markets and the global economy, as investors and policymakers alike seek to establish their strategies for next year. As I teach in workshops and in the "Inside the Banks" online course... Look for rate spreads to become a primary driving force for FX moves in the months ahead.

Central banks normally should not be influenced by one week's worth of market volatility (though developments throughout the crisis suggest otherwise) and if the Fed, ECB and BoE all choose to ignore the volatility of last week and instead focus on data improvements throughout the past two quarters, subtle or even outright shifts in their tone and stance on monetary policy are possible. The bond markets are rallying, which is not good for stocks.
Read More...