It is inevitable. It is unstoppable. Finance world at large is becoming more computer based algo driven. There are hundreds of products available to traders today, in the form of intelligent algorithms, software bundles, trade assist products and fully automated trade execution environments.
Can the stuff work? I think it depends….I know, not much of an answer.
Lets take a closer look at the ideal trade automation algo. At least from a broader perspective.
Most precious trader’s capital.
THIS POST IS WAY OVERDUE. And the topic is dear to me. Literally dear in every way, because I have thought about it for years, worked on it for years, and paid dearly for missing it for years.
Question: what is the most valuable asset in the trader’s proverbial tool box?
Is it money? How much money the trader has to play with…
Or is it discipline? How quickly the traders can cut the losses and run the winners?
Or is it technology? The kind of software we use and the kind of trade signals we take?
Is it the ability to tap into the collective sentiment and get trade ideas that way?
In my opinion, NONE OF THE ABOVE!
Simply put, it has been my experience that Psychological Capital and Time are my most valuable assets.
How do I preserve my psychological capital?
I try to never listen to other traders. Try…and still sadly fail from time to time….because it is hard to actually do. We are bombarded by a flying mountain of garbage in the form of other trader’s ideas, opinions, blog posts, news posts, friend’s and family comments…emails, on and on and on. So to summarize:
NEVER LISTEN TO OTHER TRADERS. Don’t let them tell you how much money they made last month or last week. I guarantee it will play with your mind. Don’t let them tell you about the trade setups they took. Or will take. Become an independent thinker.
TIME is so precious because we can never get it back.
Trade your own trades,think for yourself, develop your own trading system based on simple and time proven methodologies.
Have a clear idea of how much time needs to pass for the trade to work or to fail. Spend the better portion of your free time analyzing your trading behavior and not the markets.
Pick only one mentor and work with that person exclusively.
Avoid the market chatter. Preserve your psychological capital and preserve your time at all costs.
Canadian Dollar vs Crude price correlation is about to break.
What does that mean to traders who want to position long Cad futures or short USDCAD spot forex and why?
Simply put and contrary to common and currently prevailing popular belief there is more to Canada’s GDP. It is not just oil. In fact, oil prices and the oil service sector is only a fairly small part of the entire GDP picture.
What matters to me is that in the past few months we witnessed a massive foreign purchasing of Canadian securities, many of them resource based. So who are the foreigners pouring billions into buying Canadian resource based companies at the moment and why are they doing it? Simply put, Canadian resource sector is trading at 85% discount at the moment if you account the Cad valuation near all time low and oil at near all time low if priced in with inflation. And who are the foreign investors? Well, they are not the mom and pop who are gambling on penny stocks hoping to buy a new RV to go south. We are talking the financial elite here, fund managers looking for rare value buying in a stable country at deep discounts.
And if I am correct, what does that mean? Well, you need $CAD to buy Canadian securities. That means that one cannot keep on selling Cad if you are actually going to need it to buy stuff. So, regardless of what the crude price falls to this next few months, there is going to be a huge demand for Canadian Dollars to buy up Canadian resource companies at ridiculous cheap valuations.
In my experience, having witnessed Canada’s shame of selling off our resources for years, I know that around March-May 2016 there will be a “sudden” need to pay up the billions of Cad, hence the return to a fairer market valuation of CAD.
It may take another 2-3 months, or days. But the money is already spent, now its time to get the wallet out and actually make the payment in CAD. Gosh, does that mean we need to start accumulating Canadian dollars now?
Simply put, when a really over extended market becomes even more over extended to the levels of pure absurdity, and media floods with quotes of “big time market wizards” with claims that it can move even way more in the same direction…. I see reversals.
Examples: when silver was pushing $45 I had friends calling me to buy silver because it was going to $100…for sure…any day,…. . Oil pushing $140 with “experts setting $200 targets any day….., Euro at 1.07 with experts calling for .80 USD any day……
Today, I was alerted by a news feed claiming to “forget $20 oil….and to Expect $10 oil”….
Now, I will consider it to be one of the best “buy” indicators for oil today. Not technical of course. Can the oil test $27 or $24 or $17? Yes, of course it can, will it stay there? Not likely, and not for a long time. In a nut shell, I am starting to see an oil bottoming formation, CAD bottoming formation, US Dollar topping formation. Can it keep going in the same direction for a while longer? Sure. A year or two from now we will likely see a historic reversal in many USD currency pairs and commodities.
My mail box is full of trading claims, advice, predictions, solicitations to help, and “sure thing” trading system vendor’s claims.
They all have some things in common and read alike…Perhaps your inbox is also filled with these words:
1. How to profit in any market using the award-winning software….
2. Learn to Consistently Execute the Right Trades.…..
3. Get a system to gain an edge in the markets along with a fearless approach…..
4. Reach your peak performance using advanced techniques ..become a more consistent trader using the XYZ to Win software….
5. Join noted charting guru Mr Trading Master with his important trading weapon, and Quickly Find Early Reversals
6. know exactly when to enter, exit or stand aside
7. Uncover profitable strategies to help you make more money
8. Time Your Entries and Exits with Swiss Clock Precision
9. Identify Low Risk Set-Ups and Control Your Exit Strategy
10. Trend forecasts that are up to 86% accurate* for 1, 2 and 3 days ahead
11. Using XYZ System to Determine Whether the Current Move is a Correction or a Change in Trend
I have a Lot more….and could fill many pages with such claims. But why bother. I think you get the drift.Wow! Why are we not all fabulously rich by now?
I Know, that there is a 90-95% probability that none of that wonderful stuff will work for me or any one else out there. The reason is simple…..about 85% of all the traders out there use these systems and about 85% of all the traders consistently loose money trading the markets. The simple truth of the matter is that none of the systems can consistently make money in the markets, and sadly, technical analysis used incorrectly simply does not work. It is a placebo. The markets are near sum total zero, no new money on any scale is ever added to the overall trading pool quickly. On a short ( and trader relevant ) time frame, the markets are a closed system. Every one simply cannot make money all the time in the markets. Someone has to lose in order for someone to profit. So, you may ask, is there such a thing as a true trader’s edge?
The answer is yes, without a doubt!.
But before we get to the “answer,”, we need to explore some of the most damaging and deeply entrenched “market truths.”, those lies which have enough truth in them to consistently confuse and mislead the traders.
One such extremely damaging “truth” is “trend is your friend.”……. Simply put, without considering the timeline, time frame, account size, and the risk management trading parameters, an individual trader’s psychological profile, emotional triggering patterns and finely the definition of “trend” itself, ……. MOST DEFINITELY ”Trend trading” will not lead to a friendly experience. The whole notion of a “trend” is very dubious at best. For a deeper look into the usefulness and practicality of trend trading, one needs to see if there is anything useful and practical the trader can extract from “trending” markets ……..to read more please follow the future posts.
Note: I said I will explore some of the myths… but I have only given one… I will add more regularly.
Which leads me to the very purpose of this site and my offer…
My purpose is to facilitate the development of new market trading concepts to improve the experience for trades.
I will explore the trading decision making process further in my blog on traders self care….