Tuesday, September 30, 2008

Bailout Bill

I'm following the discussion from abroad, living myself in Germany. As our economy seems to be as affected by this mess as yours, I thought to post my thoughts as well.

I have a question? Who got all the money in the first place. What happened with these now so-called toxic loans in the first place? Before they became toxic, they were regular mortgage backed loans to American people, which were then enabled to buy houses or enabled to finance their living style.

People, who shouldn't have gotten a loan in the first place, as their regular income did not allow them to pay that loan back, got a loan, as that loan made the broker and the bank money in commissions.

Surprise....Some of these people really were not able to pay back their loan. But I bet there are a lot, actually most likely the majority, of the people, who got a loan, who are still paying that loan regardless how difficult it is, as they want to keep their home for their family, as they want to continue to finance the eduction of their children for a better future.

At least, that's what happens here in Germany, if someone has a house, who is nearly bankrupt. He will still do whatever necessary to keep the house.

Allowing people to have a roof over their head, even if they can't afford it. Here in Germany it's called social welfare. It's something the government and the communities have to pay for. Everyone has a right to receive at least the minimum necessary for living and that includes a place to live.

I don't know, if it's the same in the US, but taking a bigger view to me it seems, the banks were doing the governments job, when they gave people, who could not afford a home, the money to buy one.

Sure, the banks then did, what every good manager would do, they passed the risk on, they created instruments, gave them a grand name and sold the mortgage backed loans to someone else. That one sold it again and made a profit and so on and suddenly the world found itself in the mess we are now in.

But that doesn't change the fact, that our taxes and I say our taxes, because my taxes are used for this purpose as well here in Germany, should partially used to give every citizen in this country a place to live.
It doesn't need to be a big one, but I think every family, every kid has the right to have a roof over their head so it has a chance in life.

In Germany this is done by a program called Hartz IV, it's not the best, but it provides the basic living necessities to those who need it. And that program is extremly expensive. We pay for it with our taxes.
The costs? 26B to 30B per year. That's about 250B for the last 10 years. And we have just 80.000.000
people living here. You have nearly 300.000.000 US citizen.

Do the math: The 700B for the bailout bill. Isn't that just the bill come due for a task the US-government had to do in the first place and neglected to do for at least the last 10 years?

Thursday, September 25, 2008


Adding at a profit, yes, that's how it's done. You scale into a profitable trade.

You remember the last time you did it successfully?

In daytrading it just is difficult to do, as you enter at highs for longs or lows for shorts usually, which brings the potential profits down, while risk goes up, as your average entry price for your position moves nearer to the current price.

Nonetheless, I tried it today and as I know you love proof for real trades, here are my FTSE trades:


I took a long after the open and added 3 minutes later. The high of the move was 5139 and then the FTSE sold off to a low at 5100. I added at 5113.5, a contract which was sold at a loss at 5108.5. Then an unexpected meeting came up and I had to leave the computer. I set 2 stops at 5114.5 and 5106 each and left the desk for 1h. Coming back I saw that the DAX had rallied and FTSE was still struggling below 5140. I added at 5140 and closed the position into the spike at 5149.5 and 5154.

My initial idea was long 5130.5, add 5115.5 and 5100.5, but that idea of adding at a profit popped in my head, so I added at 5136 instead. Instead of a position average at 5115.5 I was long 2c at an average of 5133.5 with the same clear position stop below 5090. Stupid!

Next comes 5139 trading with the DAX going up, but me refusing to move the position stop, as I saw a good long bias in the European markets with the EOE trading nicely up. The EOE V8-FTA is the Dutch futures contract, which includes mainly banks and insurance companies and in this environment is a contract you want to watch, as it reacts most sensitive to any bailout rumors. So I had a long bias and was willing to give the trade room.

Add-on's I usually trade not in front of the market but by a trailed StopLimit order where I'm taken in, when the market turns. 5113.5 was a tick to narrow and I exited that contract at a small loss, which moved my position average to 5136.

FTSE bounced from 5100, with the DAX and EOE making new daily highs. Still the seller at 5128 was not gone and I suddenly saw myself confronted with a meeting I had not anticipated.


I had to decide what to do...Closing the position at a loss of more than 200 Pound..Don't like that...especially, when I still had the long bias confirmed by the trading in the DAX and EOE (ES was treading water around 1191)...leaving the position open with a Stop at 5090...too far away as while I sure like to trade double bottoms, the retest of the 5100 would have been the forth test of that level within 36 hours. NO if we go down there, we break it...see that 60min chart for that..


So I put the stops at 5114.5 and 5106, which would have been a bad loss if both were to be hit, but then I was sure I would see FTSE go well down below the 5100 mark and that is what stops are for...Protect the account, if things don't work out.

Coming back at 10:50 I saw my stop at 5114.5 had been a bit too high as we had based at the 5112.5 level and finally the up bias took over...


The position average was now 5154.5 with 1 contract still long. Just great...yes there was potential for a good upmove, but there was also a lot of overhead:


5139 was the daily high, EOE and DAX had made real good upmoves already and were trading at daily highs...Add-on at 5140...traded and being long 2c again the position average was now 5147.5. Good, at least below that 5150 resistance.

Chart was long, better entry would have been 5135, but that - on the other hand - would have been too near to the daily high, to be a good entry long, so the new DH was as good as any other entry.


Price stalled at the 5150 level and as the trade was already open for such a long time plus had been considerably down I took 1 off at 5149.5


More stalling above 5150, which let me exit the trade at 5154 to settle in again after my meeting.


I missed that nice bounce from support for a new long writing this article instead...


Adding at a profit got me.... a total of 12.8 points minus commissions or 56.76 Pound. Sure not worth the risks I took.

Let's look at the initial plan instead, which I abandoned in favor of adding at a profit.

This was the situation I was looking at this morning:


Lower highs with support at the 5110-5090 level. If that support broke I would not want to be long, so Stops at 5090 for a position trade were fine.

Initial trading gave me support for that long at 5130.5, target for that trade 5151, stop 5090 with add-on's at 5115.5 and 5100.5


Risk in that trade: 153 ticks or 765 Pound
Potential: Without add-on: 205 Pound, one add-on: 560 Pound, two add-on's: 1065 Pound

The trade idea would have done quite well, abandoning the plan got me 56.76 Pound while taking risks of more than 600 Pounds at the low of the trade. Sure at the low this plan would have been down 230 Pound as well, but 230 Pound compared to more than 600 Pound down. I know which plan I prefer.

Sunday, September 21, 2008

Amy MacDonald

Get yourself in the right mood for trading. 14 minutes to get you in that positive, alert, but relaxed mood, where you are able to swim with the markets and just do what is necessary to do....

A live concert with Amy MacDonald

Thursday, September 18, 2008


I dogged a bullet yesterday. Yes, had I followed my impulse, I would be down this morning nearly  13.000 USD.

Yesterday I traded HHI.HK, which are the Chinese H-Shares futures traded on the HKFE. This contract has better volume and is normally not as volatile and fast as the HSI futures.

That's what I did:


I first had a winning HHI.HK trade, followed by a loser. I then switched to the HSI, where I had another loser, as I really did underestimate the selling pressure in these contracts. Even with a 5% down move before I took my longs the selling pressure remained.

I took a long HHI.HK 15min prior to the close and added to that one at the close of the equity market. (Futures continue to trade for another 30minurtes after the close of the equities exchange.) (marked red)

I was down 2 trades in a row and somehow thought, the market really was near a bottom. So I was more than willing to hold the position overnight, if it would not show me a profit within the next 30 minutes. It was revenge trading, it was dumb and I knew it. I was talking to myself not to do it. That the account always comes first, but that voice inside me was still very insistent, that that bottom in the HSI and HHI.HK made earlier would hold overnight. 21 minutes later I was taken out on a short covering spike for something like 18 ticks. The average entry was at 8731 and I had placed an exit order at 8749, in case of such a spike. HHI.HK was trading around 8680-8700 for some time and I just thought, if I get out great, if not I will hold it. To tell the truth, I still might have closed the trade at a loss prior to the close, but I'm not sure about that and that's the reason I'm writing this article.

Here is what happened this morning:


I marked the close. We opened with a 300 point gap down and dropped nearly another 700 points. HHI.HK was down around 10% after the morning session. 2 contracts down 1000 points, that's 100.000 HKD or 12.840 USD down. With the increased margin rates at IB for index futures, I would have gotten a margin call near the bottom.

And that huge recovery rally, which started in the afternoon session, after the market gapped up 600 points in the HSI and 400 points in the HHI.HK would have seen me without a contract long.

I'm a daytrader and the day offers enough opportunities to make good money. There is no need at all to hold a position overnight.

Wednesday, September 10, 2008


If you use charts at all you have to answer one very important question:

What timeframe do I use?

If you look at traderchats, Yahoo/Google trading groups, follow one or another Guru, they will tell you to use this or that timeframe or a mix of them. Some claim 244, 333, 666, 2400 ticks are magic, others use 3 minute, 5 minute or 60min charts. Users with more sophisticated chartprograms try their hand at Range or Volume charts.

I'm no exception, I have used them all and I still have not found THE MAGIC CHART.

But I have recently found something else, something the timeframe you use for your trading should provide to be of use to you:

  1. You need to get clear entry (and exit) signals from your chart.
  2. Prices swing and you should see a retracement not too far away from your profitable exit. Taking 80% of the available range is emotionally great, taking 5% on the other hand, even if the result is the same will let you feel like a real dumbass.
  3. If stopped, prices should continue proving your stop right. You don't want prices turn one tick away from your stop.
  4. If you exit early, the retracement should give you another entry signal.

Let's start with a 30min DAX chart


Yes you see nice moves on that chart. Now say you usually take 20 ticks per trade, which translates to 10 points or 250 Euro/trade on the DAX. Not bad, but looking at bars showing moves of 50 points within one bar, these 10 points are just noise. Believe me, if you trade them with a small account they are not. On the other hand, where do you place a stop. Say you got a signal at 6210 at the open today for a long. The low of the current bar is just above 6180, the previous low is above 6170 (yes it's a Heikin-Ashi bar, so the low is not the true low, but I use HA-bars to see the trend better and that means the trend remains intact as long as the HA-bar low (or high) is not broken)

6210 long, with a target at 6120. Bar high was 6236, low 6182. My 10 point target is just noise on that chart.

Here is how I trade nowadays


Yes it's a 3 tick chart on the DAX, a 50-tick and the 30 minute chart. Remember I use the IB-datafeed, so expect 1/3rd of the regular number of ticks. On the E-Signal datafeed you might use 10 tick, 150 tick and 30minute to see a similar chart. (And no, I don't care about the missed ticks when I trade with the IB-datafeed, I don't need them. As you might already have guessed from my affinity to Heikin-Ashi bars, I don't care about the individual chart, or it's exact OHLC. I care about the swings and I want to enter a swing in the direction of that swing, take about 80% of the available range and exit with a feeling of a job well done))

That 3-tick chart on the DAX was the first timeframe, where I finally got 80% of the range with a 10 point target. The 50 tick chart has to be traded with 25-40 point targets to get the same 80% of the available range result. Unfortunately that comes with wider stops, which I can't afford on the DAX. Yes the 3-tick is fast, but using Heikin-Ashi charts the bars are clear, you get swings instead of tick levels and you can actually swing with the market.

3-Tick (real Tick chart) compared to a 3-Tick (Heikin Ashi chart)

Globetrader_65  Globetrader_66

So how do I decide what trade to take?


3-Tick is holding below the 240-ema, 50-Tick might bounce up, 30-min is in a downtrend, but retracing. A long is valid on the 50-Tick above 6200. That level is below the Stop level indicated on the 3-Tick, a long is valid on a bounce from the band on the 3-Tick


Seconds later we got that 240-ema test on the 50-Tick, a test of the band on the 3-Tick and a long around 6205 (6204.50 to 6205.5). The exit was a nice 10-pointer on that 3-tick chart. On the 50-tick its noise, on the 30 minute not visible.

So when you decide about the timeframe to trade and the charts you look at keep in mind, that you don't want to trade noise. Having entry and exit within 1 bar is fine at times, but for the long run it's just stress as you trade just intrabar noise. You trade with charts to see what the market is doing. Make sure you really can see what you want to see.

Wednesday, September 03, 2008


I have been reading a few articles about the Woodies CCI club and I want to put some perspective to it, even if it might not be another voice in the condemn Ken Wood chorus.

A few years back I have been in Woodies CCI club. I left, because at one time I was discouraged to post my ideas and discuss them as they seemed to distract new traders. Still I have to say I learned a lot in the WCCI club. Not the system, which did not work for me (and may not work for anyone), but I learned pattern reading, discipline, account management. I had already lost a small fortune, when I came to the club, so I was already humbled, knowing that you never ever follow someone else's call, that if you trade futures, you start trading 1 contract and work your way up to keep the risk acceptable.

Some Futures and Forex broker give you better than a 100:1 leverage. If you trade that kind of leverage as a beginner you are simply crazy. If you go to Vegas and someone tells you to put all your money on the number 13 because he has a sure system, that that's the number which will come next... Would you do it? I don't think so. But that's what some in the WCCI have been doing it seems. It works when it works.

Today I trade with an internal margin of about 10k$ per contract traded. Anything less exposes my account to risks which are just not healthy in the long run. I went bankrupt a few times when trading futures, but I never had someone else to blame for than myself.

I have no idea what Ken Wood is doing or not doing with money supposedly going to the MAW foundation. And I have no intention at all to defend him. And if he committed crimes he should be held accountable.

But to blame him or any other guru

  • for your own lack of responsibility,
  • for your own inability to manage your account,
  • for your own inability to see that a system is not working,
  • for your despair or addiction, which lets you continue trading real, when every other trader would take a break and trade demo for a while,

is not ok.

Trading is about taking responsibility for your own actions. If you are new to trading and want to learn it, you start demo first, then you trade small and then you work your way up. It takes time, but it's the only way I know.
Do you take over a company as CEO without any business experience at all and expect to be profitable? I don't think so. Usually you go to business school first, then you learn the trade and then you start as CEO. You still might fail, but your chances have become a lot better now. If you expect success immediately, most likely you are doomed. And that has nothing to do with Ken Wood or any other Guru.