Morgan Stanley, but what else?

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

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.

After a break!

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?

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

Automated Trading Systems - My comments

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.