Trading Evolution

Markets are never wrong - opinions often are

Weak start for 2016

ES futures are pointing to weak start of 2016 for US equity markets. Futures are down around 1%. Say thank you to China which just reported drop in December PMI to 48.2. Good luck to all traders in 2016!

Update: It is not just weak start of the year. So far it is the second worst start of the year in more than 80 years.

Dow's worst starts to a year over the past century:
-8.1% in 1932
-2.3% in 1922
-1.8% in 1983
-1.7% in 1930, 1980 and 2008
Currently -2.5%

Jamie McGeever

Why it is enough to know when EUR is going to move

I see that many new traders are focused on finding right entries based on price for example they are looking for support & resistance, breakouts, moving averages, momentum etc. There are countless number of past price based indicators. Here I would like to talk about why for small trader it is enough to know when the market is going to move. And you do not need sophisticated options strategy to take advantage of it. Let's look at hypothetical example. We noticed that on Wednesdays at 11:30 am EUR/USD pair starts to move. One Wednesday it moves lower, another it moves higher and next time higher again. We don't have any idea about move direction but we see consistent start of a move at that time. It might be some bank starts to execute clients order or big trades start building position ahead of some economic release. It doesn't really matter to us.

My point here this time based pattern is enough to build profitable system. There are exactly four outcomes at 11:30: you go long EUR & it drops, you go long EUR and it rallies, go short & it drops, go short & it rallies. Two out of four are profitable. Lets say it usually moves about 30 pips and we have a stop-loss 12 pips. At 11:30 we ask our girlfriend, or spin the dice, or do whatever to pick a direction and enter the trade with stop. 2 out of 4 times we will be stopped out and will take loss but the other two times we will make profit of 30 pips. Our average P/L per trade should be 9 pips (50% loss of 12 and 50% gain of 30).

Remember move is random and our position is random. The only constant here is time of entry.

Day_##MoveOur PositionP/L
Day 130Long EUR30
Day 2-30Long EUR-12
Day 3-30Short EUR30
Day 4-30Long EUR-12
Day 5-30Short EUR30
Day 630Long EUR30
Day 7-30Long EUR-12
Day 830Short EUR-12
Day 9-30Short EUR30
Day 1030Short EUR-12
Total P/L after 10 trades is 90 pips.

Trader loses $58 million in two weeks trading short-dated market index options

In January 2015, the Master Fund collapsed after Li moved virtually the entire portfolio into long, short-dated, market index options, nearly all of which were pegged to the same expiration date of January 17, 2015.  When the market moved against those positions on January 16, 2015, the Master Fund was left with approximately $501,253 in cash, having started January 2015 with approximately $58 million in assets.

SEC Press Release

Source: SEC Document


Think again before trying to pick bottom in oil using ETFs such as USO

ETFs such as USO are not holding actual oil unlike gold ETF GLD which actually holds gold bars. USO uses futures contracts to track oil prices and they are pointing up or using fancy terms in contango now. USO fund each month has to sell front contract and buy more expensive next month contract. Because of that effect when last year oil prices dropped from $53.49 to $37.13 or drop of 30% the USO ETF went down from $20.36 to $11.00 or drop of 46% which is 16% difference thanks to contango and expenses. Looking forward into 2016/17 (here for example) 20% increase from $37 to $44.21 is already priced in into future contracts so if oil raises less than 20% USO investors will lose money. Oil needs to rally at least 25% to $46 for investment in USO to break even if you include expenses.