See a complete explanation of the carry trade strategy here.
See a monthly breakdown of all cash flows, profits and losses here.
Post a message or question to me on my Forex Factory journal.
Happy New Year!!
(2013 has left the building, but we'll...keep pipping up!)
Happy Holidays, everyone!!
(...and keep pipping up!)
There are new simplified trading rules in this Forex Factory post. It shouldn't be too complicated
to...keep pipping up!
For those in the U.S., Happy Thanksgiving!!
So. Much. Pie. mmmmmmmm! Anyway...keep pipping up!
I've begun posting the explanation for the new trading methodology in
this post. I'll continue it throughout the week. As always...keep pipping up!!
I've completed the strategy overhaul for the trading piece and will be posting the details on my Forex Factory journal this week, starting tomorrow. So stay tuned and... keep pipping up!
Back for the second post in single week! I've posted more details on the current self imposed trading halt in this post on my Forex Factory journnal. There's an eye opening chart of cumulative cash flow by source there which should make it clear that a trading strategy overhaul is necessary. So it's time to do some strategizing so I can...keep pipping up!
Hey it's a post! From me! Yay! Ok, day to day trading is suspended
while I review the strategy of that. The current method is definitely not working out. This doesn't affect the overall strategy of the carry trade, just the day to day trading piece. I'll be posting more details on my Forex Factory journal this week, and I'll post again here when I do that. So don't freak out and...keep pipping up!
Happy New Year!!
(2012 is in the bag, but we'll...keep pipping up!)
Happy Holidays, everyone!!
For those in the U.S., Happy Thanksgiving!!
I'm quite stuffed. After my nap I plan to...keep pipping up!
Just a quick note today. I've started to incorporate the Williams %Range indicator into my buy/sell decisions, basically as a negative filter. As always, the position size boundaries trump everything, so this new filter only applies if we're inside the bounds. If the %R is above -25% (overbought territory) I don't take buy signals. Conversely, if the %R is below -75% then the price is too low for me to take sell signals. That's about it, so...keep pipping up!
Hey, what's up with the margin percentage today? Yep, it's just a typo in the graphic. The actual margin level is 13.2%, not 3.2% so everything's fine. Good grief...keep pipping up!
The complete explanation of the new position sizing method is up in
my Forex Factory forum starting with
this post. So have fun with that and...keep pipping up!
Still trying to get a chance to post details on the new position sizing
method. I'll see if I can get to it over the long weekend coming up.
Until then...keep pipping up!
Another post in less than a week?? Vut? Vut? (cheeckenbutt). Right,
so anyway I'm still not satisfied with my technique of trading around
the core position. It vexes me. I'm terribly vexed! I'll be
thinking about that and possibly making some more changes.
Always thinking about how to...keep pipping up!
Hey there! I made a bit of a tweak to the mechanical system today,
so I'll post it here for posterity. Basically, I don't want to be
eaten up by spread as I adjust my position in order to stay within
my margin parameters. So I've set a minimum order size based on a
percentage of my position size. I currently have this set to 1% of
position size, but it's adjustable.
Anyway...so for example right now my position size is $18,970, so I don't
want to deal with placing any orders worth less than $190. The system was
flashing some small buyback orders today for about $30 and $40, so since
those aren't large enough based on my new minimum order size rule, I didn't
place any orders. The final system output is a "Hold" now instead of
some little piddly orders that eat up cash in spread.
Cutting down on churning can only help me to...keep pipping up!
Happy Birthday Rebecca Black!! :o) :o)
Yep, I'm a fan.
Oanda had three rates listed for the TRY this morning, with 9.20% being the last one. So I've switched from the South African Rand (ZAR) into Turkish Lira. Looks like the worldwide surge in interest rates is starting, which just makes it that much easier to...keep pipping up!
So I think I'm leaving too much interest on the table while waiting for these trailing orders to fill, so I'm going to switch to just placing market orders as needed each day. In order not to create too much churning and to stay within the margin risk control limits, I'll be calculating the order sizes in the same way, but cutting the final size in half.
Thus, when the system is flashing that I'm too light in USD/HUF by $500 for example, I'll add only $250 to the position that day. If the situation stays the same, I'll have to add another $130 (rounded up) the next day, $60 the next day and so on. Same thing for liquidating to meet margin limits.
So instead of making infrequent large trades, I'll be making more frequent smaller trades to fine tune the position. So that's the most recent tweak in my quest to...keep pipping up!
For the first time since this project started two years ago, I've switched into a different position. Oanda's bid on the TRY swap dropped to 4.80% making it the fourth highest yielding currency available. The Indian Rupee (INR) has a 5.00% bid, so it's out of Turkey for me and into mysterious India where I can...keep pipping up!
Happy New Year!!
(2012 is the year to...keep pipping up!)
Happy Holidays, everyone!!
(...and keep pipping up!)
Happy Turkey Day! (Thanksgiving tomorrow in the U.S.)
pssst! Once you're done eating...keep pipping up!
Steve Jobs, 1955 - 2011. Rest in peace, friend. Rest in peace.
The redesign is complete, and there wasn't much to it. All I've done is add a new rule that maintains the total position value at a level between 4 and 8 times the account equity. This equates to margin levels of 12.5% to 25%. So I'm still using the same formula to compute my order sizes, but then I'm adjusting that "Order Advice" when necessary to keep the position within the margin boundaries.
When the position gets larger than 8 times equity, then my risk has gotten too high and must be reduced. When the position moves below 4 times equity then I'm losing precious interest income and must adjust upwards for that.
Tonight provides an extreme example of how this works. Based on the huge increase in the USD, my basic "Order Advice" formula is telling me to increase my positions by $23,000. This is clearly martingale insanity, so my new rule comes to the rescue. In order for me to keep my position size below 8 times equity, I actually had to reduce my position by $2,660. In cases like this, where I'm outside the boundaries, I simply enter market orders. The trailing stops are fine for those periods when I'm within the bounds, but when the position strays outside those bounds I fix it immediately.
I've added appropriate sections and headings to the summary table at the top of the page to reflect the new rule. I'll add a note to the explanation page as well. Hopefully with this risk control measure in place, I can stop pipping down and...keep pipping up!
Staying the course is nice unless the course is heading straight for an iceberg. As Hungary's economy begins to implode, Turkey rattles sabers at Israel, Greek default rumors sweep Europe and everyone charges back into the dollar and sells everything else, my equity dropped to under 8% of my position size.
So. So I cut my positions by 1/3 and cancelled all open orders. This caused a booked loss of over $700 for this month, but that's OK. Grass is green, sun is warm, and interest still comes in every day, which it wouldn't if my account were wiped out by a margin call. Remember under the new rules, exotics are capped at a leverage of 20:1, so the limit is 5% margin.
This week I'll be redesigning the order sizing system to maintain my margin between boundaries of 15% and 30%. More details on that as I work them out. Until then, keep your powder dry, your account solvent, and keep pipping up!
Almost three weeks of trying to get Oanda to explain what happened to my missing $300 deposit. Five sessions with their online help reps. And the change in their story? Priceless.
First it was, "Oh, we don't take debit cards so we sent the deposit back to to Fidelity (where my debit card account is) and it should take five business days to show up..."
Then it was, "Oh, actually we never actually got your deposit because we rejected it before it ever got here so Fidelity is actually holding it, so you should call them..."
Well I DID call them and they confirmed that Oanda received the $300 on 8/14. When I told Fidelity what Oanda was claiming, Fidelity swung into action and put their dispute team attorneys on the case. 2-1/2 business days later, the cash is back in my Fidelity account. SMACKDOWN! Fidelity-1, Oanda's crappy customer cash handling procedures-0.
The only reason I don't immediately switch from Oanda now is that their trading system has great benefits like interest accumulated to the nearest second, extreme granularity on order sizes, availability of the exotics that I trade, nice chart/trading interface, etc. But I'm looking around. I'm like the neglected spouse who finally decides that maybe there IS something better out there...and as soon as I find it, I'm out of here.
I'll try switching to PayPal exclusively and just eating the fees since Oanda can't seem to come up with a convenient, fast, inexpensive and reliable option unlike most other brokers who are happy to make it easy to take your money. So as soon as I get a deposit to actually arrive at Oanda without them losing it, I'll be able to...keep pipping up!
One of the most volatile weeks in history and my position coverage dropped below 13%, so a perfect time to send in a double deposit just to be safe right? Right! So Oanda picks right NOW to hurl all over itself by keeping my (usually instantaneous) Visa card deposit in PENDING status for four days now. Two discussions with online help reps, and of course they have no idea why it's happening.
The money keeps leaving my checking account, not arriving at Oanda, and then going back into my checking account. At the moment, it's out of my checking account, but it's not at Oanda. So where is it? And I could understand if I had a typo in the card number or something, and the deposit was rejected. But I have no idea if that's what happened because they didn't give me any kind of error message. They didn't approve it OR reject it. It's just PENDING in limbo. How bizarre.
Now if I was a conspiracy nut, I'd be thinking that if Oanda is a bucket shop, then they would lose money when customers (like me) make money. So they would do everything they could to prevent this extremely important and time sensitive deposit from going through in the hopes that a margin call will take me down. They may even be thinking that they've GOT TO stop me from growing this account before my very public carry trade strategy gains a huge following and puts them out of business. But that would be silly, right? Ummm....RIGHT? Yeah. Ha ha.
So...ANYWAY, whenever this stupid situation manages to resolve itself, I'll start making much smaller more frequent deposits; maybe $50/week or so. Maybe I'll do $5/day just to annoy them into fixing their user-unfriendly deposit system. That way, if one fails because of their crazy, buggy, apparently still in early beta testing system, it won't have such a potentially dangerous impact on the health of the account.
If I can't manage to deposit money easily into the account, it makes it EXTREMELY difficult to...keep pipping up!
U.S. downgraded by S&P to AA+, global markets melt down, account equity plunges, profits wiped out. So how was YOUR weekend?? Looks like I'll have to double my efforts in order to... keep pipping up!
Memphis got hit with a freak thunderstorm on Monday that lasted all of about 20 minutes and managed to knock out power to about 40,000 homes around the city. 70 MPH winds. Nice. So I had no power for about 36 hours, and I'm just catching up on everything. So watch out for the lightning, and keep pipping up!
The ROE was in the red for May, dropping by 11%. There was a nice recovery during the past few days of the month though, so it could be worse. Today's interest income hit a new high of $1.81. The breakdown of this month's returns are posted on the monthly breakdown. Here comes the summer (in the Northern Hemisphere at least), so keep cool and keep pipping up!
Wait. Wut? Three days in a row? Wao!!! Anyway, I re-thought my plan for switching positions if and when it becomes necessary. Instead of going all crazy and trailing two huge orders, hoping that they'll fill at around the same time, I have a more sane approach. What I'll do instead is add the USD/INR (or whatever) position as a fourth row in each of the "Target Asset Allocation", "Actual Current Positions, and "Open Orders" sections of the daily summary table above. I'll then set the "Interest Rate Bid" value of USD/ZAR (or whatever position is going away) to zero. To avoid confusion with Oanda's actual interest rate bid, I'll black out the zeroed-out cell. This will make the "Target Allocation" for that position equal to zero as well. Then, the daily calculations of order sizes will eventually move me out of one position and into the other. So that's the plan, and I thought I'd better post it here in case I forget it when the time comes. It's almost time for chicken, so... keep pipping up!
Yes, I'm posting two days in a row! Today the Reserve Bank of India raised its benchmark rate by 50 basis points to 7.25%. This brings the rate spread on USD/INR at Oanda up to 5.00% which ties it with the spread on USD/ZAR, my current 3rd place currency. If the rate on the Rupee surpasses that of the Rand, I'll have to switch my position. I'll do this by setting a trailing buy on USD/ZAR and a trailing sell on USD/INR for the full dollar value of the current USD/ZAR position. These two orders probably won't fill at the same time, so I may have a situation where I'm over/under-extended on one currency or the other. We'll see how it goes, since if it happens it will be the first time I make such a switch in the account. In the meantime...keep pipping up!
Well, that's it for month #16 of the 10-year plan. The return on equity was 16% for April, and the average ROE for the past 5 months is 9.6%. Keep pipping up!
Month #15 is in the can, and it was a good one! I've added a new column on the monthly breakdown chart to show return on equity (not counting the deposit of course). The ROE for March was a hefty 22%, but most of that is in open profit which can disappear fairly quickly. As always...keep pipping up!
Just a quick clarification on the chart guidelines. As new local highs or lows appear on the chart, I'll adjust the guidelines to always connect the last two of those. This allows me to move the trailing orders more aggressively behind the price as opposed to keeping them miles away due to a nearly flat guideline constructed near the beginning of a move. So anyway...keep pipping up!
After a year I've managed to nail down how I want to draw these guidelines that I use on the charts to determine the price levels of my orders. Each line must connect two wicks so that the line does not intersect any part of a candle to the right of its origin, and the two wicks must be the furthest ones to the right which satisfy this condition. If price ever breaks the line, I draw a fan line from the origin and use that as the new guideline. I begin a new line either when my order fills or when I cancel it due to a change in direction. The zoom level on each of the charts above is set to show the entire guideline if possible. And of course...keep pipping up!
I got my 1099INT from Oanda today, and it shows $127.18 in interest for 2010. w00t! I'm projecting that income for 2011 will be over $400, which means that after this year I can no longer use the 1040EZ to do my taxes. That's kind of a milestone I guess. Anyway...keep pipping up!
Well, that's month #13 in the can, and it wasn't very lucky. Mainly due to the decline in the Turkish Lira, my open profit went from $190 in the green to about $16 in the red, a loss of over $200. This month's deposit, plus the interest and some booked profits kept the overall equity in the account fairly even. Income is over $30/month now. Go look at a detailed breakdown of this months results, and keep pipping up!
Just a quick post to say that January's deposit of $150 is on the way. Keep pipping up!
The daily income broke the buck last Thursday, and it's up to a peak of $1.23 now. w00t! I have to archive the posts from 2010 one of these days. Keep pipping up!
Happy New Year!!
Wut? Oh, hai. Yes, I'm actually posting two days in a row! wao! Anyway, starting in 2011 I'll be breaking down my monthly activity to quantify changes in equity due to interest, open vs. booked profits, and deposits. I'm not sure yet how I'll display that on the site. Keep pipping up!
Well the big deposit is finally in the account. I had to make up for four months which would be $600, but I actually sent $580 to make the total deposits come out to multiples of $100. So the $820 I had before plus this deposit brings me to $1400 in total deposits so far. Back on track, and keep pipping up!
Happy Holidays, everyone!!
Hey! Hai! Where the heck is the deposit you ask? Yes I know, I'm very late on last month's deposit for a couple of reasons. First of all I had slightly more in the way of expenses, and even a slight increase eats way into my "disposable" income from which the deposits come. Secondly, I'm saving up for moving expenses which are coming up over the next couple of months. I should be completely caught up by year end though, so... keep pipping up!
Tonight marks the end of the third full quarter of the plan. With the huge drop in the U.S. dollar in September, the equity on the account is almost 50% greater than I projected it to be at this point. The margin level is well within the "sleep at night" zone in the mid 20% range.
The only downside right now is that because of the large open profit, I haven't been building the position size as quickly as projected. Thus, the daily income level is lower than it should be at this point. Of course this is more than compensated for by the large open profit, but that can begin to turn around at any time. When it does though, I'm positioned to cash out some of the profits with my trailing buy orders on the greenback.
I think we may be seeing some dollar accumulation into this plunge by the big institutions in preparation for the U.S. mid-term elections in less than five weeks. If there's a huge backlash against the massive debt increase, the administration and the establishment machines of both parties, we may see an optimistic upward pullback over the next few months. I think this will turn out to just be a correction in the long term dollar slide however, as economic power continues to shift away from New York and London toward the western edge of the Pacific rim. EDIT:And why didn't anyone remind me to say...keep pipping up!!
You know when you wake up from a dream about accidentally driving the CEO's car into a lake and feel so relieved when you realize it wasn't real? That's where I am today as I emerge from some kind of brain cramp. For the past couple of days, I've been a little freaked out about the new CFTC rule calling for 50:1 leverage on majors and (gasp!) 20:1 on exotics. I was thinking I'd be bumping up against that 20 all the time because at only 17% margin today I'm already below it and...wait. wut????? Oh. Never mind. Umm, 20:1 leverage, righttt. That's only 5% margin and I don't plan to ever be below 15%. I somehow had it stuck in my head that the 20 was the minimum margin percentage. Whew!
But while the ruling won't affect my carry plan, as a laissez-faire capitalist I'm still pretty un-freakin' happy about it anyway. By what right? Of course that's been the question since way before the anti-trust laws in my opinion, but this isn't the place to discuss what to do it about it. They haven't killed me with regulations (at least not today), so for the time being I can...keep pipping up!
Regular readers of this page will have noticed that I always close my posts with the words "keep pipping up." A few of you will have guessed that the inspiration for those closing words came from the great Jack Horkheimer, whose nightly "Star Hustler" amateur astronomy lessons gave enjoyment to late night TV viewers all around the country for many years. Sadly, I heard that Jack passed away over the weekend. So I'd like to bend my little tradition here, and remind all of Jack's fans to take the advice he gave us at the close of each show; "Keep looking up!"
Wut?? Oh, hai. There's some new stuff on the site! I took off the boring intro and added a couple of progress charts instead. The first one shows progress of the entire carry trade project by month, and the one below that shows the day-by-day fluctuations for the current month. The summary table is still there along with the three position charts. And of course there's still a place for me to post a short (and occasionally silly) daily blurb. A picture is worth a thousand words, so now it's easier to see at a glance if I can...keep pipping up!
I've tidied up the calculations for the order sizes on individual positions so that they actually add up to the order size calculated for the entire account. I don't know why I couldn't get it right the first time I did it. It's not exactly rocket science, but I guess I was just too busy trying to...keep pipping up!
Well here we are at the six month mark, and the account hasn't blown up yet. w00t! My daily interest income just hit a high of a whopping 31 cents per day which, while it won't pay the rent, would cover the cost of a couple of happy meals each month. The position size is just $23 under the projected amount for today, so the plan is right on track. I haven't posted much here on the "blog" part of the page, mainly because there isn't much to say. I haven't had to fiddle with the plan, and my trading has become pretty boring. Those are two encouraging signs of success, so I suppose I'll just keep pipping up!
The charts now have the actual current dollar profit or loss showing on them, so I'd like to mention a possible source of confusion. The total of the open profits/losses on the positions don't add up to the total profit or loss on the account because there are historical profits and losses as well. When PayPal takes a cut, or when I buy back part of a position at a profit or loss, that affects the total figure. The charts are only showing how much the current positions are contributing to that total figure. So...keep pipping up!
Although you won't see any changes to the summary table and the accompanying order size calculation, I've made a slight change in the background regarding how I disperse the given order size among the three positions. When increasing the position size I want to give more weight to the positions with the highest loss, and vice-versa for when I'm shedding position size. So while the overall order size for each day that you see in the table has always been adjusted based on the profit/loss of the overall account, I'm now applying this philosophy to the individual positions in order to allocate that daily order.
These position specific calculations don't show up on the table, but if anyone's interested in the actual method just leave a message for me on my Forex Factory journal and I'll provide the details there. That way I won't end up writing out an explanation that no one reads, and we can all just keep pipping up!
I suppose it would be the height of negligence not to at least post something on a day like today. The dollar's been rising for days due to the Greek debt crisis, while the U.S. stock market has been in a decline all week. Then to top it off, some trader fat-fingers a futures trade and sold 15 BILLION P&G instead of the intended 15 MILLION (according to sources cited by CNBC), causing the Dow to drop to a loss of almost 1,000 points in a matter of seconds before snapping back up.
The rise in the dollar has been kicking my account in the teeth of course; I'm down about 16% on total deposits as of today. However, the events in Europe may be playing out in favor of my interests over the long run. With a hefty advance in the dollar during the early building stages of my account, I'm able to build positions in potentially high yielding currencies at great prices during a time when it's easy for me to support the account with deposits when necessary.
But then let's look at what may be in store for the later years. Eventually everyone's going to be forced to monetize this debt, leading to inflationary pressures which will drive world interest rates up. The widening carry spread resulting from this can only be good for me. And what happens if the Eurozone collapses? That event would remove a large fundamental risk from my account strategy, namely that Turkey and Hungary give up their local currencies and adopt the Euro.
Stay tuned and keep pipping up!
My first $150 deposit cleared today, but after PayPal took their cut it ended up being only $146.85. Take a look at the explanation page to see the updated projections for the account. I've now based these on a defined increase in the margin percentage of the account from 15% to about 27% over the remainder of the 10-year period.
Today was a banner day for the U.S. Dollar as investors around the world became spooked by reductions in the debt ratings for both Greece and Portugal. Although my positions took losses, the advantage to me is that my trailing sell orders on USD/HUF and USD/ZAR are now at much better levels. As always, keep pipping up!
I'm still waiting for that sell order on USD/HUF to fill, but that's not why I'm posting tonight. I've become pretty confident with this long term carry approach, so starting next week, I'll be making monthly deposits to the account. w00t! At this point I can afford to move about $150 a month into the account, but of course this may change over time with my circumstances. During the coming weekend I'll be revising the explanation page to reflect this, and the summary table at the top of the page will undergo some changes as well. Stay tuned, and keep pipping up!
My buyback order for USD/TRY filled and I've placed a sell order for 19 USD/HUF as shown in today's chart. I'm posting today about the USD/TRY buyback however, since there may be some confusion as to whether or not this transaction yielded a profit.
Since my average short entry on the pair was 1.4910 and I bought 49 units back at 1.4850, my profit should have been 60 pips on these 49 units. If we look at this as an isolated round trip, my initial action was to exchange 49 USD for 73.059 Lira (49 x 1.4910). Then at the lower price of 1.4850, I only had to exchange 72.765 of those Lira into USD to repay my $49, leaving me with a net profit of 0.294 Lira. At the current price of 1.4850, this translated to a profit of about 20 cents.
But as anyone who's been watching my balances each day knows, my Oanda cash deposit value actually went down after this transaction. Why did this happen, and what happened to my 20 cents? The answer to the first question lies in the accounting rule known as FIFO (First In First Out) which stipulates that any closing transaction must be applied against the earliest opening transactions first. So although my entire short position of 295 USD/TRY had an average entry price of 1.4910, the 49 units that I bought back actually had a lower average entry price. Thus I took a loss on those specific 49 units.
So if I took a loss based on the FIFO rule, how do I actually end up with a net profit of 20 cents you ask? The answer is that my remaining position is now made up of entries with a higher average price. My average entry on the remaining 246 units of USD/TRY is no longer 1.4910, but 1.4971. This is a 61 pip gain on these remaining 246 units, and if we do the math out as I did above we find that this translates to a profit of $1.02. When I check my deposit history, I see that it went from $74.40 to 73.58 as a result of the buyback transaction. So everything works out just right. My deposit balance lost 82 cents, but my open position is more profitable by $1.02, which is a net profit of 20 cents. The chart below shows the remaining breakdown of my current position in USD/TRY.
After that long winded explanation I hope I have enough energy left to say...keep pipping up!
I think it was a mistake to reduce the USD/HUF position down to zero, because it was already too small in relation to the USD/TRY position. What I should have done instead when the order calculator indicated a reduction was to simply hold off on placing the buy order. At some point, as the deposit gets larger due to interest payments, the reduction (buy) order would stop being indicated anyway. Or, if the USD/TRY position had moved into profit, I could have done the reductions there. I won't make the same mistake with the S.A. Rand position. That's why I'm not placing a buy order on it here even though it's in profit and the calculator is indicating a buyback of 27 units. So I'll just keep collecting interest and keep pipping up!
The National Bank of Hungary (MNB) cut it's rates by 50 basis points today in what was reported by the Budapest Business Journal as a widely expected move. The recent downswing in the dollar seems to have trumped that news though (or more likely the rate drop was already discounted in) because the USD/HUF continues to move south.
My ZAR order filled as chronicled in the chart above. The order calculator is indicating a dollar repurchase of 17 units, however only my remaining 2 units of HUF are still in profit. Therefore I've placed an order to sell those, but will hold off on reducing my other positions until I can do so at a profit.
Starting tomorrow you'll be able to see my average entry levels for each position in the summary table. Until then...keep pipping up!
The South African Reserve Bank cut interest rates from 7.00% to 6.50% today in what was apparently an unexpected move. Note that in the summary table above I show the rate as 6.0% because that's the actual bid rate that I receive on any long position in the Rand.
I'm almost completely out of my USD/HUF position now, leaving the USD/TRY position by itself. Consequently, I decided to put my current sell order of 18 units into the USD/ZAR, thus attempting to diversify into the South African Rand. This is a bit sketchy since the Rand is relatively high against the dollar at this point with the pair apparently sitting on a very obvious support level. Hopefully I can trail the price back up with sell orders and manage to enter at much better levels. At any rate, the diversification is worth the trouble. As always, keep pipping up!
Happy Saint Patrick's Day!! Keep pippin' up lads & lasses...
We're back to a chart of USD/HUF today which shows the fill of the 13 unit buy order from yesterday. On the USD/TRY front there's an open order to sell 3 more units at 1.5200. Starting tomorrow, I'll be showing the open orders in the summary table at the top of the page so it won't be necessary to make a separate post for every open order that doesn't show up in the selected chart. Keep pipping up!
In a similar fashion to last week, I've got activity in two positions so I've just put the larger one up in the chart above. In addition to the order that filled on USD/TRY, I've got an order to buy back 13 more units of USD/HUF at 196.50. Keep pipping up!
Just a quick post today because I had activity in two positions, and the single chart at the top of the page doesn't tell the whole story. The profit-taking order to buy back 11 USD/HUF at 196.00 filled today, bringing my short position there to 28 units at an average price of 199.15. Now I'm back in the market for more Turkish Lira with the order shown in the chart above. Keep pipping up!
I haven't posted here in the blog for a couple of weeks because all the pertinent information about what I'm doing appears in the daily updates of the chart and table at the top of the page. However today we've got some interesting events. First of all, the Magyar Nemzeti Bank reduced Hungarian interest rates by 25 basis points in what was apparently a widely expected move. I skim the headlines of the Hungarian Business Journal almost every day, but I actually didn't know this was coming up. Anyway, it didn't move the price all that much.
Turkey was another matter entirely. The Islamic-leaning government arrested dozens of pro-secular military officers who were allegedly involved in a coup plot, which apparently caused investors to dump the currency and flee back to the U.S. Dollar. Needless to say, my position in USD/TRY is at a large open loss, which presents a nice buying opportunity.
Finally, I made a change in the asset allocation method. Instead of using the 300 day Williams %R indicator as a guide to the attractiveness of each pair, I'm now using the interest rate that I receive on it, which seems a lot more logical and less contrived. Note that the interest I receive is subject to a spread, so it's not the same as the official central bank rate.
Based on the fact that Turkish rates are the most attractive, combined with the current buying opportunity in the Lira caused by the crisis in Turkey, I've decided to place the next order for TRY instead of HUF, even though I'm already overweighted in TRY. That's why we're looking at a chart of USD/TRY again today instead of a chart of the Forint.
I hope I don't forget to say...keep pipping up!
All the info on what's happening with the carry account is in the chart and table above. So why am I making a post today? Because I just found out...
They're making a sequel to Wall Street!!
Yep, it's called "Wall Street: Money Never Sleeps" and I just saw the trailer over the weekend. w00t!! Anyway, keep pipping up!
Wow, check out the weekend spread on USD/HUF; 450 pips! Needless to say, when the spread widened out today it triggered my sell order. I actually had a pip of slippage and filled at 198.49. So I'm short 20 USD/HUF in addition to my Turkish Lira position. Yay! Have a good weekend, and keep pipping up!
Introducing the Hungarian Forint! I looked at a 300 day William's %R for all three high yield currencies that I'm looking at now and the Forint is the most favorable at about -74%. This means USD/HUF is about 26% of its 300 day range off of its long term lows. The reading for the Turkish Lira is about -85% and the South African Rand stands at -91%. I think what I'll do to determine relative position sizes is to use the sum of the (1+%R) values as the denominator, and the individual (1+%R) values as the numerators. So my current denominator would be:
(26+15+9) = 50.
The relative position sizes would be:
USD/HUF: 26/50 = 52%
USD/TRY: 15/50 = 30%
USD/ZAR: 9/50 = 18%
So it's time to start building up a position in Hungary. I've added this new asset allocation method to the summary table at the top of the page. Keep pipping up!
Based on the big selloff today, the calculator is showing a reduction order of 6 units, which in the case of this short position translates to a buy order. However, since I trail buy orders about 100 pips behind the offer, my order would be somewhere around 1.4970 which would have me buying back dollars at a loss. I'm not willing to do that, so I'm not placing the order. Jesse Livermore once said that it wasn't his thinking that made big money; it was his sitting tight. So for now I'll just keep collecting interest and keep pipping up!
The kind of silly 1-unit order that I placed yesterday filled when the spread widened for the weekend. The order size calculator is flashing a sell order of 4 more units but I won't be placing anything until sometime on Sunday night or later when the spread narrows again. Have a good weekend and keep pipping up!
And there was much rejoicing as my sell order finally filled today on an intraday dip in price. Since prices are still relatively high, the order size calculator is still flashing a sell signal for 1 unit, so I've placed that order at 1.4850, about 100 pips below the current bid. Keep pipping up!
Hey! Hai! What's up with my order not filling today? Oi! Take a look at today's chart and keep pipping up!
I had an error in yesterday's post and chart, saying that the sell order I'm currently trailing started at a size of 16 units. It actually started at 15 units, and I've fixed it on today's chart. Anyway, the order is actually now up to 33 units and still trailing the high water mark of the bid by at least 100 pips. It's set at 1.4750 now. Stay tuned, and keep pipping up!
A new improvement to the homepage today! Instead of posting charts every so often in these posts, I'll just keep one up at the top of the page with the summary table. I'll update that chart each day with annotations, etc. As you can see, I'm still trailing my sell order behind the price, and it's getting larger. I trail the order 100 pips behind the bid, moving it in increments of 50 pips. Since today's price reached a high of 1.4787, the bid moved past 1.4750 at some point, so my trailing order is 100 pips behind that level at 1.4650. And this is how we keep pipping up!
The price is moving up, and I've moved the sell order up to 1.4500. The size of the order has increased to 21 units as well. Take a look at a chart of the current situation, and keep pipping up!
Simplify, simplify, simplify! I've drastically simplified the method for determining order sizes, and hopefully eliminated the problem of what happens if the position stays in profitable territory for long periods of time, thus not allowing me to increase the position size. The new simpler method is on the carry trade strategy page, and I've changed the summary table to reflect the change as well. Based on the new method, I now have an order to increase my USD/TRY position by selling 15 units at 1.4450, which I'll be trailing behind the price if it continues to move north. So now we can more simply...keep pipping up!
Oops! I forgot to update the Liquidation Fund value in the summary table yesterday. Because I bought back 11 units of USD/TRY, I have to add that $11.00 to the Liquidation Fund so I can include it in my next entry order. The spread is back up to 200 pips until the markets open again, so it's time to relax. Have a good weekend and keep pipping up!
The buy order for 11 units filled, and the next buy order amount is 7 units. I won't be placing the next buy order however until we again see lower daily highs. Keep pipping up!
I've moved the buy order down to 1.4600 and increased its size to 11 units. Keep pipping up!
About 7 or 8 hours ago, price hit a low of 1.4473, meaning that the offer was 1.4503. I've just moved the 9 unit buy order down to 1.4650 as a result. It's nice to not have to babysit the chart all day while still being able to...keep pipping up!
The sell order size moved up to 9 units as my open profit increased to over $3 on the narrower spread, so I've placed that order (it's close enough to the 10 unit minimum which is actually probably too high a minimum for a position of just 210 units to begin with). The buy order is at 1.4700 and I'll trail the offer by at least 100 pips. I may move the order in smaller increments than 100 pips though; probably 50. So tomorrow if the offer is below 1.4550, I'll move the order down to 1.4650, etc. Take a look at the chart, and keep pipping up!
First of all, it is HELLA cold here! The sell order size has moved up to 5 units, and that's with the spread on USD/TRY at 200 pips for the weekend. When the spread narrows my open profit and the order size will be larger, so I may be placing a profit taking order early next week. Until then, keep warm and keep pipping up!
The USD/TRY has moved down further into profitable territory and my calculator is flashing a take-profit order size of 2 units at this point. I'm not entering this order yet for two reasons.
The first is the rule about trailing the order at about twice the spread (I use 100 pips for USD/TRY) behind the price, and moving it from handle to handle based on round numbers. My average entry price is 1.4793, so my first order placement point would be 1.4700. In order for me to place an order there though, the offer would need to be at or below 1.4600 to satisfy the 100 pip trailing requirement.
The second reason is a new rule that I've just incorporated into the Carry Trade Strategy page which says that my profit taking orders must be at least 10 units in size. This eliminates tiny orders that don't change my deposit balance.
So it's nice to see the position in profit as I continue to collect interest, but I'm not willing to take any off the table at these prices. Instead, I guess I'll just...keep pipping up!
I'm posting again today to mention what happens in a case when the position moves into profitable territory like it did today. Yesterday I was talking about a pending entry order to sell 11 units which I haven't placed because the price is dropping. Now that we're in profitable territory, that order isn't even listed in the Carry Account Summary table, because my eye is now on a potential profit-taking exit order. So what happens to the 11 unit order that I never placed? Never fear; my pent up demand for those units is still there, and it's still rising as the days go by. Notice that I keep track of the last entry order date, currently 12/24/09. Next time the price is rising at some point above my average entry price (loss territory), I'll again be in the business of calculating the next entry order size. That calculation will take into account the fact that I haven't entered since 12/24/09, and will yield an order size that is large enough to keep me "on schedule" and...keep pipping up!
The pending sell entry order is now 11 units but I still haven't placed it because the price is plummeting. My open loss has moved from over $4.00 to only $0.11. I won't be updating this blog every day like this if nothing happens, but I'll update the Carry Account Summary table on weekdays. Keep pipping up!
Happy New Year!!
I've upgraded the Carry Account Summary table at the top of the page to reflect the actual formulas on the carry trade strategy page, and updated the data in the table. The account deposit has accumulated 21 cents in interest in the week since the last update. w00t! As of today the next entry order amount is 8 units, but I don't have an order in place for that yet. One reason for this is that the price is moving down, and I don't place the entry orders until price begins making higher daily lows. The other reason is that the spread is 200 pips right now due to the holiday and the coming weekend. So trailing a sell order at twice the spread behind the bid would put that sell order well below my Average Entry Price (AEP) of 1.4793. I'm not willing to sell at such a low price; my sales have to take place at prices above the AEP. So the big "kickoff" day won't include any actual trading or order placement, but here's a chart of the current situation.
As always...keep pipping up!
w00t! The carry trade strategy page is finished. There's a link to it under the Carry Account Summary table at the top of the page too. The official kick-off is tomorrow...keep pipping up!
Instead of breaking up the strategy explanation into a bunch of separate posts, I'm creating a new page here on the site which covers everything. I'm about 2/3 of the way through writing it, so hang in there! The "official" launch of the 10 year carry trade strategy is on New Year's day; w00t! I should have the new page done by tonight or tomorrow, and I'll include a link to it under the Carry Account Summary table above. Keep pipping...up!
I've added a table to the top of the home page which shows my current carry trade account situation. As you can see, I'm starting this long term strategy with the remnants of one of my smaller accounts, with a starting deposit of only $69.10 supporting a carry position value of $210 (short 210 USD/TRY). Although this amount is quite small, the goal is to build the carry position to a point at which it actually provides a meaningful income.
Some of the table entries will not be self-explanatory because they concern the method that I'll be using to trade around the core positions. In the next post I'll begin providing specific details of how this works. Until then...keep pipping up!
I neglected to mention two other risk reduction techniques in the last post; diversification and flexibility. Turkey happens to border at least one major world flash point, so who knows what could happen there over the next 10 years. My solution will be to build positions in other high interest currencies as well, starting with the Hungarian Forint and the South African Rand. Also, currencies that are high yielding today may be tomorrow's funding currencies, so I'll also be on the lookout for opportunities to move into better income vehicles. Unlike bonds, currencies don't have the "reinvestment risk" problem with principal, because there's no fixed maturation date on my positions. The more I think about it, the more I'm convinced that this "get rich slow" approach has to be one of the most rational ways to trade with a real edge in FOREX. As always...keep pipping up!
My goal is to continually increase the size of my income producing carry position. So let's say I want to double its size each year. By the Rule of 72, 6% per month compounded monthly is 100% per year. This in turn works out to an average daily increase of 0.2% of a starting balance over 30 days. The interest income adds to my margin deposit, reducing my level of leverage, but not by nearly enough to be safe from large "black swan" moves. I can make up the difference by trading around the core position and by making additional deposits into the account. That's the basic outline of the plan. I'll fill in details with future posts. Keep pipping up!
The more I consider it, the more I keep coming back to the conclusion that the only consistent edge in FOREX that I've seen so far consists of the advantage wrought from the the positive carry. I've suspended all other trading activity to concentrate exclusively on building my USD/TRY carry position over the very long term. The fact that Oanda pays carry interest on a daily basis, combined with the powerful potential of compound interest yields some interesting possibilities. More on this later. Keep pipping up!
One of the reasons that I consider interest rate differentials as a major pillar in a FOREX trading method is that they form the "bottom line" of the fundamental analysis side of the equation. Just as in the old FA/TA divergence method, I want to consider the real world economic factors that are putting pressure on exchange rates. But I've simplified this from looking at every news release, and just distilled it down to the rate differentials.
There are two other "pillars" to the method I'm building which I'll discuss in future posts; a "long tails" approach to trade/money management, and a method of analyzing volume in terms of market microstructure to determine entry points. Happy weekend, and keep pipping up!
Did I mention that these updates won't be daily anymore? At any rate, let's talk rates. Here's a table showing the current interest rate differentials on 18 currency pairs (read from the left side first, then the top row).
I post this because as I go back to the drawing board I'm settling on certain principles to guide the design of my next method. One of those principles is to always be in the direction of the positive carry. Currently, I only have one position open in the account; a short carry position in USD/TRY in the amount of 289% of equity. More later. As always, keep pipping up!
Frequent visitors will notice immediately that Market-geeks.com has undergone some changes this week. Gone is the FA/TA divergence strategy which was far too cumbersome for its lackluster performance. Also, I've moved the FOREX articles to a separate page of their own. Finally, I'll be keeping each update message here on the main page (and eventually in archives) instead of changing it every day in the same space as I was doing before. This way, if you don't visit the site for a few days, you'll still be able to see all of the past messages.
So for those of you who were visiting every day and following the progress of the FA/TA divergence trades, the big question must be, "well...so now what?" The answer is simply that I'm in the process of developing a new approach, which is one of the reasons I've gone to this "blog" format on the site. In addition to my more formal research notes and articles, Market-geeks.com will now be home to this journal of discovery as I record my progress toward the goal of becoming a full time currency trader. Stay tuned, and keep pipping up!!