[Trade Article] – Hold Cash

Tis the season to be holding…
KakakakakarCashCashCash

‘Nuf said

Sadly or fortunately depending on your perspective now is really not the time to be looking for any serious positions. My system is effectively flatlined and in wait mode since begging of the week and most of last week.

Looking at the time of your its most likely not unsurprising that this is the case.

Although interesting observations about this time of year is that we normally do see a reasonable push somewhere in the currency land of thing to trade. Also interesting is that its seems a biannual movement and last year (Dec ’12) we saw some phenomenal movements moving right through December and well into the new year.

This year we have seen some great movements again on the Yen rates but just not in December. As I’m typing this price is just bobbing back and forth with no real conviction to moving clearly in one direction or the other. Most other markets I’m looking at are acting in a similar way and after some great runs on price in Oct & Nov it comes back to NOT being too surprising that Dec is for the moment in pause mode.

Best advice right now… Hold Cash – Cash is King… Not THE King, that was Elvis… but King it is and its best to hold it

HoldCash

Supplemental to all this – and well done if you scrolled down – is that I need to remind you that holding cash is the 3rd and forgotten trade and is one of the most important trade decisions you can make.

Right now and excluding the time of year factor my strategy says don’t do anything new. This decision for many new and aspiring traders is almost alien – but keep in mind what the 95% do. That is to ignore the wait and hold cash decision.

 

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[Trade Article] – Be patient, be very patient

Generally speaking over the last two days and for large chunks of time this year we have been on the sidelines… waiting… just waiting!

Waiting in trading is a very big part of what we do no matter what strategy or time frame or whatever instrument you trade. Interestingly this is THE single most important thing we have to learn as traders.

We have to wait for;

  • An entry to set up
  • The trade to move and “do its thing”
  • An exit condition to be met
  • have patience for the next condition to be met

This cycle goes on and on and on and… well it goes on for a long time. Then there is the time it takes to acquire enough knowledge and skill to trade in the first place. While the actual skill set The knowledge can usually be learnt moderately quickly despite some of the complexities it’s the ability to apply that knowledge consistently that takes most people the most amount of time.

Ultimately its this waiting that people strangely can’t wait for to be over. Knowing that this is in essence what our job is all about and definitely not “clicking the mouse” like its xbox night

Trading is like fishing

We can most likely compare trading to many things and I have done so myself many time. I think most aptly it can be compared to fishing. There are plenty of fish in the sea as the saying goes but we don’t have to try to catch every single one of them, we just need to be ready and able for when that one fish comes close enough to us to try to catch it.

I think what I mostly trying to say is when there is nothing to do but wait, then wait. Trying to force a trade just for the sake of trading is never a good idea.

Consider adding a new position to a very short list of possibilities we can go Long, Short & Flat. Being Flat or having no position is a perfectly legitimate trade choice

Give it some thought… be patient, that is after all what our job entails most of the time

 

patience

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The trend is your friend… Again

This is a saying that has become cliche, but its a cliche for a reason. The trend truly is your friend until the bend at the end. Also knowing when the trend is starting also helps.

In our practical live training session we spend a lot of time trying to figure out whether or not price is trending or ranging. Seeing that price is doing one or the other is most of the time very simple and straight forward. But seeing when price transitions from one to the other is paramount to any trend strategies success in the Forex Market – Futures Market – Stock Market or any financial trading system that requires you to identify the trend.

The First stage would be to see that price is doing one or the other. This recent trade on GBPUSD highlights the first phase quite nicely as price has defined itself in a small range.

GBP-Nov-11-13a

Then we see GBPUSD move out of its consolidation but the key to not getting suckered in to several false starts is waiting for price to correct again and then to trade the pullback after that break out of the range.

This might sound simplistic but it really should be that simple. The hardest past in all this for many new and aspiring traders is to wait for the conditions to be right before pulling the trigger on a new trade.

GBP-Nov-11-13b

While not every trade will be a resounding success by waiting for this sequence of events you are stacking the odd more and more in your favour of a successful outcome. This is what you have to learn as a trader – not the pattern but the waiting for the conditions to be right for your set up.

GBP-Nov-11-13c

Why trade a portfolio of markets?

Whats the big deal? I’m a currency trader… no wait I’m a stock trader… hang on a moment I’m a Futures trader…

When you tell someone what you do what do you tell them you trade? Inevitably if you don’t say that is usually what gets asked next (assuming the person is actually interested)

This question of what do you trade? will come back and haunt me and thinking back on the way I’ve expressed what I trade to people I’ve normally said I trade the financial markets, currently I specialise in Forex. Which is for the most part exactly what I’ve been doing for the last 11 years.

More recently I’ve been questioning the logic of this specialisation as during past several years we have seen a massive boom and generally have had the luxury of not needing to look anywhere else for trading opportunities. But when you are sitting patiently month after month seeing the volatility get smaller and smaller and the trends shorter and shorter you really have to ask why specialise.

I was reminded recently of a saying I was very fond of which was;

If selling Beanie Bears on eBay ever becomes the best use of my time and money, then I’ll be on eBay selling Beanie Bears

Well it’s not quite to the point of messing around with eBay just yet. But as a stock to trade… why the heck not.

Whats in your portfolio?

When most folks think of diversification they are thinking in terms of different stocks from different sectors in their stock portfolio. This approach while good is these days only a partial answer to a bigger problem.

You still have all your eggs in one basket.

Try a portfolio of markets and diverse instruments

I might only look at 4 currency cross rates to trade regularly and I regularly get asked;

Why don’t we look at a different cross rate?

When Forex is slow and sluggish then the market as a whole is pretty sluggish. To me it then seems a little pointless looking at another cross rate to trade when the market as a whole is sluggish.

The solution for me is to have fingers in pies. To have a little exposure across several markets and instruments in those markets. I refer to this as a portfolio of portfolio’s

Spot Forex – Stock index Futures – Individual Stocks – ETF’s – Bonds – Metals – Softs

This is how I’m moving my own trading to have a little exposure in at least 3 different markets. The logic is that when Forex is quiet and in waiting mode, stock index futures might just be on the move as might gold and a couple of stocks. Long term the idea is to build a portfolio of portfolio’s as there should be something always moving.

This can be scaled quite well for the little guy (or gal) spread betting 1 currency 1 index future 1 stock all the way through to multiple assets and multiple vehicles

 

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