Andrewunknown

April 26, 2008

Trading and Taxes

Filed under: General — Tags: , , — andrewunknown @ 9:26 pm

So you’re making great strides in maturation as a forex trader, demonstrated nowhere more clearly than the handsome profits you’ve booked in your brokerage account over the past year. Congratulations – that’s a whole lotta scrilla you banked there, pipster. Or, maybe your strides were interrupted by a loose shoelace around mid-May or whenever – which, to extend the metaphor is a…uh, streak of ill-advised revenge-induced trades due to some Freudian nonsense to do with a distant father figure and feelings of inferiority – and your account was gutted. Either way: how do you report it to your taxing authority (e.g. IRS)?

With the tax deadline just past, I’ve been brushing up on domestic spot forex-related tax law – what else do you do on weekends, after all? – as part of an effort to ensure my own records and reporting are set up in good order for the 2008 filing. You just can’t learn this stuff in a day or two.

Admittedly this is the very last on a long list of trading-related topics I’d prefer to research, but it does rank highly in terms of priority, and ought to for any trader: experience bears out that not every tax attorney and certainly not all (or even most) CPAs have proficiency in this area. The article linked above is highly recommended for any spot forex trader whose country of tax residence is the US.

April 23, 2008

The Sleeptrader

Two weeks past and – excepting the couple blips last weekend – nary a note from me regarding trading. The suffocating build-up to and ragged mental aftermath wrought upon me (yes, it was so bad I decided “wrought” was the appropriate verb) by an inexorable succession of events at work culminating with the tax deadline meant very little left over at the end of each day, with which I chose to trade rather than blog about trading.

Sometimes I wonder why I went back to work, and then I remember: a) for institutional training and experience, b) to earn income from an external source so it was unnecessary to tap my trading capital to live off of, and c) to induce a little more balance in life than trading can allow. I was probably saying that in my sleep each night to condition myself against any impetuous employment moves. Every wonder what you’re capable of giving away when talking in your sleep?


“Aluminum” = Code for a winning Pound Sterling trade. “Game”: Forex.

Sounds innocuous really, but looking back on those days, I fought sleep to place trades, dozed after placing the trades but before placing stops, then fought falling back to sleep to place those stops. Now it sounds like falling asleep behind the wheel on the highway late at night while driving alone: the struggle to stay awake is the most exhausting part, and you may sustain a lot of damage if you don’t get where you’re going before you collapse.

At least with trading the probability is (I’m generalizing, I know) close to one-half either way; but still: I don’t endorse sleeptrading. Nothing good can come of it. Ever wonder where that “95% of all traders (allegedly this applies to futures traders, specifically) fail in the first year” statistical bromide comes from? Well, the condition I speak of accounts for about 95% of that 95%. You can figure out the exact number.

Much like driving while asleep, or so I’ve heard: being so overcome with sleep at the wheel that one resorts to hitting oneself in the face to stay awake, which is of no effect for longer than 30 seconds or so, which requires another blow, and then another. Then becoming angry that one is angry in exactly the way one would feel angry if someone else were hitting them repeatedly; and, yet this person has a kind of transcendent reflective distance that enables them to revel that they are angry at themselves in the third person for hitting their own face in the first person.

Once the ineffectuality of self-inflicted physical abuse becomes apparent, real desperation sets in. That’s when there’s nothing left to do but careen into a Wendy’s parking lot off some random exit (at 3am, thankfully) and spin around screaming and jumping up and down and finally throwing oneself with no thought for puncture wounds onto some rather spindly, spiky bushes. It was amateur night in Transylvania when Vlad the Impaler did his thing next to them. So your three wives left you after several hundred years for a couple of carnivorous plants next to a Wendy’s dumpster in Kentucky – how ’bout it, Vlad? You can bet the Chupacabra don’t just tolerate that kind of nonsense from their – albeit mangy – women.

Yes, this is a real Chupacabra.  Action Figure.
Yes, this is a real Chupacabra. Action Figure.

This has not happened to me – the puncture wounds or being left by three wives for some bushes – this was not paid for by an insert-name-of-not-for-profit-organization-here – my name is not Andrewunknown, and I do not approve this message. Sorry, too much reading of election coverage.

The tax season is now past and with it the frenetic pace of work overshadowing the typical trading rhythm I’ve developed. More on performance in those weeks shortly….

April 13, 2008

Commissioner Almunia Speaks

Filed under: Forex News & Analysis, Trading Journal — Tags: , , — andrewunknown @ 3:02 am

Following on the heels of the G7 statement, European Commissioner Joaquin Almunia spoke before the International Monetary & Finance Committee (IMFC) on Saturday: indispensible reading (opens a PDF of the full statement).

In other news, I am determined to post a review of the trades for Week 16 before Week 17 begins…well, before Monday, anyway. But then, of what benefit is a hurried enumeration of an entire week’s trades? Not completely without merit, but posting trades as they’re opened isn’t a bad idea. After all, what is there to be afraid of – losing a few pips out in public? Being brought up on charges of impecunious exposure? I’ll figure this out.

April 12, 2008

G7: Excessive Volatility? Intervention?

Filed under: Forex News & Analysis — Tags: — andrewunknown @ 2:52 pm

A good synopsis of the G7 Meeting, including the text of the Group’s statement:

G7 Statement: Sharper Stance on Currencies

April 5, 2008

In Review: Week 14

Filed under: Trading Journal, Week In Review — Tags: , , , , , , , , , — andrewunknown @ 10:37 pm

Because pragmatic concerns (life) mean I can’t consistently cover trades taken session-by-session (that would amount to a form of slavery, anyway) or even day-by-day and I am a bit obsessive-compulsive about symmetry and completeness (e.g. “4 out of a set of 5? Throw them away” or “29 pips profit? No, it’s 30 or 20, but not 29!” or “A millimeter to the left. No, I’m not kidding; A millimeter to the left”), I’ve decided to resign from the personal expectation of blogging trades as they occur (or as soon thereafter), and relegate journaling trade details to a once-a-week routine, numbering the weeks according to the weeks of the year (i.e. this week is week 15 out of 52); but of course I reserve the right to publish them more often if I like. Ahh…yet another exacerbated neurosis quelled.

An unusually high number of trades this week. Overtrading a bit on AUD/USD in particular led to some silly losses. Noticeably absent here is the large upside move on the Yen crosses. Several good setups came about around the London open on Tuesday, but I was a bit too late to the party (middle of the night) to act on them and so I passed when I saw them in the morning here. Much to my dismay as the 198.50 trigger on GBP/JPY I missed, for example, made it just above 204 before I had a read on a sell there. All that aside, a great week.

Day 1 – Sunday, 03/30/08:
SHT AUD/USD @ .9147. Closed @ .9146: +1
SHT AUD/JPY @ 91.47. Closed @ 91.12: +35
SHT GBP/JPY @ 199.52. Closed @ 198.11: +141

Pips: +177

Day 3 – Tuesday, 04/01/08
S EUR/USD @ 157.09. Closed @ 156.58: +51
L USD/CHF @ 1.0012. Closed @ 1.0032: +20.
S EUR/CAD @ 1.6010. Stopped out @ 160.55: -45
S EUR/AUD @ 1.7163. Stopped out @ 172.09: -46
B GBP/CHF @ 199.74. Closed @ 2.0039: +65
S EUR/CAD @ 159.58. Stopped out @ 159.43: +15
S EUR/AUD @ 171.84. Stopped out @ B/E: +0

Pips: +60

Day 4 – Wednesday, 04/02/08
S USD/CAD @ 1.0166. Closed @ 1.0066 (on 4/03/08): +100
S EUR/AUD @ 1.7113. Stopped out @ 1.7177: -64
S EUR/USD @ 1.5667. Closed @ 1.5552: +115
S AUD/USD @ .9139. Stopped out @ .9171: -32
S EUR/AUD @ 1.7134. Closed @ 1.7008: +126
S GBP/USD @ 1.9817 . Stopped out @ 1.9875: -58
S AUD/USD @ .9119. Stopped out @ .9149: -30

Pips: +157

Day 5 – Thursday, 04/03/08
B GBP/USD @ 1.9941. Closed @ 199.53: +12
B EUR/USD @ 1.5658. Closed @ 1.5663: +5
S AUD/USD @ .9109. Closed @ .9127: -18

(flattened positions ahead of NFP)

Pips: -1

Day 6 – Friday, 04/04/08

NFP – no trades

Cumulative Pips for Week 15: +393

Wins: 12
Losses: 7

Win %: 63.2%

Selective (Market) Ignorance

Price action is the single inherent function of the marketplace: fractal in scope, present at all times in the tension between divergent perceptions of value and the streaming drama of supply and demand. Each trader is a free agent acting within a seamlessly fluid environment where mass alignment and antagonism coalesce out of the limitless, blurred disparity of its individual participants. Put simply, price is the unified description of the cacophonous din of the market crowd.

This week brought with it significant short-term moves for the USD and JPY that, taken in the isolation of the timeframe in which they occurred, are contrarian in direction but do little to subvert the prevailing long-term outlook for them. Countertrends, then, which are nothing atypical. The concrete analytical rationale for these temporary retracements in price action are very important to observe and study. Whether you employ a methodology yielding trend-following trades, countertrending movements, or both, it is all too commonplace for a trade to get stopped out at the very bottom of a pullback, whipsawed, or otherwise derailed by a momentary hesitation in price which then resolves itself into the direction you initially anticipated. All of this is why placing stops is so often referred to as an art; but this isn’t about placing stops, although the non-perfunctory, situational manner in which they ought to be placed (and which makes them so difficult to get right) tells us a lot about the structure of the marketplace.

Getting back to the examples from this week, notice the common perception of the USD and JPY: generally, the USD is thought to be on an at least medium-term depreciative march across the board, while the JPY has been advancing steadily against all the majors (though it mostly neutral vis-a-vis the Euro). Certainly the consensus of economic data corroborates, and our charts plainly bear out the psychological bias reflected everywhere from the COT to any number of blogs or message boards.

In this market context of mass alignment, taking a trade that creates disparity and antagonizes the sentiment of the crowd, even if you’re reliably certain of its positive outcome, is very difficult and can be full of misgivings when you know the spoken bias of the market is against your own analysis. Is this an incontrovertible sign you’re wrong? No, but it’s immensely challenging to suppress the notion that you are. Even if you do take the trade, the likelihood you will maintain your position if it goes against you initially is probably much lower because it will be immediately perceived as an affirmation of the bias you’re opposing. Nevertheless, this week (Friday aside) there were some excellent trade opportunities across the market long the USD and short the JPY. Again, nothing atypical.

I do not recommend reversing positions anticipating retracements, picking tops and bottoms, trading countertrend or ignoring the wider sentiment of the market: that’ll get anyone killed almost as quickly as throwing a suitcase of trading capital off a bridge, no matter how adept the analyst. What I am getting at is this: where an analysis of price that is our own (based off raw chart and statistical economic data only) is then informed by a perception of the mass consciousness and collective bias of the market, that perception can and does induce faulty analysis and irrational decisions. Sometimes, without the perception, trades we would’ve been scared out of are taken for hundreds of pips, or trades we would’ve been certain of on the basis of wider market bias almost immediately proceed to our stop price.

Ignoring the market is not an answer; but slavish adherence isn’t either. So, we have to cultivate and keep in mind the practice of another art, easily referred to but difficult to describe: selective ignorance, or the purposive filtering of expressions of sentiment to arrive at a balanced apprehension of the currency or pair analyzed. Paradoxically, conscious selectivity of what one knows and doesn’t know about the market (or anything else, for that matter) begins with acknowledgment that selectivity is necessary, and by development of one’s own faculty of self-awareness to know whether bias or irrationality is present in their analysis. More to come in a later post….

April 1, 2008

The Weekend, Trades

This past weekend featured a non-restful trip out-of-town for which I was somewhat unwillingly co-opted, which incidentally compounded with several preceding similarly event-filled weekends.

Common features to each:

  • 1) driving hundreds of miles,
  • 2) spending $40 a tank a weekend to drive those miles,
  • 3) staying as a guest at the home of another (i.e. living out of a suitcase, again, and again)
  • 4) an increasingly paranoid sense that some mischievous – malevolent? – unseen intelligence is conspiring with family members to systematically nullify any period exceeding 30 seconds for which I am heretofore under no obligation to do anything whatever, for which there is always recourse to some vague, unassailable reason in the shadow of which I can only acquiesce.

As an addendum to no. 3, further note the ubiquitous (yes, in all places) presence of cat hair lilting about breezily through the air where we stayed this past weekend – lilting breezily, that is, except for those pieces that alighted on and weaved themselves inextricably through the bristles of my (lapse of higher brain function) mistakenly exposed toothbrush. Ask me if I made that mistake only once. For some context, this is a house featuring only two cats, but a) not a few plush real cat doppelgangers (the appearance of a real cat without the overflowing litter box or added cost is the presumed benefit) stationed on furniture (or nestled together in front of the fireplace!) in different rooms, b) cat blankets, pillows, portraits, refrigerator magnets, statues and other assorted cat-worshipping artifacts, c) two cups (not one – no, each cat will have its own satellite hydration station) of water on either side of an upstairs bathroom sink (nearby lay several pair of cat earrings) for leisurely lapping in addition to the bowl/dispenser in the kitchen and d) air quality characterized by a proportion of dander to breathable oxygen on a level of 900,000 parts per million, in turn yielding the equivalent of a feline skin cell-induced sinus infection each morning.

A long-haired cat at home apparently does nothing to adjust the tolerance level required, probably because, while greatly loved, our cat remains on the cat side of a wide biological gulf created by God via speciation that I refuse to span by according our cat the place – especially on the bathroom sink – reserved for a human. Too much anthropomorphisis-happy Hello, Kitty is what’s wrong with this world today.

I could go on, but tales of weekend travails with cat-loving in-laws quickly get long in the tooth. Tonight I woke up (spontaneously – it seems the old circadian rhythm is dedicated even when my conscious mind is not) for the Frankfurt open to see how a few pairs I was monitoring were faring, put on a – rare trade – on Fiber and a correlated Swissie trade. Here are those trades with the others I’ve taken since Friday morning:

Friday:
L GBP/USD @ 1.9999. Stopped out @ 1.9950: -49

Sunday (closed Monday morning):
SHT AUD/USD @ .9147. Closed @ .9146: +1
SHT AUD/JPY @ 91.47. Closed @ 91.12: +35
SHT GBP/JPY @ 199.52. Closed @ 198.11: +141

Tuesday Frankfurt/London:
SHT EUR/USD @ 157.09. Closed @ 156.58: +51
L USD/CHF @ 1.0012. Closed @ 1.0032: +20.

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