How Do You Trade?
24/09/09 21:43
Chris Lori and Ashraf Laidi
Webinar
Saturday Oct 3
Chris Lori Workshop
LA Nov 13-15
Which trend is your friend? Daily? 4hr? 2hr? 60min? 34min? 18min? 3.5min? Yesterday, Greg Crisp and I covered the oft asked subject in Pro Traders Club. The answer lies in your trading model. OK, then what is a trading model? If you don't have a trading model, you shouldn't be trading. Let's get back to the trend question. There is a course at Pro Traders Club titled "Inside the Banks", which runs about 6hrs and covers only one component of my trading model, the fundamental aspect which is used for position trades. The focus is on Interest Rates and Interest Rate spreads, which is a common driver of macro trends as investors and traders seek yield. I use this information to determine the root and potential for long term trends/movements of currency pairs and use the information to discern shorter term trades on my intraday strategies. In my own trading, I am far more attentive to the macro drivers of the macro trend than the shorter term trends driven by short term shifts and reactionary movements. When trading intra-day, I certainly consider the macro trend in determining probabilities of short term movements, because the funds will have preferred levels of buying within the macro trend where we look for intra-day entries.
In many trading models, the trend does not have any significant impact on trading decisions. What is most important is to be clear on your trading model and strategies within the model. How do you trade? Are you a quant, technical, system, fundamental or price action trader? What parameters do you use in your trading model? Some models will consider the trend while others have no use for the information. The question should be raised; what is a trend vs. momentum? Again, it depends on your trading approach and your use for such information. Therefore, it is impossible for us to offer you an answer, since we do not know your trading approach.
Saturday Oct 3
Chris Lori Workshop
LA Nov 13-15
Which trend is your friend? Daily? 4hr? 2hr? 60min? 34min? 18min? 3.5min? Yesterday, Greg Crisp and I covered the oft asked subject in Pro Traders Club. The answer lies in your trading model. OK, then what is a trading model? If you don't have a trading model, you shouldn't be trading. Let's get back to the trend question. There is a course at Pro Traders Club titled "Inside the Banks", which runs about 6hrs and covers only one component of my trading model, the fundamental aspect which is used for position trades. The focus is on Interest Rates and Interest Rate spreads, which is a common driver of macro trends as investors and traders seek yield. I use this information to determine the root and potential for long term trends/movements of currency pairs and use the information to discern shorter term trades on my intraday strategies. In my own trading, I am far more attentive to the macro drivers of the macro trend than the shorter term trends driven by short term shifts and reactionary movements. When trading intra-day, I certainly consider the macro trend in determining probabilities of short term movements, because the funds will have preferred levels of buying within the macro trend where we look for intra-day entries.
In many trading models, the trend does not have any significant impact on trading decisions. What is most important is to be clear on your trading model and strategies within the model. How do you trade? Are you a quant, technical, system, fundamental or price action trader? What parameters do you use in your trading model? Some models will consider the trend while others have no use for the information. The question should be raised; what is a trend vs. momentum? Again, it depends on your trading approach and your use for such information. Therefore, it is impossible for us to offer you an answer, since we do not know your trading approach.
For example, below is information i will use in considering shifts in the macro trend as the Asset Purchase Programs affect interest rate movements.
The Fed yesterday changed its wording on MBS purchases slightly, from "up to $1.25tln" to "will be $1.25tln". This means that the full quota will definitely be met. Did we say definitely? That's a firm word for trading. The Fed is currently barely half-way through the the MBS purchase program, and with a balance sheet standing at $2.12tln, assuming other factors remain steady, completing Fed MBS purchases would amount to another expansion of around 30%.
In a UBS US Economic Comment released yesterday, mortgage analysts highlighted the impact of Fed purchases on mortgage-linked securities. They believe the Fed's mortgage-backed securities buying program may have reduced the spread between yields on mortgage-backed securities versus Treasury securities by approximately 40 basis points. The other side of this argument is that if the Fed begins to sell agency MBS and debt, spreads on MBS would widen and hurt the housing market - a risk the Fed needs to weigh heavily before any exit strategy is firmly applied.
However, UBS economists also note that some caveats on reaching conclusions about mortgage rate levels when the Fed unwinds its balance sheet as current yields on MBS may have already priced in eventual Fed sales. The bottom line is that the Fed's impact on the mortgage market is notable right now and with housing in a fragile state, early withdrawal is close to impossible..
The Fed's decision may yet delay other central banks' exits. As the table below shows, just looking at the G10 alone, the US ranks as the top export destination for Canada, Japan and UK, while ranks within the top 3 or top 2 for many others. This will be taken into close consideration by other central banks before exit strategies are applied, because of a currency impact. Canada's central bank, for example, has arguably been the most vocal on the need for a weaker USDCAD and has committed itself to holding rates at 0.25% until next April, which is probably around the time the Fed will be close to completion with its asset purchases and can begin contemplating exit strategies.
Japan has expressed similar concerns and overnight, the MOF's expected new currency guru Toyoo Gyohten said that the government doesn't need to rule out currency intervention, and called fluctuations that hamper growth undesirable. Even though policymakers will strive to set policy according to domestic needs, caution will be needed before pre-empting the Fed.