The Week in Review

“Week In Review” – I remember having very good intentions about this at the beginning of the year. My adherence to that commitment has been…minimal. So, in the spirit of all those reviews I did not blog in the past, here we go:

07.05.09 – 07.10.09

A few statistics:

• Trades: 100 trades; 50 round trips (round number not by design)
• Pairs traded (in order of frequency): GBP/JPY, EUR/JPY, GBP/USD, CAD/JPY, GBP/CHF, EUR/GBP, EUR/USD
• Win ratio: 37/50; or 74%
• Max. drawdown occurrence: 3.4%: caused by 3 simultaneous trades that stopped out as a basket with adverse GBP exposure (GBP/JPY, GBP/USD, GBP/CHF)
• Net return on equity: 23.1%

Stream-of-consciousness reflection:

Unreality? I’d like to succumb to the idea that too much went right too easily for the week to be much more than fluke. But these weeks do happen, and I can’t pin all or most of what goes well on happenstance and the stars aligning. When just about everything goes off well and you’ve been trading for years, not weeks or months, you know whether it was you or not: this week it would be a lie to say it was not me. Most trades went into profit without looking back, and losses were cut on those that didn’t with a dispassionate acquiescence rather than lots of torturous back-and-forth. Diet, sleep, contentment at home and a feeling of accomplishment in other areas is very helpful.

Maturity. It’s easy to speak of maturation as a trader in a great week. But, I don’t mean adherence to methodology, trading without emotional dissonance, etc. What I do mean: accepted losses without regret. Willingness to take profits without giving in to my nagging compulsion to achieve round numbers (I’ll take 98 pips off the table rather than waiting against my good analytical judgment for 100 pips). Patiently trust the legitimacy of my own analysis, waiting for the market to come to my orders rather than rushing out to meet it. These are behaviors and attitudes with which I struggle. Positive momentum early on can derail or reinforce: in this case, it was the latter. Now, if I can learn to reiterate those psychological habits every week, rather than almost randomly, that would constitute significant progress.

Singularity of analysis? I have deep respect for a handful of trader-bloggers and analysts online. TLT comes to mind, especially after his recent interview. Actually, no: the interview has nothing to do with it (just a plug); but his intelligence, holistic approach to the markets and level of organization do. However, our trading styles are very dissimilar. Then, Kathy Lien comes to mind as a trader-analyst: very insightful and trades (actually trades!) well as a result of it.

I find them (just two examples) helpful to read because they do what I do but nothing like the way that I do it. Ideas and analysis that are too close only muddy the waters; but where ideas and analysis are in the same universe, I find they edify. And that’s good, because I’ve always worked best where there’s camaraderie and autonomy in equal measure. So, I ignore just about everything that goes on around me (this goes back to that primary v. secondary source distinction I made here).

Off to enjoy what remains of the weekend outside with my family. Check me out on Twitter in the meantime….

Retail Traders = Nefarious I-Bankers

At least, according to the tortured and dangerously ill-informed calculus of Rep. Peter DeFazio (D-Ore.)  As I mentioned a few weeks ago Defazio reintroduced a bill under H.R. 1068 on 02/13/2009 proposing a 0.25% “financial-transaction tax” that had fallen off the table when the previous Congressional session closed. In that post, I enjoined any U.S.-based trader (this may also extend to international traders that traffic in products or asset classes traded on U.S. exchanges) to write to their Congressmen/women to make their opposition known.

If you haven’t read the bill out of indifference or preoccupation and the above description is applicable to you (U.S.-based, or trade U.S.-originated instruments), think twice. You can find the bill here, a method for easily sending word to your Congressional representatives here, and important supplemental information blogged by Robert Green here.

As one of my favorite fellow bloggers TLT might note, I’ve done a pitiful job presenting both sides of the argument to this point; and that does the side I am a proponent of a disservice. Thankfully (this way I can salvage some intellectual integrity), Rep. DeFazio made a short circuit of the financial news channels last week, providing us with a concise formulation of the side he is championing:

Defazio on Fox Business

and

DeFazio on CNBC

Where does one even begin to begin? Anyone who trades multiple times a day is “churning”. Daytraders serve no economic function and add no economic value. Daytraders (or anyone trading on margin, apparently) are inherently gamblers. A comparable tax passed during the Great Depression didn’t impede the gains of the DJIA from 1932-1966 from 41 to 1000, therefore a comparable tax will not impede recovery now. China may ask for a refund. The number of people who trade at least once a day do not number in the millions. There is no sub-set of retail traders who aren’t destructive gamblers (because if there were, the argument would be blown to hell). This is an effective way to target Wall Street for recovery of TARP losses, lightening the already crushing load of the average American taxpayer. And on, and on: snarky replies, shoddy premises, frustratingly and staggeringly ill-informed.

There’s just too much to unpack and too many implications to state. A couple of things that do immediately jump out, though:

First, DeFazio is completely oblivious to the democratization of trading that has evolved since the last days of the Hoover administration. 80-year old quotes from a by-gone era do not carry compelling weight or serve as iron-clad justification for your bill just because they refer to a similar tax imposed in “bad” market conditions. Get a clue: the market has not stood still since your grandpa’s day.

Take this thing called “electronic trading”, for example, and the discount brokerage industry’s highly competitive commission structure. The number of retail participants has exploded in the past 10-15 years alone. Back then, the “little guys” were Jesse Livermore-types, hanging out in bucket shops. Today, everybody from that guy delivering cases of beer to your corner convenient store to your assisted living facility-bound great-aunt trade stocks, daily. The demographic has changed entirely, and so this bill’s impact will reach far beyond the nameless mass of “churning” denizens who sit around in front of their monitor banks at home in the den in their underwear all day, along with those slimy CDS/SIV/MBS-creating hyper-leveraging I-bankers…oh, and the short sellers, too. They’re all the same, a troika of financial terrorists; and now they’ll pay with a draconian tax. As DeFazio more-or-less puts it, to hell with that miniscule contingent of “daytraders” who may get snuffed out.

And how about mutual funds, since the holders of MF shares are who you’re truly worried about? Do you think fund managers do not trade large blocks of stock daily? Think the fund is simply going to eat the obscene expense this tax would generate? Not at all: maybe we’ll see the reintroduction of loads by all those families that got rid of them in the last 5-10 years, or a 5 or 10-fold increase in expense ratios. Or you could legislate a cap on those, too, to keep those greedy fund managers at bay – that wouldn’t be very obtrusive. Wolves at the door, everywhere!

Second: buy-and-hold investors good; traders bad. B&H contributes economic value because these are people who take stake in the ownership of a company, thereby helping that company raise funds to grow, compete, develop products and services, etc. Traders “churn” (DeFazio is evidently unaware of what the SEC definition of “churning” is); they gamble and as a class have now victimized countless homeowners and unemployed individuals. In other words: investing as DeFazio defines it is a civically responsible and thus meritorious practice, while trading is just the opposite, and – if we’re truly honest – a worthless, almost reprehensible act for which he shows pure disdain that ought to be taxed into oblivion because – let’s face it – it’s the damned traders (none of whom do their thing on “Main Street”, as we know) who are responsible for the mess that necessitated TARP in the first place.

I feel like DeFazio is leveling a moral judgement in there, somewhere; but it may just be me. Maybe we’ll all wear a scarlet “T”? And why not throw in some accusations of “financial witchcraft” to go along?

GBP/JPY: Inverse H&S?

Thinking, that’s all; without a solid fundamental impetus behind such a move, the case for a break of 800+ pips upside is one I choose not to make; nevertheless it appears plausible and my trades have led off in this direction.  Assuming a breakout above horizontal resistance at 141.75, under this scenario upside targets come in at 145.75, 148 and 150.

Say NO to H.R. 1068: Trader’s Tax

A post from Robert Green of Green Trader Tax on his blog yesterday indicates the “Financial-Transaction Tax” proposed during the last session of Congress has been reintroduced in the House of Representatives as of last Friday, 02/13 (coincidence?).

I’ve found that most traders I’m acquainted with are oblivious to this proposition, and the few forex traders with which I am both personally acquainted and who have learned of it seem indifferent because “forex” is nowhere explicitly mentioned. But as anyone trading spot forex ought to know, the IRS has very little explicit guidance overseeing the categorization and taxation of spot specifically. Tax professionals (such as Green) knowledgeable of what can and can’t be reasonably inferred from how forwards and currency futures are treated will tell you spot forex’s identity as futures product for purposes of inclusion under any tax is very easily accomplished. Conflating spot forex with futures if it means subjecting forex traders to the tax, if it means further revenue…uh, “reparations appropriated from the nefarious speculators responsible for our present economic crisis” is not something a cash-starved government is likely to pass by, negligible as the retail forex trader demographic may be next to equity and futures traders.

Given the presence of uncertainty but potential that the bill, once passed, could exert a highly adverse impact on domestic retail forex traders, I’m passing along my own recommendation to read Green’s informative post here and then become conveniently but critically involved by signing the petition and sending emails/letters to your Congressmen/women here.

Stream-Of-Consciousness Saturday

So this is what Saturday night has come to with two young children just fallen asleep: slack-jawed, bleary-eyed with that just-plowed-over-by-an-oblivious-bohemian-driven-VW bus look, spacily following words as they line up in file across an excessively bright laptop screen, wondering how one who is relatively youthful, fit and healthy ends up almost trembling from exhaustion at 8:45 p.m.

 The answer: I’m an anguished white man harboring an ineffable, unquenchable anger, brought to the edge of a latent sea of rage brimming within me for hopelessly elusive reasons.  I’ve been figuratively emasculated by the contemporary urban-American mores of maintaining a well-coifed, dry-cleaned corporate appearance, delivering boisterous, cheesy and hopelessly sycophantic laughter at just the right moments in whatever social context appropriate, showing token concern out of interpersonal expediency but possessing a conscience mostly unflappable and impassive to all matters that do not affect me, and a dozen other reasons.  I’m sawn-off, sterile, part of the cultural castrati caste.  None of this is true.  For me.  

 As an undergrad I met a business major/philosophy major who shaved his head because of early-onset male-pattern baldness.  He was a lapsed Roman Catholic acolyte-type gone the way of John Galt because it was the brave, intellectually responsible and conscience-salving thing to do.  Did he ever love Ayn Rand and find sadistic gratification in arguing vociferously for his implicitly-held Objectivist positions.  He never did learn when to use the spelling “principle” v. “principal”.  The simple satire there mollified an otherwise annoying egotism.  Ironically, his behavior mirrored Lenin in the days between 1905 and the February Revolution, squawking about like a spoiled and coddled child full of ill-founded self-confidence in his words and ideas because his opinions were suffered in silence by his obsequious parents; and like any good member of the future Soviet politburo the baldheaded business major was willing to sacrifice friendship for obsessive adherence to an ideal.  Still an altar boy,  now before a different god doing what seemed fitting to be a righteous man.  How many psychological accoutrements that amount to only so much crap pile on top of a child’s unadorned mind with crushing weight.

I began to study Ayn Rand and Objectivist Philosophy.  This was instrumental in becoming a trader, paragon of the capitalist ideal.  I create no good or service; but I do create capital through ingenuity and strength of will.  This is not true.  I think Ayn Rand was a fanatical reactionary who created as much ideological tripe as those she wrote so passionately against.  Atlas Shrugged is among the most overrated novels talked about today.  I will buy a guinea pig any time this book is given to me as a gift so that a small mammal can soil the pages I’ve ripped out of it for cage lining.  This is true, but only if I’m given the book and end up in a petty, biblio-vindictive mood.  

And now my wife is out of the shower.  Game over.