Rhody Trader

I wrote a while back in Surfing the Cash for Clunkers Market Distortion Wave about how I thought the Cash for Clunkers program could potentially mess things up in the auto demand situation by creating an artificial surge that sucked in future demand. It sounds like that indeed may have happened. Reports are indicating that the post-clunkers sales run rates are actually well below where they were before the program started.

Now, as much as I compared the Clunkers program with the Y2K tech cycle, I don’t think the scope is anywhere near the same. Two things were part of the technology upgrading that went into Y2K preparation. One was necessity. The other was ample money from a strong economy. We have neither of those in this case. The figures suggest the annualized sales rate during the Clunkers run reached about 13.7 million. That’s a big bump, but short-lived and from a low base.

So the bottom line is that while I do think the automakers will see a sales lag for some time to come, it’s probably not going to drag on and on, especially if the economy picks up. They will feel the pain into next year, most likely, but my guess is not beyond mid-year if things continue improving as they have done.

This morning a visitor to my trading education blog posted the 1000th comment. That’s approved comments. There have been over 35,000 spam ones to-date. That’s against about 550 posts, so that means the averages is a bit below 2 comments per entry. Admittedly, a huge chunk of the comments came from one post – No More “Hedging” for Forex Traders. That discussion of the NFA rules against carrying offsetting positions accounts for about a quarter of all comments on the blog. Needless to say, there was a very active and intense discussion.

Admittedly, I’d love to see more commenting on the blog. It’s a form of feedback to let me know what interests people and what they are looking for, and I like interacting with folks. Hopefully the next 1000 will happen more quickly than the first 1000.

One of the many things I have on my plate (probably too many things, to be honest) is  the development of a new book project aimed at answering all the most common questions new traders ask. I answer a lot of questions on my trading education blog, on the forum sites I hang out at, via email, and in seminars and other discussions. While some of them are specific, many are variations on the same basic set of questions that most folks have at one point or another during their development. A while back I decided to put them all into one place as a handy reference source, with answers of course.

I’m most of the way through collecting the questions and providing answers to them. My hope is to have the book completed early this fall.

This is not a solo project, though. While I can answer all of the questions I intend to include, I’m not necessarily the best source for many of them. Also, I only have my own perspective based on my own experience in the markets. It might not be quite the right one to best answer the question on the mind of a specific individual. With all this in mind I’m bringing together a group of additional contributors to provide additional depth and expertise to the question answers. I’ve got several commitments to take part already, but will continue to look for others who can add value to the project. The more the better, as far as I’m concerned. If you are someone with a goodly amount of experience in the markets, and would maybe like to take part, let me know.

Here are the questions I have put together so far. If you have suggestions for any additional ones, definitely leave your suggestions via comment below.

Staring Points

How is trading different from investing?

Why should I trade rather than just invest?

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The Biggies 

How much money can I make trading?

When do I know I’m ready to start live trading?

What books should a new trader read?

Should I quit my job and trade full-time?

Only professional traders make money, right?

Do I have to accept some big losses in the beginning?

How long does it take to make a stable income from trading?

How do I start trading?

How difficult is it to trade?

What is the percentage of people who succeed in trading?

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Trading Education

Is it worth spending money on educational resources when there’s so much free stuff available?

If you know so much, why don’t you just trade?

How do I avoid scammers?

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Markets & Instruments

What is the best market to trade?

What’s the safest market?

What should I trade?

Is forex trading a scam?

Is it better to trade spot forex or currency futures?

Should I avoid trading over the holidays?

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Mechanics

What is leverage and margin in trading?

How much money do I need to start trading?

Is live trading different than demo trading?

What’s the difference between a stop and a limit order?

Where does the money I make in the market come from?

Do I have to pay taxes on my trading gains?

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Analysis

What’s the best indicator?

Which type of market analysis is better?

What is technical and fundamental analysis?

Why didn’t the market rise on the positive news?

What is Support and Resistance?

What are the differences between discretionary and system traders?

What timeframe charts should I look at?

What charting package and/or data feed should I use?

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Trading Systems

How can I create a good trading plan?

How do you backtest a system?

Where should I put my stop?

Should I buy this system?

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Trader Psychology

How important is psychology in trading success?

How can I overcome my fear when trying to pull the trigger on a trade?

Why can’t I follow my trading system?

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Brokers

What’s the best broker?

How should I select a good broker?

Is my broker trading against me?

Is my broker running my stops?

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Jobs

How do I get a job trading?

What types of trading jobs are there?

What’s better, an MBA or a CFA?

What kind of program should I do at school to get a trading job?

I wrote the other day about how I was suddening coming back in demand as a content contributor to other websites and such. Apparently I wasn’t fully grasping the extent to which I may be in demand. Over the weekend I received the following:

I am currently looking for an AVP Snr FX Support guy to work for one of my clients (famous I-Bank) based in Singapore. Given that you know FX and VBA, I was wondering if you have any interests. If so, I can go over details. Can you let me know your current situation when you have a moment?

This came from a head hunter who appears to be based in Hong Kong.

Obviously, since I’m a forex analyst for the IFR Markets group of Thomson Reuters I do know a little bit about the forex market. For those who don’t know, VBA means Visual Basic for Applications. That’s the macro language used by Microsoft for its Office applications. In my case that means Excel macros, which I have done my fair share of developing over the years. That said, I haven’t specifically been a developer in a professional sense since the middle 90s.

As for whether I’d go for the type of job outlined, it would be a hard sell. I like where I’m at right now and have never really thought much about moving someplace like Singapore. I’m always willing to listen, though.

Here’s one for all those who think Goldman Sachs rules the world.

Yesterday there was a BIG drop in the dollar out of thin air in the afternoon. You can see it on this Dollar Index 30 minute chart.

At the time no one knew what happened to cause that fall, which fed into higher commodity prices and a rise in the stock market to new day highs. EUR/USD shot up from 1.4280 to 1.4400 in that period.

According to one of my colleagues in London, the talk in the market has the move caused by a $3b sale of USD/CHF, with that sale being done by Goldman Sachs, potentially on behalf of Warren Buffett, who of course is a big owner of GS. The rumor is that Buffett is buying a big stake in Swiss banking giant UBS.

What’s interesting is that today the Swiss released some much better than expected economic data. The KoF Leading Indicator surged to -0.04 in August. The forecast was for -0.60. This comes along with an upwardly revised -0.85 previous reading (from -0.99) . It was the strongest rise on record.

Can’t help but wondering where USD/CHF (which fell to 1.0560 from 1.0660)  would have been after the data had we not had the big sale yesterday. If it was indeed Buffett buying CHF yesterday he might have saved himself a couple percent doing so ahead of this morning’s data.

I’m in demand as a contributor again.

This sort of thing seems to go in cycles. Around the time my book came out (2006) I was getting requests from all kind of places, like magazines and websites. As a result, my name was all over the place in trading media circles. The last couple of years have been a bit less intense in that regard, but now I’m getting queried on the subject again.

I was contacted by www.forexpros.com about contributing regular content there. I’ve also been corresponding with one of my former colleagues (old boss actually) about doing some writing for www.forexlive.com. I’m taking a look at things and sorted out what it means for my employer (www.ifrmarkets.com), but the odds do seem to favor my getting involved in the not too distant future.

Maybe I’ll write another article for Stocks & Commodities and/or SFO Magazine. Haven’t done that in a while.

I suppose I really should do some work to raise my profile again. I’ve got my trading faq book in the works, after all.

There are posts on the Big Picture and Zero Hedge blogs today on the subject of Bloomberg winning a court case against the Fed on Freedom of Information Act grounds in regards to the central bank release the terms of it lending to banks and other institutions. The the Fed has been fighting this sort of disclosure on the basis that it could create competitive disadvantage issues with the borrowers. This, of course, was always the reason why those banks tapping the Discount Window were never revealed.

Here’s my question, though. The Fed isn’t actually a government institution the way I understand it. How does FOIA apply?

Blogging is in the middle of a storm these days as certain high profile blogs such as Zero Hedge are in what seems to be a running battle with news outlets like CNBC. I actually think it’s probably a good thing. In particuar, the  subject of anonymity is one of the major points of conflict, though the press also holds up the lack of editorial standards as being another issue with the blogosphere. At risk of losing points with my blogging peers, I actually tend to fall in line with the news media’s stance on things.

Anonymity
The advantage and disadvantage of anonymity is that it allows someone to say and do things they would not otherwise. It can be good in terms of bringing things to light when might otherwise put the individual at risk. On the bad side, though, it can allow one to engage in destructive behavior without concern for negative consequences. The folks a Zero Hedge claim they use it to keep the focus on what’s being said, not who. I find that problematic, however.

To my mind, one of the most important things we need to know in life is where the biases are with those who seek to offer us information and/or advice, as well as the credentials they bring to offer it up to us. We need to know if it’s reasonable to believe and accept what we are being told. Is it coming from a legitimately knowledgable source? Is the information or recommendation is being shaded by the deliverer, intentionally or otherwise, because of their own underlying motivation? This is important for our own decision-making process in terms of whether we can rely on what we’re being told, and relates to friends and family just as much as with media or online sources.

The NY Post ran a story today that one of the Zero Hedge contributors was given the boot from the securities industry last year by FINRA because of insider trading. That sort of thing naturally sets off all kinds of alarm bells about the credibility of the blog’s content. I tend to want to give people the benefit of the doubt, but can’t help wonder what kind of grudge this guy might have. That sort of thing could flavor his writing and bias his commentary. Oh, and then there’s the whole history of dishonesty suggested by the insider trading charge.

Editorial Standards
Bloggers get things wrong, a lot. I don’t mean all the time, but I see plenty of errors in my travels of the blogosphere and related sites. It’s like the healthcare debate where things are being misinterpretted and blown out of proportion all over the place. It’s one thing to offer an opinion. It’s a whole other thing to present facts. If you’re doing the latter you have a responsibility to your readers to get it right. And it’s a good idea for your own credibility as well because if you share erroneous info and it gets spread you end up looking like an ass.

Obviously, we all make mistakes. We’re not going to get it 100% right all the time. No one expects that. They do, however, expect us to make the effort, to accept the responsibility, and to fix the errors when we do make them. Why? Because people actually believe what the read, it is kind of scary at times.

Conclusion
All the above is why I do not blog anonymously, nor do I post anonymously on trading forum sites like Trade2Win. While I may not agree with Charlie Gasparino on many things, I do agree with him on this. I don’t hide behind a screen name to take shots at people. I let folks know who I am and what my background is so they can make an educated decision whether to take what I say seriously or not. And because of that I take responsibility for the quality of the content I produce. After all, everyone is going to know who wrote it.

I have been lax in my posting of late, but I have good reason. It’s been a bit of a revolving door in the office of late. We’ve got one member of the team out long-term with a broken leg and a few other injuries from a tree falling on him. Last week a second member of the team was out on holiday. This week and next we’ve got another medical absentee. I’m the only not taking any time out – at least so far – and the ins and outs has kept my duties bouncing hither and thither.

I have been trying to keep up with things in the blogosphere, and came across a couple of interesting things. One is a post by Ulli at Wall Street Bully which I found rather funny, in a kind of ironic way. And if you want a free MIT education, you can go here.

Speaking to the Rhody part of my monicker, word has it Sarah Palin is making a move from the biggest state in the union to the littlest. If that were to come to pass, Palin would surely not be a viable candidate for anything anymore. Rhode Island is a classic New England Democrat dominated state.

In terms of being productive outside work, I’ve gotten myself back into gear with my trading faq project. I have a list of about 40 of the new trader questions I see asked most often with answers to them all. That list will probably expand now that I’m recruiting additional answer contributors. The goal is to end up with a really useful reference for those coming into the markets.

Just a quick update on the Eurodollar Convergence Trade. 

The current 3mo LIBOR rate is now about 0.44%. If that were to hold the December Eurodollars would settle with a value of 99.56. Recall that they were trading at about 98.735 when I wrote up the trade idea, so that would be a gain  of over $2000. The EDZ9 is currently at 99.405, so there is a little bit of room yet for convergence.

The Dec 98.75 call was the at-the-money option at the time of the intial post. It had a price then of 32.0. According to the CME web site the latest price was 69, meaning the options are up  about 115%.

And of course the 98.75/99.00 call spread is at maximum profit right now.

The If the US is Japan, Buy Long Bonds hasn’t really done anything much so far. Bond prices are about level with where they were when that was written up, having given back some earlier gains.