Effective trading and trade ideas (BLOG)

Writing a trading blog - a really good idea

2011-01-08T14:57:00.001-08:00

I haven't been writing this blog for quite a while. In the mean-time I started working in the investment bank and I was finishing my PhD - I should be done very soon...

I looked at the blog today and I see that I really wrote about great ideas at the proper time - I think I should restart writing this, so I have a cronice of my proprietary trading.

I am starting as soon as I finish my PhD (one or two weeks)

Ideas for 2009...

2008-12-15T11:08:00.000-08:00

He he... Probably you noted that I had a short position on VW stocks... It was a good thing that I set a stop-loss. Otherwise I would lose a lot of money.

I haven't been trading recently, because I had really busy period in academia. However it a Christmas break and I have some time to think about some new good position to take.

I will soon post a message with what I think would be the greatest opportunities of the 2009. In the meantime I am waiting for your comments. If you have good ideas please let me know them!!!

Stud.

Morgan Stanley, but what else?

2008-06-24T06:52:00.000-07:00

Ok. So it seems that shorting MS was a good decision. Now the price is 37,01, so I made almost 5% on this company so far. However my target is at least 20%, so it seems there is some way to go...

Today's news are pretty gloomy... Economic revival will not come too quickly. As you remember I was thinking about shorting car makers last week. Today some more news appeared that convinced me to such a move.

The question is what would be the car maker that could suffer most? I think that would be German Volkswagen. They had really very good years, but they will also suffer from high oil prices and economics slowdown. Below you can see the graph of the recent price movements of Volkswagen (daily interval from the beginning of march).

I decided to short 100 shares of Volkswagen. :) I hope they will not let me down! ;)

Second day of trading

2008-06-20T08:11:00.001-07:00

Cool. It seems the banking industry is weaker than I thought. That should be good for my short position in 513 Morgan Stanley stocks (at this stage I am losing -1,36% on this position, but that is basically the spread I had to pay).

Today, the breaking news was that China is going to increase the price of oil domestically. Unfortunately, this led only to a very minor fall in the global price of the oil. It seems that the demand pressure is so strong that that we are far away from the demand/supply equilibrium in the financial markets. I am not a specialist in the Oil industry, so I am far from placing bets on this, but number of entities predict the rise of the oil price to the level of 200 USD per barrel. That's a lot! However in real terms it would not be such an unimaginable level. The inflation, which is about to take off soon, will decrease the relative pain.

The only tradable information today, was about very poor performance of Chrystler and Auto industry in general. I think about this on the weekend. Maybe I short some auto companies on Monday.

First step - analysis of macroeconomics

2008-06-19T10:30:00.000-07:00

So here I am with my 100.000 EUR to start trading. Now this money is on bank account and is waiting for me to start trading.

In order not to go straight into red (loosing) I need to better understand current macroeconomic climat. In order to do that I bought the Financial Times (I think it is much better then WSJ) and I will be buying it everyday to get insight into economics.

Today's headline is "King and Darling issue bleak forecast". It seems that inflation is a major concern right now. It seems that guys want to react to the rising price pressure and want to kill rising inflation expectations. Ok - That would be good for long term for the economy to have stable inflation, but in the short term this means:

Negative pressure on the equity markets - at this stage noone should expect any happy rally in the equity markets. It seems all we can hope for is to avoid major fall in the prices of equities.
Positive pressure on GBP exchange rate. The depreciation of GBP (against EUR for example) should at least slow down in the near feature.
Higher pressure on MBS market. Ok. Maybe the mortgage market already showed all it's dark sides any nothing more will be exposed.
General slowdown in Economics => bad for retailers.
Some additional pressure on investment banks.

As you see at this stage it is hard to put any trades. We need some more details.

And here come first. On the first side of Financial Times we have: "MStanley in rogue trade probe" - it seems that this particular investment bank has real internal problems. (I applied there for an internship, but they didn't want me - another argument). So that would be my first trade!

I am selling short MStanley! I start with small amount of 20000 USD - I have to think it over again tommorow. But I think that would be a good trade.

After a break!

2008-06-17T10:01:00.000-07:00

Dear all!

Now, I am back to trading! I had to finish my last PhD exams and now I am starting to trade again, so you will see the posts online more often.
Since the begining of the February, when I had last time my position opened, a lot has happened in the financial markets.

It seems that we are going to experience years of higher volatility in the world. The inflation seems to be running out of control, so the central banks will have to start their counter-inflationary policy. On how they implement this policy depends the future volatility of the markets. Interest rates will be higher for sure, but higher rates mean higher volatility and higher expected returns, so it's good guys. We will soon see number of global macro opportunities!

What to trade during the global recession?

2008-01-02T09:48:00.000-08:00

It is hard time now for everyone who wants to trade equities now. The capital market is predicted to be stagnant for at least one or two years. Probably you will not see many opportunities on equities market soon.

So what should you do if you want to trade for living. The answer is: foreign exchange. During the crisis or recession FX markets offer great and aboundant opportunities.
Basic strategy is to buy currencies of the countries which would suffer most severly and to invest into currencies of the countries that are more immune to global slowdown.

The most obvious example of this strategy is taking EURGBP long. Great Britan is the country is suffering a lot because of the credit crunch. Too high real estate prices and rising inflation in GB compared to relatively stable economic environment in EU suggest that taking EURGBP is no-brainer medium term trade for now.

Other potentially interesting trades are long EURJPY or short EURPLN

Results of the first survey

2007-09-09T03:51:00.000-07:00

Automated Trading Systems - My comments

2007-09-06T14:35:00.000-07:00

A reader of my second blog: http://phdmbacfa.blogspot.com/ send me a link to the free book about the famous Turtle Trading System (http://freeforexebooks.com/Other/turtlerules.pdf). From his personal experience is seems however, (he implemented trading rules in C#) that these strategies do not perform very well in the market. The sharp ratio is not superior.

How that can happen that famous trading rules, which are rumored to have brought millions in profits are useless nowadays?

Possible explanations are:

1. Strategies are quite old. Nowadays, market behaves differently than when Turtles were on the market.
2. Modern quantitative strategies of investment banks exploit mispricing so effectively that any old-style strategy will be beaten by IBank computers.
3. Revealed strategy is not complete/accurate.

(If you find another reason just put it in comments)

I think that most probable is the first explanation. Today market works differently than when Turtles traded. Their strategies and tricks are not as efficient as they were 15 years ago.

The role of the trader is to look constantly for superior strategy. It's like the work of the inventor. You need to check hundreds of solutions and ideas to find these that lead to superior returns. That is very nice in this job. You cannot learn it from books, because the facts in books are outdated. What worked years or weeks ago, may be completely useless today. Your task is to look for new ideas and maybe by accident you'll find a rule that will lead you to the Mont Everest of trading.

EURUSD technical analysis for the new week

2007-08-26T15:01:00.000-07:00

Technically, it seems that EURUSD will be testing levels 1.3736-1,3813 which were seen in the first week of August. If that happens we should expect FX rate to test these levels on Wendsday or on Thursday. However, due to short term reasons (global flight to quality) I am expecting that USD will NOT depreciate above these levels. In the middle of the week EURUSD will probably stabilize.

What should you trade?

2007-08-23T16:19:00.000-07:00

This is an important question that every trader has to answer - which instrument suits her/his trading style best... Where she or he can profit markets most?

Fortunately there are not so many possible options: currencies, bonds, derivatives, equities etc.

Normally, derivatives (like options, swaptions etc) are quite advance instruments when it comes to pricing and trading - beginers and intermediate traders shall not base their strategies on derivatives.
Bonds require very detailed knowledge of monetary economics. If you want to trade bonds (or other FI products) successfully, you need to track FEDs or ECBs policy very carefully. This is not as simple as it may seem. Additionally, not so many trading platforms offer good products for those who want to trade bonds.
After excluding complex derivatives and bonds you are left with stocks and currencies. The decision which instrument to chose should depend on your attitude to trading. If you like tracking hundreds of companies at the same time, and you want to base your investment strategies on fundamentals - stocks should be your prime choice. On the other hand if you prefer technical analysis and you rather want to focus on the price dynamics currency trading is what you should chose.

DJIA Longterm trend still sustained

2007-08-22T03:45:00.000-07:00

Although short term dynamics of the stock market is very unfavorable and we should expect further fall in the equity indices, long term prospects don't look so bad. Simple technical analysis shows that DJIA was able to move back into the long term growth channel (indicated by parallel lines on the chart) after large falls touched the market in last weeks.
One of the rules of technical analysis says that when indices move back quickly to support lines this support lines are extremely strong and should be considered to be support in the future. This suggest that in long term we should expect rise in equity indices

EURUSD in a narrow range

2007-08-22T02:50:00.000-07:00

For last four days EURUSD is trading in a narrow range. On the one hand this is a good proof of the claim from my previous post (currency market stable when equities turbulent) but on the other hand it seems that the market is awaiting some news that will input a momentum on the market. The currency market is now consolidating and we should expect increased volatility in the days to come. Fundamentaly EURUSD should go up, but in the short term we would rather see further appreciation of the dolar, just because there is a constant flow of investor's money to safe instruments and US T-Bonds are considered to be the safest in the world.

Weak stock market = time for currency trading

2007-08-21T08:32:00.000-07:00

As you see, the world stock markets are not robust at all. Even Fed and ECB (European Central Bank) have to act in order to fight with the poor mood on the world equity markets. It seems that it is now a good time for currency trading. Traders, who trade on their own account should move now to more liquid and less turbulent FX markets.
Strategy seems to be extremely easy now. You should have "safe" currencies long (CHF, USD, EUR) and emerging market currencies short (PLN, ZAR etc). Global flight to liquidity should lead to the appreciation of safe currencies in the short to medium term.
Of course, you may argue, that fundamentals of some of these "safe" currencies are quite weak (look at US twin deficit). Yes, that is true, but in fact fears of investors (global equity panic) should lead to the so called flight to liquidity and G7 currencies will become stronger in spite of their structural weaknesses.
Currency trading will give good opportunities especially now, as for example USD has positive carry trade against some of these "riskier" currencies, so not only we will win on the appreciation but also on the greater interest rates in US than in Poland for example.
So my advice for know is to focus on currencies. This is safe heaven when we compare it to the stock markets.

Blog start

2007-08-04T04:53:00.000-07:00

Hi guys,

welcome to my blog - the website about proprietary trading and investments.
I hope you will comment on all I write!

Best