Tag Archives: Markets

Featured Guest at the Dale Pinkert’s Room on Monday June 17th, 2013

Dear all,

this is to inform you that I will again be a featured guest speaker at Dale Pinkert’s FX room next Monday June 17th, for the third time. The vibrant community there seems to be enjoying our interviews that go on for about 50 mins. The live analysis room is free of charge and it features great content, guests, interviews and real-time market analysis. You can access the room here, or clicking on the below banner:

Dale Pinkert's Live Analysis room

With almost 40 years of experience, Dale got his start in the trading business as a runner on the floor of the CME in 1975. He talks about how they were trading Currency Futures on a Chalkboard back then and how he noticed the floor brokers’ interest in orders that had “stp” at the end of it.

My intervention as a Guest analyst will be at 15:10 – 16:00 GMT (10–11 EST) on Monday June 17th, 2013 and I will give my take on market direction and forecasts for the Euro FX, Dollar Index and S&P500 e-mini, as well as, for the USD/CAD forex pair.

You can find the details at the FX room’s home page.

I look forward to have you there and I hope you will enjoy the analysis and educational content.

Subscribe my Newsletter for free below so I can include you in the distribution list and you can follow up from what I will be sharing in the interview. It only takes 10 seconds of your time:

Thank you for subscribing should you decide to do so. Lots of other people are doing the same.

Have a great weekend.

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Filed under English language, Event/Webinar, Forex, Futures

Yesterday’s Monday June 10th, 2013 recorded interview with Dale Pinkert

Dear all,

if you have lost my interview with Dale Pinkert yesterday Monday June 10th, 2013 you can find the recorded session below. This week too I have been invited as a guest speaker by Dale Pinkert and we touched on EUR/USD, program trading behavior on S&P500, the Dollar Index, reliable exit points and, of course, market psychology.  The live analysis room is free of charge and it features great content, guests, interviews and real-time market analysis. You can access the room here, or clicking on the below banner:

Dale Pinkert's Live Analysis room

With almost 40 years of experience, Dale got his start in the trading business as a runner on the floor of the CME in 1975. Dale is a remarkable person and trader, and he loves helping traders.

My intervention as a Guest analyst on Monday June 10th, 2013 was recorded and the video can be found hereunder:

http://www.ustream.tv/recorded/34126585

Hope you enjoy it. I also recommend you join the Live Analysis Room everyday to take advantage of the fine analysis, education, discussion, jokes and great interviews.

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Filed under English language, Event/Webinar, Forex, Futures

Last Monday’s June 3rd, 2013 recorded interview with Dale Pinkert

Dear all,

if you have lost my interview with Dale Pinkert last Monday, hereunder you are going to find the link to the recorded session. Last week I have been invited as a guest speaker by Dale Pinkert and we touched on program trading, HFT, market psychology, trading methods, risk management and where we both see the EUR/USD.  The live analysis room is free of charge and it features great content, guests, interviews and real-time market analysis. You can access the room here, or clicking on the below banner:

Dale Pinkert's Live Analysis room

With almost 40 years of experience, Dale got his start in the trading business as a runner on the floor of the CME in 1975. Dale is a remarkable person and trader, and he loves helping traders.

My intervention as a Guest analyst on Monday June 3rd, 2013 was recorded and the video can be found hereunder:

http://www.ustream.tv/recorded/33766117

Hope you enjoy it. I also recommend you join the Live Analysis Room everyday to take advantage of the fine analysis, education, discussion, jokes and great interviews.

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Filed under English language, Event/Webinar, Forex, Futures

Featured Guest at the Dale Pinkert’s Room on Monday June 3rd, 2013

Dear all,

this is to inform you that I have been invited as a guest speaker by Dale Pinkert next Monday June 3rd. The live analysis room is free of charge and it features great content, guests, interviews and real-time market analysis. You can access the room here, or clicking on the below banner:

Dale Pinkert's Live Analysis room

With almost 40 years of experience, Dale got his start in the trading business as a runner on the floor of the CME in 1975. He talks about how they were trading Currency Futures on a Chalkboard back then and how he noticed the floor brokers’ interest in orders that had “stp” at the end of it.

My intervention as a Guest analyst will be at 15:10 – 16:00 GMT (10–11 EST) on Monday June 3rd, 2013 and I will give my take on market direction and forecasts for S&P500 e-mini, Dollar Index, EUR/USD and a major forex pairs.

Find the details below:

Dale J Pinkert_room_June 3rd_2013

I look forward to have you there.

Have a great weekend.

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Filed under English language, Event/Webinar, Forex, Futures

Humans against Machines in the Markets, May 26th, 2013 (English Language)

ilsole24ore_italia&mondoThe below article, by Enrico Marro, was published on May 26th, 2013 on Il Sole 24 Ore, the major Italian Financial Newspaper. The article (which can be found here in its original format, in Italian language) discusses part of the content of the presentation I held on Friday May 24th at the Rimini IT Forum, the major Investing & Trading event in Italy.

Humans against Machines in the Markets: how trading robots amplify market collapses, creating systemic risk. Likewise in the 2010 Flash Crash.

“Humas vs machines, and even machines against machines. A huge Flash Crash happened on May 6th, 2010, when simultaneously with the other U.S. indexes the Dow Jones plummeted about one thousand points (over 9%) in a few minutes – traders and market operators staring – only to bounce vertically, recovering losses in a few minutes. But three years later, is also the recent Twitter flash crash, which took place on April 23rd, 2013: a pirate tweet from the Associated Press Twitter account with the phony news of two explosions at the White House, wounding the President Obama, causes a sudden loss of 1% for the Dow Jones, again recovered almost immediately with a “V” movement.

These are just two of the most resounding cases of the power of robots
The reason is in those High Frequency Trading (HFT) systems that have profoundly changed the structure of the market in recent years. Introducing new and unprecedented risks, as also underlined a rich series of Anglo-Saxon studies cited in the excellent Discussion Paper “High frequency trading. Features, effects, questions of policy” recently published by Consob. It’s not just about the risks related to the quality of the markets, but also about systemic risks.

Systemic risks

According to the study by Consob, HFT systems can create the conditions for profound and rapid destabilization phenomena in one or more markets. To trigger such events it’s enough a problem to just one single algorithmic trader: e.g. an operational fault (such as a hardware failure) which, in turn, by influencing the strategies of other high frequency traders, may have repercussions on the entire market, and also affect other markets, given the intense cross market operations of market operators. An example: on  August 1st 2012 Knight Capital, one of the largest operators on the US market, a HFT system has lost $440 million (equal to about four times the company’s net income) .

At the same time, the FIA EPTA (the Association of the main European traders) reiterated the importance for market participants to work with regulators to minimize the dangers to the stability of the markets (FIA at the time had published a paper with the recommended tests to be performed by trading firms when they change technology).

Faster and intense collapses
Unfortunately the spread of high-frequency trading can lead to amplifying the bearish pressures so much into generating situations of extreme chaos in market exchanges. As in the mentioned Flash Crash on May 6th, 2010, when the “robots” have amplified the fall of indexes, despite the fact HFT not being the triggering cause. A big sell order kicked off the dance. According to the reconstruction of events made by the Sec (Securities and Exchange Commission, american equivalent of Consob), sales orders generated by machines have subsequently triggered more sales of other “robots” by creating a “hot potato” (hot potato trading) whereby trade counter-parties were both HFT systems, that continued to sell. Thus amplifying the bearish spiral.

The instability brought by machines
That High Frequency Trading can be disruptive for the markets is convinced, among others Giuseppe Basile, computer engineer with 10 years of experience as an IT consultant around Europe and project manager at Accenture. Basile (who is also Technical Analyst and trader SIAT member) has devoted – at the recent ITForum of Rimini – a report to the impact of HFT systems on market price dynamics. «It is all about trades placed and removed very quickly, often hundreds or thousands of times a day” – explains – “with a high number of orders cancelled in comparison to filled orders, i.e. trades carried out”. To unleash the robots it does not take a lot: changes in volume or volatility, or market news, or delays in distribution of market data (prices, volumes, or other). «Some systems include listening components that skim the news headlines and immediately act on them, buying or selling on the basis of where prices are in relation to the “correct” estimated value», says Basile. And things in the future, are likely to worsen: “the next generation of programs will be adaptive and will learn from their experiences” — underscored – “and it will be hard to try to predict or control the dynamics of a market populated by a mix of human and algorithmic traders».

Liquidity becomes a ghost
A very common myth that circulates around in the trading environments is that HFT systems have at least a virtue, that is to make the markets more liquid. But it is indeed a myth, a legend that does not match operational reality. On the contrary, Consob explains – backed by Anglo-Saxon studies on the subject – that in specific conditions of market turbulence the HFT can absorb liquidity with major destabilizing effects for the markets. In the trading environment the offer (bid) by HFT systems is called ghost liquidity, to indicate a liquidity only “apparent” because it tends to disappear in the blink of an eye, often in very turbulent market conditions and then just when the traders most need it.

Also in Europe robots are everywhere
Particularly popular in overseas markets, HFT systems have become very popular even in the old continent. In most European countries the share of trading due to robots has grown steadily in recent years and currently fluctuates between about 10% and 40%. Piazza Affari (Milan Exchange) unfortunately is no exception. According to an AFM report, for the first five months of 2010, one order out of five in the Italian Stock Exchange comes from a machine, not a human being. But we are only at the beginning. The instability brought by robots on the market may increase, says Basile, with Flash Crash much worse than that in May 2010.”

Translated and published with the permission of Enrico Marro of Il Sole 24 Ore. © ALL RIGHTS RESERVED.

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Filed under Articles, English language, High Frequency Trading, Program Trading

Article: Professionals Trade People’s Psychology Not the Markets

This is the fourth of a series of four articles titled “Key Concepts to Correct Trading Behavior – A guide to relevant concepts for trading success in a market governed by High Frequency Trading (HFT) and Program Trading”,  focusing on the most important concepts any trader should internalize in order to show a correct trading behavior, in a world where the majority of trading volume is generated by computer programs.

I have written an introduction to the series and the first three parts of it, titled respectively “The Bandwagon Theory” and “The Dangers of Asking “Why?” and  “Facts and “Truth” Do Not Make Money“. This week I present the fourth and last part titled: “Professionals Trade People’s Psychology Not the Markets”. I will keep working on the other sections of the eBook. Notice that I am also working on the most important section that illustrates a practical application of  the Bandwagon Theory, using the daily chart of the EUR/USD forex cross (the section ‘The Psychology of Trading: the Bandwagon Theory illustrated’ will only be included in my free eBook that I will make available on this Blog). This series of articles is introduced here.

Trading-PsychologyIt should never be forgotten that professional traders  trade people not financial instruments. As strange as this sentence may sound, it represents a correct assessment and critical point novices and more experienced traders often fail to comprehend. The outcome is typically confusion as of the why a market often contradicts rationality and all sense of reason. Futures, forex and stocks financial instruments cannot do anything in and of themselves; their prices are determined by the perceptions of people which, in turn, are completely determined by emotions. It is these emotions, primarily greed and fear that often cause a market to extend too far upwards or downwards, well beyond reasonable levels. Financial instruments do not behave according to neat, simple mathematical measurements of value. Rather they oscillate frequently from over depressed states to overextended ones, without rest. This behavior is what creates opportunities in larger, as well as, smaller timeframes. This is what keeps new people coming in, and the old beaten ones leaving the markets.

The professional trader, understanding this behavior, builds his or her skills around knowing when one emotional state is about to give way to another. This is trading success in a nutshell. Success is not knowing what will a futures FX currency contract reaction be to a central bank announcement or trying to guess if and when a company will announce a new product. Trading is all about people and their emotions, that is why chart reading is so important. Fundamental data contained in balance sheets, income statements and other information sources represents elements from a picture of the past, a time to which market players have already emotionally reacted to. On the other hand, price and technical analysis serve as a living map, built trade by trade, of players’ current emotional state. These are important tools for the active short-term and swing trader or those who want to time position trades or even longer-term investments.

However not all Technical Analysis (TA) tools are useful to build a living map of players’ emotions. In the days of Program and Algorithmic Trading (AT) and High Frequency Trading (HFT) the majority of Technical Analysis tools are not adequate. When TA works it provides signals too late with a sensible lag, or it does not provide signals and setups at all. Besides the lag, trade setups indications from TA are more subject to stop-losses, as well. Moreover the majority of TA tools only provide a point in time when it seems reasonable to enter a trade, often not indicating where the stop-loss should be placed and, more importantly, where profits should be taken. Thus the construction of a complete trading plan would require the use of a coordinated set of TA techniques which often provide readings that are in contrast with one another.
The author’s belief that it is very difficult to make money with traditional TA is comforted by the fact that the majority of people (more than 95%) lose money in the markets. If you don’t want to be one of them and to be part of the 5% of consistent traders it is important and necessary to start thinking and doing things differently.

Most new traders are attracted into learning classical technical analysis (TA) but to make it work strong discipline and a rounded psychology are needed. Typically a trader will focus most of his/her time and resources on the trading method while seasoned traders know that TA requires a better grasp on money management and psychology. While psychology is probably the most important aspect of trading success, the trading method is probably the less important, although critical. Time learning a good trading method is well spent, but it is better to spend time on a method that works and helps the trader to build its emotional capital, i.e. allowing managing his/her emotional state with a sound trading psychology, while providing a complete trading plan. A good trading plan is made up of 8 to 10 different elements (depending on whether you trade one or more markets) which classical Technical Analysis (TA) is not able to identify without the need of resolving contrasting readings from different TA tools.

A trading method that helps avoiding this issue is the method of Measured Moves which helps modeling price structure without the need of using TA tools. This method limits the use of TA tools because it is based upon the observation of the effects of modern Program and Algorithmic Trading on price. Computerized programs do not have an emotional component, but repeat the trading rules continuously at every setup and opportunity. When Program Trading is active price dynamics are purely based on cause and effect, because trading rules themselves are based on price levels although, as already noticed, market news and other events can temporary modify price structure on the smaller timeframes.

Trading rules used by Program Trading were born and improved upon from the analysis and observation of price subdued to the actions provoked by human emotions (mainly fear and greed) and having the effect of dynamically altering the balance between demand and offer. Such rules became very efficient with time and, with the continuous rising of technology and computer-based trading in the stocks, forex and derivative markets, as well as, the increased trading volumes, they bring about price behavior that materializes in a truly self-fulfilling prophecy. This is what happens on the markets nowadays and it is somehow similar to what happens when price approaches some important moving average (like the 100-day or the 200-day moving averages), i.e. there is always some sort of reaction. When measured moves are applied backwards to price data going back to the last 100 years (for instance using Dow Jones end of day data) it is disconcerting to see how well the related trade setups work, offering valid entry and price target areas. This is a very significant fact because it shows that the logic of computerized programs, which was initially derived from the study of the psychological response to price dynamics of average traders’ groups, evolved in a direction that correctly manages money, risks and profits while taking the important psychological aspects into account. Moreover the application to market price of the method of Measured Moves (largely employed by Program Trading) shows that the basic rules implemented by computer algorithms nowadays worked before computer technology was even invented.

In conclusion, not only Professionals trade people’s psychology but nowadays also Program Trading does that. Program Trading and Algorithmic Trading (AT) along with High Frequency Trading (HFT), are conquering more and more volume on the stocks and futures markets. A recent research shows that more than 30% of the UK stocks market volume is traded by HFT; same figures reach more than 70% in the US markets.

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Filed under Articles, Program Trading, Trading Method, Trading Psychology