Archive for April, 2015

Auckland CD DVD Duplication PR and Branding

Saturday, April 18th, 2015

Just because you can start a new business initiative, doesn’t mean you should.

I have had so so many ideas over the years for kurb and it seems like now I am just getting to the point of asking whether something is worth doing just because it’s a cool idea.

A lot of ideas are cool but they just never happen. The opportunity isn’t there. I often think about what I’d like to make happen. It’s a process of deduction.

We think of ideas that we have the opportunity to make happen, and those improvements we can make that would have the biggest effect in improving our situation.

That’s why the idea of doing auckland video production of children’s pirate stories and forex advice came from. Focusing on key areas where I want to advance my skills and opportunities in a specific project.

These were projects where I saw the opportunity aligning that I could use video to create a platform for something not only that I was good at, but had the opportunities to be viable and to also progress and scale into something that would continue to grow. That is even if the business idea failed to take off or that opportunity wasn’t timed correctly, there would be the aspect of video production where we were also gaining good skills and advancing that also as a viable business opportunity.

It’s all about leveraging what you have into something that creates more value. We could even do auckland dvd duplication or a cd duplication with that content and put it on to DVD’s and make that an additional value item.

But then I was really struck while I was writing here by the relationship between trading and the rest of my business, and although I had my browser crash and lost some writing on the subject that breakthrough idea has stuck.

It came from the thought that not only will it take more effort to make the same money from cd/dvd, pirates, forex investment advice and funds, and video production, but in the months that it would take to breathe life into these businesses – even the pirates which is already viable – I could easily outstrip the earnings with forex profits.

In a new way of seeing the situation, I can suddenly see it as economically sub optimum. By the time we made any effort to businessify these initiatives, which would be slow anyway because of trading, within months my trading is gushing out cash and charging $400 for a pirate show or $50 for a forex consultation is ridiculous because I’ve moved too swiftly beyond that paradigm.

So at this point we have to identify that these are not being pushed towards profit driven outcomes.

In the past we had already recognised that kurb could become a front – perhaps even a PR front – because my earnings in trading allow these other aspects of the business – cd/dvd duplication, posters, pirate stories, forex investment and advice as a service, and video production – to function despite the fact that they are not viable businesses.

They are vanity projects.They are not businesses. I already said that it was more branding than anything else but rather than being part branding part business, now I accept, it is merely branding that is able to deliver a service but exist mainly as branding because trading has a boring vibe – not only projecting the reality of the image of what I do as a trader, but also the actual trading which aside from making lots of money, is pretty boring and unglamourous watching numbers go up and down.

As a business it’s not real. That doesn’t mean it has no purpose or value, not at all. It just means seeing it as operations and not as branding and PR is flawed because you waste focus and energy trying to make it viable when that is not required.

I could spend months trying to lift my pirate thing or the forex up to a more viable level. It might be profitable and grow long term. But at the same time my earnings from trading could balloon out making any effort here a waste of time because there’s only so much ballooning I can do before it becomes pointless to operate as a business. I am not somehow who desires limitless wealth.

My desire in these business areas is about making a project happen and being excited about providing services and the work and skills that go into that.

Which is totally acceptable. It’s just you can have the wrong focus if you see it as a profit exercise. The whole project becomes easier to manage once you see that profitability isn’t the required outcome.

Following this thought, I am thinking seriously about dialling back the cd dvd duplication business simply because currency trading is taking up so much of my focus, I’m finding maintaing the dvd cd copying just so stressful, maintaining the equipment, dealing with the clients. I do want to keep it going, but not in any circumstances where it’s causing me stress because I really take my commitment to making sure work is done for my clients very seriously and it causes me a lot of stress when I’m so focused on my trading and I’m also selling property and dealing with some legal issues.

What I like about this cd duplication work is that you can go to work problem solving and when you figure out the solution, you can go into production and make a lot of progress – when I’m rerunning a job of 500 DVD’s for a regular client, I’m making $400+ in a few hours that’s good living. I enjoy the productivity and the feeling of accomplishment, getting the job done and getting paid for good work.

But the business needs more attention. It needs money spent on equipment.

And I can’t make that commitment while I’m focused on trading, and soon, the return on my investment into trading will start to outpace my business and then it becomes a waste of time to spend my time working on duplication or printing jobs rather than trading.

When my trading profit grows so that I can pull back my intensity, then I can look at where I am at with the business. It is not sensible to shut the door in any case, but I do feel I owe the last incarnation of my business a grace period whereby it is not strangled to death, put is put out to pasture so to speak. I may not do too many DVD’s in a few years but while I’m in the country I’ll still front up even if the level of service doesn’t keep up.

My issue was the concern I will miss that income.

But now I see the income is not the issue, it is very liberating.

***

I am now beginning to take a look at the full picture of our forex trading and what it could look like.

Basically right now, my equity is shaking out so I am able to put more money back on the table. I can also see that there are parts of the range od EURUSD, EURGBP, AUDUSD and AUDGBP that we are just never going to go back to for at least a year and it may aswell not even be part of anything, that part of the range will simply site their as $20k loss I can’t get back for a year or two, but as our game moves on, it will slowly be dwarfed, or, due to our hedging, simply out weighted.

The technique is working so well. But the hard part is picking bottoms!

When I’m doing well, new ideas are jumping up in my head. My theory is that when you’re on trend you can ride down and milk it all the way – until it bottoms. When do you pick the bottom?

To me, pulling out too early is the mistake that just has to be made, and if the sucker rolls through your hedge and out the other side, then you have to take the pain. We are still in the stages of being able to lather enough equity up to take that pain, so it can then withdraw, and our equity rise. The first time we hedged up, it was because we had to. The euro blew through 1.10 and we were having to prepare for parity. The only thing we could do was hedge.

As our equity builds, we become more able to withstand a deep roll through on a trimmed back hedge so letting the hedge ease out so that you can reclaim your equity when the trend bottoms is only something you can do once you become more established and is more of a macro strategic technique for winning back your equity.

Until then you are forced to use the hedge to survive.

Integrating Multiple Forex Trading Strategies

Wednesday, April 8th, 2015

Now that I have several main branches of my trading strategy I am looking for an overview which sees balancing these aspects for the best overall result.

We have our day to day hedging system, which we always saw as the main source of our trading income, but we also have new strategies we’re using.

It was our goal to attempt to bring this income up to $1500-$2500 a week. Not only does that allow me to afford a decent budget for all our projects, but it would also bring pace to our capital growth that allows for expansion of exposure, this is the tipping point I am searching out for because the capital growth allows you to increase risk, but instead of increasing profit you simply experiment with being less active, a big goal for me is to basically not trade on monday and tuesday day.

It is even more significant now that we have learnt to hedge properly, meaning as our equity rises, it never falls, allowing us to put more on the table. Every $100 we earn is $100 capital, and $100 capital can be leveraged for $50k. Now is not the time for taking such risks, but as the equity grows, it becomes acceptable.

However the new ranges we run in are smaller than the full range, new investment is not spread so far and will only be in a quarter of the range. We do not have to double down. Another $500 down would double our profits. $200 must surely see our profits increase by that much a week. that means adding a good $10k to each of our main pairs.

Adding $600 is $300k, that’s $50k to each pair, $25k on each side. Think about what that would add to AUDEUR on $80k or AUDGBP on $60k. That would just change it all there. Remember we don’t really want to buy more euros, nor against USD, but it seems until we get to $2500 total margin, we must be a bit reckless. We’re not going to progress until we buy more 4 figure amounts, and soon enough, they will left behind and they will cost. We can’t stop them costing. We just have to right the hedge knowing we’ll be making more profit somewhere.

The thing is we could lay down more capital, but that crazy week when we next make grands, will be creeping forward and that will be a large event. 4% of my USD hedge would be about $8k so to see that ride down again on a greek crisis like it did last time would be so wild. The potential to make thousands of dollars grows.

But our daily hedging is now only one tactic we’re using. It’s the main focus, but seeing what else we can do gives us the opportunity to regulate what we’re doing.

Now the carry trade system is where you generate money from interest differentials. I borrow $100k worth of euros at .05% interest and buy turkish lira for 8% interest. The thing is, you’ve leveraged $250 to borrow $100k and 8% interest on $100k is $160 a week.

The turkish currency can loose 2000+ pips that’s like 15%, $15k on a $100k position. 3 of those, you need $50k at least with another $25k on standby should things get nasty.

One of the amazing things about the carry trade system is that you’ve got $50k protecting 3 investments of $100k and youre having $500 generated by your account each week. 1% return a week. 50% return a year. Insane styles. We’re not even talking about the profit. My $1k position moves up during the day, I take $2.

On some days, a number of my positions could pull up some 200 pips and across 5 x 10k positions (I would go for 20-30 x $10k positions at a time) that’s $150. That could happen each week. On a sudden data read, that could be $1500. We would take that for a kick, and suddenly I’m making $4k in a month off the account and the money is stacking.

As soon as I can get $10k into that account I can be making a good $200 from it. We could do that. But we can’t go full blown until we sell more assets.

Why stop there why not load $200k in and have 8 positions making me $1500 a week.

Then finally we have our new event risk hedges. We won’t make money every time but we can probably learn to make $200, $500 or more.

***

So what is the narrative we are facing?

We are no longer on the edge. We have no losses under $1000 which means we are further in the middle than we’ve been all year, this is where we want to be, but for one thing.

Our hedges on the USD and GBP against the euro are too blown out. Euro rises are not what we want.

But no matter how much the Euro rises and I can’t see it going more than a few cents, it will be beaten back, and the USD will rise again. Knowing that the growth of the Euro hedge will be limited and a dangerous greek situation favourable, we simply wait on the USD to gain strength again distributing hedging efforts amongst the NZD and CAD so when the euro drops, we don’t carry more losses that keep the hedging cycle spinning. I am not afraid to increase hedges, my original goal was to hold $10k equity and now we’re back on $12.5k and my goal for expanding is $13k but I would like to see the equity build as much as possible before we go in again.

The GBP is also another one that will turn on the Euro and take it’s losses back, and shows how the USDEUR will play. Again it may be building on the NZDGBP or even AUDGBP which is a good carry that we use to hedge against further expensive losses to the GBP. the point of all this is when the euro drops eventually, the equity flows back, we sell off the big hedge and we head towards the parity that is being established elsewhere and allows us to work with large figures, larger profits, tiny losses in equity due to large, perfectly balance hedges that have tiny biases designed to whittle away the loss and build equity.

I am feeling really much more knowledgeable about forex again, and that feeling that it’s just a matter of time has me again.

The fact that we are not on the edge is a huge advantage based on our most basic models of the system from last year. When we’re in the middle, both sides make profit with every move. It’s only when one side is topping, we have to become so much more careful and conservative – with every push higher, the huge debt on the other side grows in one huge momentous movement, whereas you must follow the trend when you know youre reaching ever closer to the risk of leaving a highmark that will be carried as a loss for years.

Though we learned to ride the trend, we are lucky the USD has given us a trend – we must also remember the movement of the last few months is not normal. The EUR and the AUD are not going back for a long time. Seeing the EURAUD and the EURGBP coming back to levels shows the days of wildness are over we are not in danger as long as the hedge is maintained. They won’t go to the edge unless the euro tumbles again and we will be ready.

The way I see it, losses won’t have many places left to hide, Unless they are happening on the edge, need somewhere where they can replace smaller numbers, and then stretch out and cost money. It’s happened a bit with the AUDUSD but they can’t make it hard. The positions aren’t far stretched they don’t add up. It’s a cheap pair anyway, all the AUD ones are, it doesn’t balloon like the GBP.

But my point is it will be staying within a broader range. I’m looking at charts here and seeing years where . . . AUDUSD hasn’t moved 3c. Since I’ve been trading it’s moved 14c. The EURGBP didn’t move more than 2c is the last 6 months of last year, it’s moved almost 8c in the last 3 months. The GBPAUD the smallest ranged pair, had years where it never moved more than 3.5c, whereas it’s moved 5c since I started trading and it’s by far the smallest range, and we don’t even need to talk about the EURUSD going from 1.29 to 1.05 a full 20% move in a few months. It is an active pair, but still it went for 2 years and only moved 13c in comparison.

This is territory I covered again to back up my argument, don’t be surprised if we have set ranges now

USDAUD – 75-80
USDGBP – 147-152
USDEUR -105-114

The AUD and EURGBP will be even tighter once they find their spot and there’s every reason to barrel in there, the AUD may still drop a little but where it is now is still part of where it might visit.

It is possible that we won’t overcome that GBPEUR hedge for some time but we will. So keep buying and allow the EUR to unwind.

When the price action settles into a smaller range, it’s less volatile so you can buy much bigger positions knowing that huge losses won’t be an issue and the profits will come around eventually.

***

non trending low capital high loss (EURUSD): buy moderately (load higher) upside / buy small (buy less) downside (dont load too much so equity can drain before reversal)

non trending high capital low loss (GBPEUR/AUDEUR): sell upside / buy small (buy less) downside (beached as, draining equity out of rises as the other side falls slower)

non trending high capital high loss (GBPUSD): sell upside / buy small (buy less) downside (bail out end of the line, lowest buys, equity draining as loss mounts)

trending high capital high loss (AUDGBP/AUDUSD): buy moderately (load lower) upside / buy moderately (buy more) downside (the comeback, load to match the strength of the trend, lower risk on bigger buys)

trending high capital low loss (USDEUR): buy moderately (load lower) upside / buy small (buy less) downside (runaway hedge loaded gun – be careful dont load up too much)

trending low capital high loss (EURGBP/EURAUD): buy big (load higher) upside / buy moderately (buy more) downside (the profiter, snatching profits to match losses)

trending low capital low loss (USDGBP): buy moderately (load lower) upside / buy moderately (buy more) downside (working winding down the hedge and watching for reversal)

non trending low capital low loss (USDAUD/GBPAUD): buy small (buy more) upside / buy small (buy less) downside (reverse in play – equity rising as reversal plays out)

NFP and Forex Event Risk Hedging

Sunday, April 5th, 2015

Having just come off the non farm payrolls or nfp reports which are a major “event risk” I am getting more insights and it appears although I am out of the dangerzone and yet my profits are not improving greatly, I am starting to get a few new ideas.

As usual with an NFP which is the job figures for the US, or a US fed rate decision, the market always reacts very strongly and you get some massive movements that make you quake a little.

Especially when you see the number and it’s way out as it has been the last 2 times, and you know things are about to get crazy. Last time it was way over expectations, this time way under, so the USD started rocketing down.

This would have been good news, except I massively shorted the EURUSD to protect myself against any sudden moves downward by the euro.

But I realised the Euro hedge I have which about $40k out of balance is actually also hedged against the $31k I have against the USD in CAD and NZD.

I had hedges on the USDAUD as well as the USDGBP but they were smaller and biased against the USD, so when the USD started dropping, my equity rose by about $1000, making it a good day.

But what it means in terms of the bigger picture of hedgind, it means if I am concerned about the USD falling, I can buy high interest NZD against it – it doesn’t even have to make money! It just makes nice interest, and protects me should the USD keep falling, as it will be made up for by a spread across 5 currencies which means it doesn’t have to be all hedged into the euro, and when the euro falls again, there will be the chance to regain the equity.

The USD falling of course does present the opportunity to get in even deeper, but the rumblings have begun, if it moves beyond $1.10, it may be off to spend some time in that range, in which case we certainly will be building up the hedge. When these things unfold, we buy NZD as well as EUR, to keep the huge USD hedge from gobbling my equity, because I’ll be taking profit on the NZD side knowing when the USD rises again, the euro will fall, but because I havent invested deeply, I will get equity back on the USD side. the NZD side will fall but there’s not nearly as much falling there even though it’s hedged. So what you end up with is stuck with NZD rather the EUR. Both are picked to fall, but the NZD pays great interest, and doesn’t have a sovereign risk that could see it quickly bottom.

There is more chance of getting my money back suffering less with the NZD, and what’s more, if I’m worried about makingmy money back when the euro finally falls, than lean in to the NZD euro also, that way you’re hedged again, also, again, on a great interest rate, on a currency set to benefit greatly if there’s a serious problem with the euro.

We are steering away from the euro knowing if there’s a problem we already have USDEUR, and we chose to go with NZDUSD and NZDEUR rather than buy more EURUSD in an attempt to hedge the big long USD position we already put out.

I started playing with the options and saw that you could set and change the default stop loss or take profit. One of the main reasons I dont use these is because it wastes too much time when im trading quickly setting these. Now I can do it by default, my thinking was in how often I am finding meagre profits when I awake, wondering if the market didnt roll up and down and end up right where it started, not unlikely. If i had take profits, it could have bounced up and down, taken all the profit, and I would have done very little.

It frustrated me to think if the market jumped suddenly, my profit would trigger and yet my losses would continue but the market jumps unexpectedly far less than times I am not watching the screen and I am perhaps losing profit, especially during the day when things are so slow, I may easily go an hour or two without checking. Often these are little ripples, often it seems, the profit is just easing away the moment I notice it jumped up, these are the little day moments I want to grab. Especially trading tight during the short but slow and choppy day movements, and looser at night so I get better profits when I sleep, but also, it means a nice spread of short and longer profit takes should there be a jump – knowing, that by it’s nature, every jump in fx eventually has its retrace and the retrace is the main thing I’m fighting.

Too often, I miss the chance to take good profit before the retrace kicks in and I find myself selling at exactly the wrong time, at the top of the retrace before the continuation begins extending again.

But it was only when the NFP kicked in that I realised it wasnt just about when I wasnt watching and couldnt trade.

Because on an NFP or US fed decision, I can barely trade in the first half an hour, the system gets so clogged – by people who are all trading on auto, naturally – Usually for the first 5 minutes I can only watch the carnage, at which point I may be able to start forcing a trade in maybe one every minute or two, while scrambling to take a few choice juicy profits while the numbers jump from side to side.

When the profit takes are already there, I don’t need to close positions, they will close themselves, I can focus on buying knowing that no losses will close when it does its crazy swing in the first few minutes, but all profits will be taken.

My profit jumped $15 in the first minute of the NFP as all my little regular positions Id built up in the last few hours trading with the take profit on all closed out with profits, something I never could have done with the system clogged and the price jumping up and down regularly.

Whats the point in having a skyrocketing position if you cant grab it before it starts falling again, while youre trying to throw down new positions based on the data read?

Better to grab the profit and if the price keeps falling, as long as you have a strong hedge, the momentum will fade and once the dust settles you can begin to clean up your hedging configuration.

Which inspires different trade set ups based on your hedging position.

Then I started to think, what if I had followed the implicit suggestion at daily fx of going long AUDUSD and short GBPUSD knowing those combos would make immediate leaps to the other side of it’s range if the data favoured, but struggle to move quite so much in the other direction if the data was unfavourable.

In this case it hammered the USD and the AUD went flying up, even hammering on the GBP.

It seems that I am learnig the deeper level of hedging and that is indirect hedging, seeing what they talk about on daily fx, that even though the USD was the currency hit, it still opened the door to the AUD rising against the GBP, and I believe the EUR was up on the AUD, and also gave the GBP a good smack, because the drop in the USD pulled the price pressure of these two which have been getting a kicking from the USD much longer than the GBP has.

I am starting to understand.

It has only just occured to me. Hedging with a stop loss around a big event risk is guaranteed money, unless it’s a fizzer, but we know the big movers like nfp can shift a market 1-2% in 10 or 20 minutes, and 1 or 2 events of that magnitude happen most weeks.

USD, AUD, GBP all have jobs figures, GDP figures and interest rate announcements every month. The trouble with the euro is that it’s made up of different economies and though the german is the biggest, it can’t really move the market 1% in a short period so that we can be reasonably sure that we can exit the game with a good result.

Next week there is AUD and GBP rate decisions and also a Canadian jobs figure. CAD is not a currency I hedge, but it does raise the idea of testing out fundamental trading on event risks – it is essentially gambling, but with very good odds on the pay out. It could go either way, but losses can be limited, and profits maximized, so we have to be in, even if it is only $5k with a $5 stop and taking $20.

What would stop you hedging specifically for the event? Nothing. It makes perfect sense.

Part of the delight of hedging is that on top of my usual day to day trading, I can also set off spot trades on event risks, that means even if I lose $10-20 on one side (while making $50-200 on the other) that loss would be covered by the movements in my normal trades anyway.

Even if we get a massive jump, our hedges will be further protected by the fact this will provide some extra doses of capital.

This as well as doing carry based trades. There is lots of fun to be had using money to make more money!

So you set two lots against each other – this alone requires $500 to be leveraged and therefore removed from your equity – with a .5% profit and say, a .1% loss, one of them hits the stop, you lose $100, bang, then rolls on to take your profit of $500 – you have profited $400 provided it doesn’t knock one stop out, then swing back and knock the other . . .

So what are the risks, there is “slippage” where low liquidity means you simply cant get out of your position automatically fast enough, and rather than a $10 loss it may turn up a $12, $15 loss because the robots just arent fast enouh when theyre getting slammed from a data read.

But what I see is the risk of volatility triggering the wrong stops. Last night, the swings were huge due to the lack of liquidity, it momentarily swung down as far as it ended up swinging up. To have both your stops knocked out would be really bad.

The advice given here is to make the profits stops rather than the losses. The problem is if you get a huge move, it takes the profit and then just keeps rolling. The other suggestion is to make the stops nice and big so that initial volatility won’t knock the stops until the trend emerges.

The other risk other than the stops being too tight is the profit being too loose, so you get the profit shooting up, the stop on the other side is triggered, but it stops short of the profit, and then flies down again – you’d probably still end up with a profit here.

What about a second hedge, where the profits are as big as the losses on the first hedge. that is the second hedge cancels out the loss on the first hedge, leaving you with just the profit.

In an emergency where it knocks out every stop, you’d end up only taking one loss on one side. But if the stops were big on the first hedge, this could be a favourable set up, because you make a profit on a small move as well as a big move.

The only way you lose is if it somehow knocks both small stops in volatility, then knocks a big stop, before falling back before you get your profit. That would be pretty hard luck and low probability.

Perhaps you need a range of hedges.

We could chose a range 3 pairs around a currency facing an active risk, and but $15 each side of each. $90k. Each $15k is 3 lots of $5k.

one has a .2% stop / .4% take; the next a .4% stop but a 1% take, and the last has no stop or take. Or it has no take on the danger side, and and no stop on the safe side.

That means if it jumps around and then takes off, we take 1% but only lose .8%, while if shoots off, we take 1.4% but only lose .6% if it jumps around and stays still, yes, we lose up to .6% – only $30 on $5k – but in any case we still have the last set with no stop or take, floating about, and we have to decide when the best time to cut that is. usually after 5-15 minutes the clear trend is deduced and you must tap out of the position hoping that the other side will run significantly. In fact you are then just back to your classic game, buying the rise, riding the hedge as far as it goes.

But then once you add the consideration of trends and hedges you get another aspect.

You can see why this type of hedging isn’t so straightforward. You have to be very strategic and thats where it works in step with the established hedges and having contingencies.

With the USD we’d want the stops down and the profits open, whereas in profits on the EUR side we know would be limited. We also know that if it does reach 1.5% that is a massive swing and the massive profit could be taken knowing that the profit was nice, we can re hedge, and the spike would surely be mature and extended at that point.

So profit open on the USD side, loss open on EUR?

So last night my usd stops would be triggered at .1%, and then the EUR would have shot off and triggered at 1%. success! I probably would have biased towards the euro because it was hedged against so it would have been nice. But what if it was the opposite? The US stops may still have been triggered in the initial volatility and then the USD would have soared, but id have nothing on that side, so I would have eaten a huge loss. The idea would have been to put the USD stops out further in this set up becuase remember the USD can come back.

Also once the fail pattern had been established, you’d only have to buy big – real big – on the winning side to match the hedge up favourably, and possibly eject the otherside but this is ninja stuff that can’t be counted on, and I wouldn’t really want to play with until I was more familiar.

It appears that there really is no foolproof way of ensuring a profit.

I believe the 3 hedge system with consideration of trends and hedges already in place is the ticket. The only way you lose in this system is if it swings mildly, knocks both your early stops out, and never reaches the profit margins further out.

What we really have to do is begin experimenting with hedges and stops on event risks and see what the results are. We will learn soon enough if wild swings do knock out our stops.

We want to increase our capital investment so trying a few small multi layered hedges with very deep stops is a fine way to experiment as we are ready to let our hedges build up in a natural way, trying things out and being able to handle a few failures.

Forex Gateways and Lucky Dips

Saturday, April 4th, 2015

So the forex currency trading I have been working on seems to still be on a plateau.

So what is the problem? Well what were you expecting? Being more confident, and being well past the stage of placing tiny positions to ecperiment – and nicely riding up the USD for gains, I thought we’d see the jump forward from where we’ve seen more $2-300 days and less $100 days, we’d see a new water mark for equity passed so we could put in more into the margin and more money on the table would result in more gains coming off.

But now my carry fees are crossing $32 a day. There is some growth but it’s not the breakthrough. I think we have to remember that much of the big gains come on the days when something big goes down. My next $500 day can’t be too far away.

I’m actually $212 with a few busy hours left to go for today, so on a thursday I am looking as busy as I tend to get later in the week.

But you see I started to analyse in the last post some of the reasons why the profits seem to barely outweigh the losses, and for all the profits I’ve made I still have big unresolved losses floating in my account.

This started to prompt my thinking on why it’s been weeks since I left the danger zone, where I was trading incredibly cautiously but profitably, and yet the profit is not picking up significantly.

I have more money on the table than ever and yet my profit is fairly similar to what it was.

We know that there can come the day when you’re making good money, but I don’t particularly want to be working away for it all day and night. What is the explanation for what”s happening and more importantly how do we pull out of it?

Our most basic model was that we simply doubled down. If we doubled everything we were doing, we’d make twice as much money. But I can’t afford to double the losses I’m carrying now. But it wouldn’t be the losses you were doubling.

Whereas in the past 6 months there has been an unprecedented move to one side which has cost us, now we’re seeing much less volatile one sided movement, so as it crosses and retraces old ground, we are still making money both sides without pulling into an unfamiliar range and stretching out any losses.

What we’ve got now, is new gateways. When I started trading the euro, it was 1.28. Now it’s 1.08 and it will just bounce from 1.05 – 1.10 a lot, it may have trouble leaving that range for a long time every time it goes in so we have now got a bit more faith that we can weigh in because the market is a lot less volatile and tight within a range.

If the USD falls, it will rise again. The EUR has no strength to push up. AUD and GBP will loll about in the middle, the AUD will tend to drop but the GBP could just rise if normalization comes over the horizon.

AUDGBP is in a tight range long term. No problems, and EURGBP also seems to be coming back into a new range.

The USDGBP is the only real challenge. In any case I don’t think the USD can run too much farther into new territory. We don’t need a full hedge, while the fightback from the Euro can only go so far just one bit of bad news and the GBP will be back on the front foot.

We have AUDEUR starting to reach a perfect hedge balance. The same losses on both sides, the same amount of capital on both sides. This must represent certain things, but I haven’t thought it through completely yet.

But when they are balanced not only can you really increase your exposure knowing you’re in control, but you have a system where you keep both sides balanced, but you slowly bring that to profit on both sides. You take profit on one side and also buy back losses on the other depending on where you’re at, it’s about perfect balance,

The goal in this case is to keep the account value the same, but when one side goes up, you buy, you never sell, you only balance.

Of course you must sell at some point. But I would see a number of tactics that are all very zen, aiming to maintian the balance.

You only sell when you can see a real dip kicking in. You might sell one or two positions, let the dip ride, then buy, which may give you a sell on the other side. Once the balance is perfect, you can keep it slightly imperfect to allow the profit to accumulate more quickly than the loss, youre always buying on the side going up, much like the rides we get on now. It is when the rally stalls that you seek to balance.

so when you get 3 greens youre buying, until you get 3 reds, then youre selling, then moving to buying on the other side to match the extra positions you failed to sell.

SO in order to balance on the side that is too high you sell more when it’s going up and buy less when it’s going down, and on the lower side, you buy more when it’s going up, and buy more when it’s going down. You just buy more until you get to the level.

This leaves it open to working with the trend also, buying more with the trend side.

But what about loss vs capital in terms of high and low sides? this is getting super complex.

Loading relates to the two numbers equalling out – if you want to make them even. This models shows EUR and USD, do we want them to be even down here or do we want to keep EUR low because the trend is letting it go lower.

non trending low capital high loss (EURUSD): buy moderately (load higher) upside / buy small (buy less) downside (dont load too much so equity can drain before reversal)

non trending high capital low loss (GBPEUR/AUDEUR): sell upside / buy small (buy less) downside (beached as, draining equity out of rises as the other side falls slower)

non trending high capital high loss (GBPUSD): sell upside / buy small (buy less) downside (bail out end of the line, lowest buys, equity draining as loss mounts)

trending high capital high loss (AUDGBP/AUDUSD): buy moderately (load lower) upside / buy moderately (buy more) downside (the comeback, load to match the strength of the trend, lower risk on bigger buys)

trending high capital low loss (USDEUR): buy moderately (load lower) upside / buy small (buy less) downside (runaway hedge loaded gun – be careful dont load up too much)

trending low capital high loss (EURGBP/EURAUD): buy big (load higher) upside / buy moderately (buy more) downside (the profiter, snatching profits to match losses)

trending low capital low loss (USDGBP): buy moderately (load lower) upside / buy moderately (buy more) downside (working winding down the hedge and watching for reversal)

non trending low capital low loss (USDAUD/GBPAUD): buy small (buy more) upside / buy small (buy less) downside (reverse in play – equity rising as reversal plays out)

Of course this needs to be tuned. How strong is the trend? How disparate are the investment capital and the losses?

What if we just made all the hedges even immediately, what would that mean? You could possibly try the technique that when you take profit, you replace it with more, and add the difference to the other side, maybe relative to the margin taken on the profit. A 50c profit is taken, allowing a margin for $250.

So what is the solution arising here?

I guess it’s when we look at the weak spots and what could go wrong, it’s that the euro has a vast wasteland of $1.10 – $1.16 and if we end up back there with our hedges, it will not be pretty. What I am hoping for would be that we’d make up the difference on gains by the AUD and GBP vs the USD, middling those spreads nicely, but once again we would be holding out for another move from the USD against the EUR based on long term monetary policy. We know there is only so far the EUR can go, above $1.14 would really surprise me, and so we can build a counter hedge which might then again need to be countered, to the point that we are waiting to be able to afford to be able to ease off the massive hedges.

It suggests though that profit could be good, even if the losses have to restore before we see the equity emerge.

And we’re hoping AUD stays 75-79 as that area that is 79-82 becomes a wasteland we would have to repopulate, but the other AUD pairs are already fairly light and just waiting to come back when the AUD gets a boost. EURAUD already has a fine modest spread which explains why it doesn’t give me much trouble. GBPAUD still has the smallest spread of all but the question is where to put it? I know that the GBP is likely to dominate the AUD. The GBP can forge on, but the AUD can recover, so just put money down! When the GBPAUD balloons out, the thudding great counter hedges will come out on the other side. The ceiling for that exists.

The fact is the GBPAUD is the only pair still behaving as it did last year. There’s no reason to believe there will be wild swings, we should be pushing greater investment.

GBP we must wait for the signal to see what it’s doing, while EUR we know has only limited potential so both we should continue to be cautious, I would buy the GBP vs the euro but I am already overbrought and experiencing the dangers of vigorous hedging. I can most likely take the drops, But one day soo the GBP is coming back, we’ll make some money riding it up again, but just as with the AUD recently, we need to be fast to get out.

Or again we end up with hedge on counter hedge and it gets precarious. At least with EURGBP you have a pair that usually doesnt move a lot. Slowly it will settle into it’s new range but we need the GBP to go higher and release it’s hedge first. If not, the counter hedge build must happen here also if the movement can’t be contained. There is a barren area but it seems well into the larger range and I don’t think we’ll be reaching that far for some time.

With GBPUSD we don’t see to have a wasteland as such, again, very moderated, it’s just that danger with buying the GBP pairs they can really balloon on the price of buying pounds.

So what you have is as I say gateways – the EUR can’t rise below a certain level and the USD will come back no matter where it heads down to, making it certainly a lucky dip – that is, the dips are sure to be lucky, for whenever the EUR rises, we can buy against it because it will fall, and whenever the USD falls, we can buy it, because it will rise.

Forex Hedging Hammer and Tongs

Thursday, April 2nd, 2015

At the moment on this blog I am just doing forex updates for now.

If you’re not into currency that’s probably pretty boring, but well this blog isn’t really that gripping otherwise, it’s more just an ideas pad for me to jot down ideas that are too boring to go on any of my other blogs as I do maintain these blogs in order to be seen by google to be updating my content regularly with original material.

I see long term as I described when I was getting excited, that eventually my financial market capability will be the backbone of the company and that will be a done to work more on presentation.

For now it’s still about ideas.

In trading we have been challenged because after we built a huge hedge position long the USD, it cut back in. It’s not that I called it wrong, it’s that I chose the hedge to prevent disaster, I chose the insurance policy and now I have to pay for it.

The challenge I’m facing now is that I can’t quite see with any certainty how to advance my regular earnings.

My last plan was that putting more money down building the hedge at every stage would carry me, recognising that this week the action is quiet and we’ve been plopped in the only part of the spectrum where we have nothing going on. Movement only knocks out placeholder positions which means we have little money circulating.

Again we have to project the worst case scenarios.

I’ve gone back to doing more research on hedging. I have finally found a few people demonstrating it.

There is one guy who suggests the system works only if you hold 2 positions each side at a time. But eventually, you’re left with one position on the far side, a top, that will never be met again for months, leaving you only ever making money on one side again.

That’s when you double down. What if you doubled on one side and halved on the other? You’d still have the same hedge.

What happens when the half comes back? double that side, half on the other. It seems like it could get crazy fast. You wouldn’t lose any money, but your margin would start growing up from underneath, squeezing you.

It might be like jenga in reverse. A house of cards hegde, that is, you carefully add hedges, never taking them away.

Now this would be the ultimate zen. You’re trying to make your account go into profit without even selling a single position except in exceptional circumstances where there is clear, continuing break downward. In this case your stop is your start.

So rather than being like my account now building towards balance, you start with balance and try to create the vent through which equity can escape. You have to buy again when you sell. But if half an hour allows it to fall another 50 – 100 pips then let it be, let that profit escape. If your profit is rising from the seething soup of position, let it be, once it starts going down, reestablish your position.

But doesn’t the opposite happen also? Revealing how it is that the losses seem to pile up – when you put more money down and it drops, then you owe more.

The thing is, because it’s so hedged up, I could push my margin out by about 4 x which would mean 4x as much money on the table and 4x the profits. Which is basically where I want to begin winding down – that the point at which I would switch my focus to working less rather than earning more.

Of course injecting that kind of money would take months to spread like this lot has. Are you expecting more or less volatility in the next 6 months? I’m am not expecting anything like what I’ve experienced in these last 2 months but hopefully it should be more interesting than last year, because as long as the moves are contained more volatility works for us.

I have my concerns though. More money on the table means more positions in loss, which means a higher accumulating loss. Not if youre hedged.

It appears the strategy is to have enough money on the table to be making good money, and only at that point can we start biasing the hedge to earn our equity back.

If a price goes up and you sell, and then you buy on the other side and it goes back up and you sell again, you have extra equity as profit when youre hedged. But the problem is, the bigger hedges further up and down, they are bigger than before and trailing bigger losses.

Those trailing losses outweigh the 50c profits you were scalping on the other side, even if you did do it 10 x in a day and that’s a fact.

The good news is that these probably won’t create too much trouble unless we see a massive shift that forces a new hedge set up, that’s where I’ll get more concerned, though 4 out of 6 of our main pairs are already hedged tightly enough that we could quickly meet perfect balance. That’s our secret weapon, using hedging to cover our mistakes.

It appears that when you increase margin, you permanently increase the risk level to further losses, but you also can make more profit long term, the losses are unrealised, they don’t accumulate, but they are free so can fall a lot. It takes some time to build you pool of capital up to a point it can handle the swings of more margin, however, you have the hedging brake escape, and as was well covered, these circumstances were exceptional and when things settle down you can afford to lean into your current range.

Again it appears the only way to escape the loss is to out grow it.

But remember when the FOMC dropped you were on $9k equity after you were determined to hold the hedge at $10k. Now youre on $12k.

We could double every position for $2400. We could do it. We’d add $2k+ next week, and the same in debt. When it’s gone up and down and up and down, unrealised loss is still sitting on top and biting into your profits, but because the difference is thousands and not hundreds, you have flexibility, you can deleverage more.

But lets say it doesn’t move back, it keeps going down? suddenly you’ve lost another $20, you only covered the initial fall.

When a position rises you make 50c or a $1 profit. when it goes down and down, your floating loss is $5-10, way overshadowing your profit. It goes up, you make $1. it floats down, and once again, your loss is showing $5-10 and yet you’ve only made $2 profit.

My euro positions crashed $30k at one point, I haven’t even made $30k in my whole time trading yet. I will soon. But not yet.

Just as if the market went right way one way then back, my loss would not increase that much a couple of hundred but my capital would have increased a couple of thousand. the only time we’ve seen that is earlier in the month, and yes we do appear to have more equity.

Given how long this process takes to equal it out it’s no wonder we have seen some hideous losses upfront, especially since there’s been so much one way traffic, that’s where it hurts. The euro lost 20%, you take profits of .01% can’t you see that will take 200 hits over to cover the loss? those tiny little 111 positions you take 12c profit on? Still cost $10 loss to maintain after a big run.

When you hedge, you prevent the risk of those moves costing. 111 went $10 down, but the hedge says no more. We have never proven ourselves to be able to hold our nerve there, we snatch the profit thinking it is going up or down, and really it isn’t that much.

You can risk more on your bias to win your equity back in the next move.

Bit what are my predictions for the next move?

I don’t see euro going to parity unless something big happens, I believe 1.02 – 1.03 is where it will bottom if it dips again but this may not happen til the rates are finally risen at the end of the year.

That WILL spike the USD but the move is extended, I am trying to get enough money so I can trail off the hedge as we get to the bottom with AUD, GBP, and euro, we have seen within a few cents of the bottom on each one, so the hedge we have will work but my plan is definitely pull back that as we move into it. We can’t be too daring with the USD even though we know risk aversion or the imminent rate hike would spike it, although where it is now, is likely to be where it ends up when the dust settles however many weeks it takes. Where I am now is probably the new normal for the next few months. A few cents either way for all the currencies but nothing major, so yes, turning more to where we were last year but probably more twists and turns.

That week I made $4k, that was silly, there won’t be days like that more than once every few months if not year to year. So I can pretty much start ramping again knowing that for me to need to bail out again would really take some serious market madness.

I am also becoming aware that the value of my local currency effects the trade. It is not the loss converted into my money now, it is converted into my money then. So if I bought the position when the NZ dollar was high, it didn’t cost me as much as when the NZ dollar was low.

Money starts moving like a wave. When the momentum dies, you trail off toward the shore so it is a mere trickle on the beach when it reaches the op.

So in the perfect hedge, as one side pushes to it’s zenith, you add the hedge, but not the profit side – first at half, and then diminishing, you will have to make the money back on the way up. This is where you will need some money to cover your losses. and at least I have some knowledge of where bottoms are likely to be placed.

But the point is, you can put a lot of money on the table because you’re hedged. I also believe we are in the range for the new normal, so it’s safer to throw down positions in this range because we won’t bet taking off to another part of the galaxy.

I am still worried though, I am worried about the fact that I recognise the floating loss on a position is often a lot more initially than the sum of the profits made against it the other way. And that’s something we’re living with, but as we add more margin, we take more risk, even thouh we’re within the safety of the borders.

My concern was always that I could see my equity going down $300 yet couldnt work out why. On the bright side we did watch it move significantly while the equity stayed the same. It would take seismic shifts to move our equity, honestly. It is about building up that difference with profit, if we can nudge up to $13k- $14k we’ll have some proof we can come back.

With more margin down, we will make more money, but when it’s not moving crazily in one direction and is churning over the same range, where we’re nowhere near the edge, we can build that extra layer on top we need, we have proven we can come back by hedging in an emergency and then scalping the new range until we’re safe because though there is no safety, hedging means building an extra grand or two breathing room makes all the difference.

I think when the pound drops and the USD rises I do take a hit, because I have unhedged NZD and CAD against the USD that moves much more quickly, and when GBP positions drop, they also move quickly.

USD rises, GBP drops, suddenly there’s an $800 difference even with the hedge because so much GBP is falling together. $11k it’s fallen, have I made that much off that one pair? I’m yet to make that much off any pair even on the other side of the EURUSD that fell $30k, that’s why I’m carrying loss. The GBP falls against the AUD, that’s expensive, and the EUR, with another huge hedge, expensive. But we’re still only talking $2k all up in even the most extreme position as long as we hold our hedges in.

Now it’s friday night – friday day in europe getting towards morning in New York – I am finally getting some movement and it is releasing my equity, and I am remembering what it’s like when the market is fruity. We have to wait for it to get ripe and then . . . we plant more seeds.