The Finance Book Club

The Aha! experience

1. No one can teach you the one thing that will make you a good trader
2. It takes time to mature
3. Mentors can provide objective advice
4. I’m going to skip a bunch of this chapter - it’s mostly motivational gobbledygook
5. Traders often move to lower TF and bigger positions sizes when they should do the opposite

Chapter 2 - a trading system

1. DT uses ‘real time' analysis
2. His approach is discretionary
3. In fact he dismisses mechanical trading as a myth!

Real time

1. There are many real time info sources that contribute to the currency markets, like instruments in a symphony orchestra

Practical Aspects

1. DT gives us his plan
2. Have a business plan
   1. What-if scenarios
   2. SWOT (strengths, weaknesses, opportunities, threats)
   3. Market research

3. 4x1 strategy
   1. One currency
   2. One lot (a ‘small’ position size
   3. One direction
   4. One percent (assuming he means position size?)
   5. Hopefully it’s clear that DT is a position trader. How much discretion can you need to do this?)

4. Median trading
   1. This is what guides DT’s ‘nitty-gritty’ decisions
   2. Price always reverts to a median
   3. Intraday pricing is virtually random
   4. Instead identify ‘buying and selling price levels’ of ~50 pips
   5. Depends on account size, gearing (DT’s term for leverage), short-term price behaviour
   6. This allows flexibility, room-for-error
   7. DT uses a timeframe that he ‘feels is manageable’ because he can relate ‘cause and effect’ where cause is info and effect is price changes
   8. If there is no such causal relation DT calls it noise and ignores it.
   9. “No one can tell you what is happening all the time. Most of the time it’s just randomness”
   10. Price frames - the most relevant factor is the distance a price moves (yeah, momentum)
   11. “I can also anticipate price changes based on known future events.” (prove it)

5. Relational analysis
   1. Fundamental analysis
   2. the more relevant analysis you include in your trading decision-making the better the decision-making is going to be. (the big problem with this is is the word ‘relevant’ how do you define that)
   3. the meaningful relating, one to the other, and all to one, of Price, Event, and Time (PET).

Simplification

1. There are buyers and sellers and sometimes the market moves up and sometimes down
2. Too simple

Price depends on perspective

1. Prices may seem high for those with a short time frame but low for those with a medium or long horizon
2. PET - you must see them as a single entity and you will understand the message the market is sending you (hmmm)
3. Relational analysis gives you ‘clues and answers’ that will make you money (bah?)
4. With practice you will ‘feel the market

Risk management

1. DT focuses on low leverage more than stops
2. ‘Cut your losses and let your profits run’ is subscribed to in principle but its often misunderstood (because it’s a meaningless adage without context)
3. I have a different approach using, multi entry, low gearing strategies that do not stop future profits by cutting existing temporary losses (good)

The right view

1. In science, the larger your perspective, and the more relevant information you incorporate, the better (more accurate) your conclusion (not always)
2. To his credit DT admits that too much info is incapacitating - you must strike a balance (a tedious, tenuous balance)

Unfortunately, I don't know Excel or any programming languages.
Because of the sheer trading experience I design algos.
However, I don't find statistics believers. Not even manual traders. All want to depend either on forecasting indicators or EAs.

In my trading peak , I have realized it is easy to trade by seting up a scaling grid for (equal size and only for limited size) simultaneously.
Capturing one direction by at least 3 times while keeping 1 position in drawdown.
In case of range trading, trading will be happening like an hedge .
Selection of symbol is important. That will be done after collecting statistics on the frequency of trades in 1 minute or 5 minute or 15 minute linked to trading hours.
An M1 bar should generate during the opening/closing/confluence with other market hours 3 times trending trades while restricting the drawdown trade to 1 only .
For this I have the spreadsheet generating indicator but I don't know how to set up filters for analyzing in Excel.
I need the help of an Excel advanced user who knows real trading and believes in manual trading.
If you can help me, I will show you the way to set up auto scalping trades which will also be regulating margin trading because I will be choosing two contracts of an index that has macro and mini contracts to hedge each other and control margin use. I will be using my 36 years of my futures options (non-directional) trading experience for it.

In my view, IB provides a very useful and userfriendly scale trader.
It may be adopted for MT5 (for futures) and for MT4 (for CFDs)
https://www.interactivebrokers.com/en/index.php?f=1274

So you're looking for someone who can filter excel data for analysis? This is so that you can pick symbols to trade? Can you give an example of what you need? Is it like this? https://www.excel-easy.com/examples/...ed-filter.html

That IB scaleTrader is interesting. Some day I hope to have an account large enough to have a need for such a thing.

i found out the spread is 14 pips, thats expensive, ill stick to the recommended pairs. Thanks for sharing

There is no minimum with IB now.
You can buy EURUSD futures options of CME if you have $12.50 for 1 tick.
I have bought options of 10 ticks for $125.00 and have sold for $1250 (10 times ) based on my speculation on Wenesday of Monthly Friday closing.
Buying of options does not require margin account. You should have enough money to buy the options.
Buying selling of futures requires margin.
Selling of futures options requires margin and approval of the broker.

Excel : I just want calculation of pips linked to minutes of defined hours.
Heatmap like this:
Starting with 5 pips and 1 minute on both sides of the axis.

I'm not sure I understand. But that heatmap is showing an almost linear relationship between time and pip target. Why would you need Excel to calculate that?

If an indicator can do a linear relationship between time and pips , that is OK.
I will test around 20 symbols to determine maximum frequency in terms of pips for M1 for each symbol to find out
the history of past trades pip sizes executed in opening hour.
More than 7 or 8 pips leaving 6 or 5 pips net gain after meeting spreads and broker commission. Indices mini contract will be traded with these statistics.
It will be used for trending up .
Less than 7 or 8 pips leaving 5 pips net gain after meeting spreads and broker commission. Indices macro contract will be traded for trending down.
A range breakout period has to be selected.
It can be 50% of ADR so that trades on both sides can be maximized. Stick to breakout line so that there is no need to do progressive buy or sell trades.
If 25 trades are done in M1 around 50% of line, both side trades may end up with gains without pressuring margin.
Good situation will be 1 trade of equal size is repeated 4 times in any one direction while 1 trade acts as drawdown until the trend come down and ends in gains or vice versa.
Similarly hot hours (open, close, or confluence times) can be used as breakout line for which again recent statistics are needed

Part 2 - Understanding the Edge
Chapter 3 - paint the right picture

1. Work with larger time frames where you reduce the degree of randomness significantly (but what does DT base this assumption upon? Of course there are different and definitely valid reasons for preferring larger time frames)

Highway of Death

1. DT writes a parable
2. Think of the currency market as a highway
   1. The losers are standing on the edge of it with binoculars, looking at individual cars
      1. They have tunnel vision
      2. They move in closer...closer...and “Whump! Another hit and-run on the currency highway of death.” (haha)
      3. Typified by higher leverage and tighter stop losses

   2. The winners are standing on a hill overlooking the highway
      1. They have carefully selected their vantage
      2. Less noise from traffic
      3. Everything is in focus

Time frames

1. Goal time frame = personal time frame
2. Market time frame = chosen time frame
3. I’m not really sure what he means yet apart from ensuring your time frame fits in with your lifestyle
4. Personal time frame
   1. Because of market volatility (as a position trader) there will be periods where you’re ‘out of the money’
   2. If you have two losing months in a row are you a bad trader?
      1. Yes, if your personal TF is 1 month

   3. If you have a lifelong investment in currency trading a few losing months is of no consequence
   4. Success then depends on how realistic your time frame is

5. Chosen time frame
   1. A choice about what range of price movement you consider significant over a given period
   2. DT mentions 2008 when price changes moved much faster than usual
   3. ‘Price frames’ are more important than time frames

6. Time frames must not be too long or too short
   1. Too short and you’re playing with randomness
      1. 5-15 minute charts “tell you nothing except how random randomness is”
      2. Test it on a demo account if you don’t believe me says DT (you should anyway)
      3. “I say, pick a level, it can be anything from 50 to 100 pips and get in, trusting that your level, and not the next move, is what is important.” (momentum)

   2. Some time frames are wrong and some aren’t
      1. “It is simply not true that you can apply universal risk management principles of risk reward, stop loss and other parameters on all time frames. Informed readers should make a note here that I differ from conventional wisdom on this point. I don’t only differ on a basic, mathematical, statistical and probability theory level from this but also on a behavioral psychological level and a common sense (the most important) level.” This is quite an interesting idea. I hope he describes it further.

7. Time frames must be ‘in sync’ with each other
   1. A daily profit with a weekly graph will not work for some reason

8. How then, can DT form opinions in a daily briefing if it is impossible to tell which way the market will move in a given day (because he charges money for his daily briefings)
   1. The opinion is made of a composite of factors
   2. The factors are longer-term, otherwise trying to call price direction on any given day is a coin flip
   3. The danger is that people suck at multivariate analysis

Randomness and time frames

1. Five minute periods have no memory (want to bet on that?)
2. “No matter what your time frame, entering the market and being in-the-money five minutes later is luck. That is all. It is nice, sure, but needing that fix is dangerous. It can’t be repeated with any certainty.” (in fact I can say with certainty the odds are less than 50%)
3. Time frames are like soap operas
   1. If you only watch one episode per year you won’t be able to follow the story
   2. If you watch every episode you will get ‘too involved’ and lose objectivity (???)
   3. “Currency trading is like watching a soap opera enough to know what is going on but not so much that you become emotionally involved.” Strangely, this almost makes sense.

4. DT repeats the story of the Pennsylvania Dutchman in Lefebvre’s book which you can find summarized over here.
   1. The point is that we have to do some empirical analysis

5. Big money moves markets - powerful institutions and central banks
6. “Massive daily volume is made up of so many different role players, all of whom may have different motives, perspectives, and different goals”
7. Comparing stocks to forex is like comparing a hyrax (some kind of South African rodent) to an elephant
   1. They were related millions of years ago (more accurately, they shared a common ancestry)
   2. DT believes that some indicators are not useful for forex, but presumably some are
   3. Which is illogical, if price is as random is he says it is (and it is)

8. You can’t trade only on technicals or fundamentals says DT

Discretion

1. DT considers himself a discretionary technical trader
   1. Relies on the interpretation of historical price moves up to the real-time moment of a trade
   2. Differs from technical traders who use indicators in this way:
      1. Whereas you say “the information is in the price and that is all I need to know, since that is all everybody else knows”
      2. “I say “the information is in the price and what do they know that I don’t know and what does it mean that they (some traders) acted on “this or that information”?” (so far this sounds like madness. It sounds like second-guessing the market which is a bad idea)

2. What moves currency markets is different from what moves stocks
   1. “Do Apple’s shares rise and fall on an insignificant throwaway comment by
   2. Steve Jobs?” (LOL, yes they most certainly did)
   3. The Fed Chair on the other hand… (but how do we know it really was the Fed’s comments? Earlier DT pointed out that reasons are found for moves after the fact.)

Different Motives

1. The horizons of big players may differ from yours by 2-3% (of the whole market he means) and by as much as a year
2. Jim Rogers claimed he couldn’t time the markets despite timing three ‘multi-year global markets’. Timing wasn’t something he considered a strength.
3. The whole point is that those with shorter horizons must pay attention to what those with longer horizons are doing

Summary
Why is DT putting a summary here instead of before or after part 1?

1. Traders struggle to build a representative real time picture of the market
2. Success requires making deep connections to tease out clues
3. Perspective is important, not too close but not too far
4. Risk averse (not really much was said about this though?)

Chapter 4 - About the Edge

1. Success requires an edge
2. Don’t overcomplicate

The clarion call of a neophyte trader - the cluttered chart. I still see traders who have more experience than I do use charts that look something like this.

 

1. Anything can happen next
2. I believe that trading involves more luck than most people would care to admit, but it is certainly not gambling (It is gambling, but I don’t think DT and I disagree much on this - it’s ‘boundedly random’.)

Paradigm shift

1. Trading is more than just the application of rules
2. It’s more than just imitating winning traders
3. You must learn to think as they think
4. Stay out of chat rooms where other losing traders congregate lest ye be infected by their suck
5. You need to act as casinos do and turn a small mathematical edge to your favour (but trading isn’t like gambling??)
6. “You may sometimes be wrong, but mostly you won’t. Those are good odds.” (you haven’t stated any odds, DT)

Dealing with randomness

1. Our minds are not equipped to deal with it
2. Most traders crave certainty in a profession which has none
3. Chance plays a role
4. Traders favour training courses, ebooks, webinars that have exact entry and exit points
5. This is dangerous as there is little consistency or certainty in markets
6. Even trending markets don’t get there in a straight line
7. Gaining confidence in an edge is a matter of experience
8. DT mentions Soros’ principle of reflexivity but in the wrong context
9. There are no worthwhile instant solutions in life
10. There are no sure bets
    1. DT cites the example of a carry trade
    2. As the trade lured more and more freeloaders eventually things had to tip

1. The game involves probability
2. Winning traders have an edge applied over time
3. Having learned it they repeat and “this cannot ever be done mechanically” (false)
4. The complex entity made of people requires discretion so it will always have a place
5. No convincing data yet

What successful traders have in common

1. They maximize advantages - which has its roots in planning
2. They are honest. They don’t deceive themselves.
3. Trading is not math formulas but educated betting - so good traders deal with probabilities (but probability can be expressed formulaically)
4. They understand the math - you cannot trade with high leverage and survive and you can’t trade with too short a timeframe
5. They have a system that eliminates performance pressure - no playing catchup when you lose
6. They avoid perfectionism
7. They see the big picture
8. They are skeptical of news
9. They are tentative when taking risks but decisive when taking profits
10. They read - foreign affairs, global matters, financial markets - the Economist
11. They have a healthy risk appetite - they can handle losing money
12. Patience
13. Long term thinking - if you win big today but lose it tomorrow you won’t have a successful business
14. They are neither greedy nor fearful - the ‘cottage’ industry of trading psychology is for suckers
15. Common sense - work on it, train it
16. They are serious about trading - invest time, money, effort

Getting Started

1. DT tells the story of how he got started
2. Started trading shares in 1998 just before Russia defaulted on its debt
3. Years earlier he had taken a correspondence course on TA
4. Started trading treasuries on margin which was more exciting
5. Tracked news and ‘monitored’ how info affects price
6. Learned never to trade before or after data releases
7. Examined macro issues
8. What drove individual companies was less important than the health of the DJIA which moves the Nikkei, FTSE, DAX, JSE
9. Market Wizards - they all learned from some mentor
10. Discretion becomes less conscious with time, and more mechanical

Make it Your Own

1. You will have to craft your own system
2. Don’t follow a non-trader
3. Non-discretionary traders paid for their seemingly effortless success with blood, sweat and tears
4. The wrong mentor can end your career
5. DT talks about his own mentor but it’s hard to say this reveals anything that hasn’t already been mentioned
6. “Leave a little sunshine” - don’t pick tops or bottoms
7. Don’t mess up a chart
8. DT recommends keeping your day job to reduce pressure

The Big Sell

1. In the 1990s retail currency trading took off
2. Ads promised instant riches
3. Instead most went broke
4. Liquidity in treasuries was drying up and so DT switched to forex (a bit like how FX is drying up and now everyone’s moving to crypto?)
5. Leverage of 30:1 or 40:1 was recommended where DT sees 6:1 as the high end
6. “The whole business stank” (past tense?)
7. DT decides he needs to save poor retail traders getting fleeced by a rotten business and he starts offering training
8. FX brokers ‘at that time’ (2000-2002) made use of introducing brokers, who are paid a fee based on the volume of their clients. The unscrupulous trainers had no idea how to teach people to trade.
9. He dangles the tantalizing prospect of trading other people’s money

Trading is not a spectator sport

1. DT goes on to talk about how leveraging your ability is better than leveraging your own money
2. DT talks about what to look for in a mentor (this is getting creepier, in the self-promotional sense. What to look for in a mentor? Why he was in front of me the whole time!)
3. A mentor must care (how sweet) as in they must care if they win or lose (oh)
   1. Newsletter writers don’t care if they win or lose or if you win or lose as they’re being paid every month

Next: How Not to Trade

Chapter 5 - How Not to Trade

1. A crash course on what not to do. I’m going to try and be more succinct because I’m sure we’ve heard this all before
   1. Trade undercapitalized so that leverage destroys you
   2. Trading with a too-small account is bad because you don’t care if you win or lose the money (??? speak for yourself DT)

2. Confusingly, DT stops using the negative example after the first one, so this is what TO DO
   1. Don’t place too much importance on timing
   2. A good level may be 50-100 pips below what you thought it was
   3. Close enough is good enough
   4. Don’t place undue faith in mathematical indicators - they lag
   5. Beware curve fitting

3. Don’t be inflexible
   1. When facts change, adapt - recall Darwin

4. Don’t trade against the fundamental trend - don’t fight the Fed/central banks
5. Don’t ignore common sense
   1. Discipline is good yes, but common sense is just as good
   2. Be skeptical/critical
   3. Don’t do something you don’t understand

6. Don’t have unrealistic expectations
   1. Have realistic goals (not many specifics yet)

7. Trading is a business, etc etc
8. Don’t use trading software - if it was so good the vendors would be using it themselves to make billions
9. Don’t be arrogant
   1. The market is not ‘solvable’

10. Don’t trade too scientifically
    1. Trading is not an exact science
    2. Don’t wrestle with the market (but so far it seems he hasn't really described what I would call 'scientific trading')

Next: Elements of a proper trading system

Chapter 6 - Elements of a proper trading system

1. This is not just another trading system this is a ‘whole new approach’ (they all say that)
2. DT’s system is his business plan (cheating)
3. The market requires maturity - trade what is, not what ought
4. The market is a ‘priced representation of a segment of human life’
5. People make markets and they reflect their makers - unpredictable, volatile, greedy, complex
6. Nothing has an intrinsic value - we determine it (tell that to a man dying of thirst)

The Bigger Picture

1. Every day an institution 1M x bigger than you will do something and the market will respond
2. If you learn how the big players think you can anticipate how they will act
3. Respect the heavyweight flow of capital like you’d respect a heavier boxing opponent

It’s a game of chess

1. Currency trading is like chess - it has strategy, tactics, openings, middle and end games

So, the scary thing about this book is just how much I agree with DT on many points. I feel like he truly ‘gets’ some things. In fact, he has anticipated or outright copied what I’ve written in my trading journal and this book club thread several times; but don’t forget he wrote this book in 2004/2010 and I didn’t even start trading forex seriously until 2016.

Why then do we disagree on virtually everything important? I must empty my cup if I hope to fill it with any wisdom.

Most authors would compare trading to something like poker or bridge. Something with a betting element or some other game of imperfect information. But it isn’t like that. It’s like chess. It’s a game of perfect information - because ‘all you see is all there is’. However DT doesn’t believe that. He thinks we can anticipate the big movers. In principle he might be right, and I just don’t have enough knowledge to counter him. He has to start offering some evidence though. We can’t just take it on faith.

 

1. Rules
   1. Low leverage
   2. Trade with fundamentals
   3. Trading is about probabilities
   4. It is a battle like chess

Part 3 - and all that Jazz

1. “If you look at your broker from the right perspective you will see a marketing wizard (not a market wizard) who has set up shop to filter money out of the system.”
2. DT refers us to yet another defunct website that he set up - forexclinic.com. Not even 7 years old. It was part of a ‘more thorough’ introduction to the FX market.

Chapter 7 - Foreign Exchange Basics
This chapter is a bit of a data dump. I could have trimmed it more but DT's verbose style and careless structuring makes it hard to know when he considers something to be important. He is also quite a rambler.

1. The history of FX starting from the Napoleonic era. I love history but it’s too much typing. Get the book if you care.
2. The role of FX, central bank intervention, etc. etc. - too basic for this thread, again, get the book if you're curious

Fundamental Factors Governing Exchange Rates

1. Countries with high relative real interest rates will see their currencies appreciate as foreign investors sell their home currencies and buy the currency of the country with the high real interest rate. (except no. Brazil, Turkey, Russia, all recently experienced massive interest rate hikes. Is anyone buying? Check the charts)

The ruble is in a holding pattern. Hanging in against a declining dollar.


The Turkish lira is currently rising against the USD but would you get in front of this train? I would not. (update: a week after I took that chart USDTRY made a new high)


Same story with the Brazilian real. If you can even find a broker that lets you trade it. These countries are raising interest rates to stave off a currency crisis. You’d have to be a gambler to risk banking on these currencies strengthening with interest rate rises. Then again, I may be in the minority. https://finance.yahoo.com/news/emerg...030058510.html

1. Purchasing Power Parity - identical goods should have exactly the same price regardless of location
   1. Law of One Price - identical goods should have same price in all locations
   2. Big Mac Index - a big mac should cost the same anywhere as it’s the same sandwich; however in reality its cost varies widely and in theory you can use this to gauge the difference in money values - updated in ‘The Economist’
   3. Theory: “If widgets cost less in London than in Johannesburg, an enterprising individual will import widgets from London to Johannesburg and sell them in Johannesburg for cheaper than the domestic widgets. The demand for these cheaper imported widgets will increase, pushing up the price of the London widgets until the price is equal in Johannesburg and London.”
   4. Absolute purchasing power parity - compares the price of a basket of goods
      1. APPP = Exchange rate x (domestic price/foreign price)

   5. Relative PPP
      1. The ratio of growth rates of the prices in two countries; inflation is the critical factor

   6. Empirical observations of PPP
      1. It is a poor predictor of short-term rates
      2. PPP “tends to hold over the long-term” (really?)
      3. Evidence is weak, admits DT

   
   

2. Interest Rate Factors
   1. Fisher Effect
      1. “The nominal risk-free rate of interest in a country can be derived from the real interest rate and the rate of expected inflation.”
      2. Nominal rate = Real rate + Expected inflation
      3. Nominal rate is quoted on risk-free deposits like the US money market rate

   2. As mentioned, DT repeats that investors will buy currencies with higher real rates of interest but there are reason they won’t
      1. Currency risk (the biggie)
      2. Tax rate differences between countries

   3. Fisher equation - only holds in the long run; other factors like risk, news and expectations dominate the day to day

3. Short term trading thoughts on interest rate factors
   1. The biggest driver of medium trends is interest rates, says DT
   2. Waiting for an interest rate announcement is too late
   3. Large funds are always looking for riskless investments
   4. Smart money will try to get in on the side that is likely to hike rates

4. Interest rates and the central bank
   1. Central banks are the lenders of last resort
   2. Reserve levels are enforced on banks down the chain
   3. The rate at which central banks lend is the overnight rate, repo rate or Fed funds rate (US)
   4. Overnight rates therefore set the rates for all short-term loans
   5. An interest rate differential, of even 1% will send money flowing from one currency to another (hence $5T in volume, though the retail market is not really a part of this)

5. Interest rates on trades
   1. Carry trade
      1. A trade where you buy a higher interest rate currency (or sell a lower interest rate currency) against another and hang on, earning swap fees (positive) for your account
      2. Easy money! Especially when inflated with leverage
      3. Main drivers are Japanese and Asian investors says DT
      4. The main risk is in interest changes especially in the USD

   2. “keep in mind that interest rate differentials and perceived changes in interest rate differentials are probably the most visible and manageable trendsetters in the short and medium term for the currency market”
   3. Rise and Fall of the Carry Trade
      1. Carry trades naturally lead (via money flows) to the strengthening of the higher interest currency (the intent behind higher interest rates) and the weakening of the lower interest rate currency
      2. A leveraged naked carry trade can be very profitable when the currency move goes your way but it is also very risky
      3. DT re-uses the carry trade chart he showed earlier! Lol

   4. DT correctly anticipates a time when the Fed will need to raise interest rates to address rising inflation. We are now there but the Fed still refuses to take action. Ask who benefits.
      1. The USD may now be a funding currency against commodities like Gold. Rare is the broker who is so honest as to give you positive swaps on commodities though.

      
      

6. Balance of Payments
   1. The account of all transactions in a year between a country and the rest of the world
   2. The BoP has two important accounts
      1. The Current Account
         1. Holds all the transactions of imports and exports of goods and services
         2. The trade balance
         3. If Japan, say, exports electronics to the USA, retailers in the US must buy yen to pay for these goods
         4. The yen will appreciate against the dollar

      2. The Financial Account
         1. This account holds the transaction for the flow of capital to and from a country
         2. For example a US investment bank wants to buy Japanese government bonds for investment purposes
         3. They must use yen
         4. The yen demand will increase and the yen will appreciate

         
         

7. National debt, twin deficits, reserve diversification and a ‘strong dollar’
   1. BoP issues affect currency values only over the long term (see a pattern yet?)
   2. Let us examine the real world relevance of this ‘nerdy stuff’ says DT
      1. Debt vs deficits
      2. Debt is money owed
      3. Deficit is the budget shortfall
      4. Countries need money to operate - salaries, government programs
      5. That money comes from taxes and gov bonds
      6. A bond is a loan
      7. Usually large banks loan money to the government by buying government bonds
      8. Bonds are debt the government owes
      9. Raising money with bonds is easier and less politically dangerous than raising taxes
      10. ‘Debt issuances’ or ‘treasury auctions’
      11. US debt is increasing due to deficits
          1. Budget deficit
          2. Trade deficit

      12. A weaker US dollar reduces the debt owed to oil-rich nations, china, etc.

      
      

   3. Currency reserve diversification
      1. The US dollar is the world’s reserve currency
      2. If debt levels continue to climb and the US dollar declines other countries may find it problematic to hold US dollars in reserve
      3. DT goes on to outline China, Japan, Russia’s positions re: the USD and how some countries are buying gold, and China is drawing on the IMF’s special drawing rights, and he argues that all of this helps a trader know where significant technical support levels are in the market. A lot of work to do what a glance at a MN or 1Y chart will do.

   
   

8. Overshooting Exchange Rates
   1. Prices adjust slowly
   2. Exchange rates and interest rates adjust quickly
   3. This difference in speed allows for ‘interesting behaviour’
   4. A person has a money demand function says DT
      1. If income increases
      2. Money demand will increase as people buy more
      3. When interest rates increase
      4. Money demand declines as the opportunity cost of holding money increases

      
      

   5. Interest rate parity relation
      1. Maybe written as i(a) = i(b) + expected change in exchange rate
      2. DT starts talking about forward rates and premiums and now I know he’s wasting our time. This whole chapter is padding.
      3. When money supply increases
         1. People have more money
         2. This puts pressure on asset, service and good prices as demand rises
         3. The expected future spot rate will rise

         
         

      4. Bah all of this to say that equilibrium will eventually be restored

      
      

What does any of of this have to do with trading?!

 

1. Short term Trading Thoughts about Overshooting of Exchange Rates
   1. Extremely important for short-term traders, says DT!
   2. Overshooting means currencies rise or fall more than they should and then settle back into equilibrium
   3. Traders can make money
      1. In the overshooting phase
      2. In the pullback following that phase
      3. Again when the trend reasserts itself

      
      

   4. The 2004-2007 credit bubble
      1. Caused by US Fed Reserve keeping interest rates low for too long
      2. Fed a lending binge
      3. Regulatory changes
      4. Derivative products
      5. Trading in 2007, 2008, and 2009 was ‘tricky’ (as opposed to any year?)
      6. Extreme price moves were now experienced daily, weekly, monthly

   
   

DT produces this chart with a lot of numbers on it but there is no key in the text to interpret these points.

1. Are you ready to tackle the Forex Market?
   1. Pension-based global investment funds have low return expectations
   2. They want consistency
   3. You don’t need an army of strategists
   4. Information flows upward through a pyramid with large capital pools at the bottom
   5. What does this section heading have to do with its content???

   
   

2. Retail and Wholesale
   1. The financial markets have two distinct sections - retail and wholesale (buy and sell side)
   2. Wholesale (sell) is the big analysis and information factory (the bullshit factory)
      1. Analysts, economists, strategists for rent
      2. Banks churn out research that distills this ‘geeky stuff’ (macroeconomics) and provide it to eager clients of smaller banks and other investment institutions

      
      

   3. Big growth in FX ‘turnover’ mainly took place in retail
   4. Wholesale has a longer view with 12-24 month horizons
   5. Hedge funds have a shorter horizon but still not short-term compared to retail
   6. Forex trends are durable over months and years, not on shorter scales

   
   

3. Limit the number of currencies you analyze to make things easier
   1. Hence: one direction, one currency

   
   

4. Start-up traders should have a 3-6 month ‘startup’ phase
   1. Traders who start during a prolonged trend will get an inflated sense of their ability
   2. Conversely traders who start during a trend change will ‘castigate’ themselves for losing money
   3. Making or losing money in the early days is mostly a matter of luck (true. I made a bundle correctly anticipating the Brexit vote result but lost it all and more in future weeks)
   4. DT then looks at some scenarios, but I'm not sure what value this has other than to make the book longer

   
   

1. The point is you need to have a long-term mindset, and that’s non-negotiable
   1. You can’t judge your abilities after few months of questionable TA and ‘miniscule’ time frames
   2. ‘Backyard backtesting’ uses short time frames and gets hit by the long-term trend train
   3. If you test during an ‘overshoot period’ or a ranging period, your backtesting merely confirms faulty judgement
   4. Trader C encounters a ‘black swan’ says DT, but I’d argue this is no black swan
   5. Sub-hour traders encounter these ‘once in a lifetime’ events all the time
   6. DT by his own admission says the sub-hour charts look a lot like the ones he posted above, so this seems to undermine his conviction that longer term charts are somehow fundamentally different from shorter TF ones
   7. “the challenge to you as a trader is to build a system robust enough to withstand
   8. the storms you can do nothing about. (agreed)

   
   

Chapter 8 - The Foreign Exchange Market

1. The FX exchange is not a ‘formal exchange’
2. There is no one global price at any moment for a specific currency
3. Market makers see your margin as their income stream, they are not safe custodians of your money
4. The size of the market confers some advantages that have been discussed at length in every fx trading book - liquidity, 24h trading, efficiency, ‘price stability’
5. FX turnover has grown from 1977 to present
6. “Keep in mind that the figure of $3.2 trillion foreign exchange trading a day is made up of two-thirds internal reporting - dealers amongst themselves - and one-third external, transactions between reporting dealers and their customers.”
7. London is the centre of the forex market
8. DT goes into some depth talking about opening/closing times
9. Major currencies, major players, I have heard this all before as I’m sure you have so I’m skipping much of it
10. How prices are made
    1. Prices originate in the wholesale or interbank market
    2. Two main interbank platforms - Reuters and EBS (outdated?)
    3. Indicative prices
    4. Dealing prices

1. STP, non-dealing desk
2. Most trades take place with no dealer intervention - no one is running your stops
3. FX Volume can be derived indirectly from tick data but is not necessarily indicative of real volume
4. There will always be a ‘global spread’ which is not fixed, and widens during news, etc
5. “To be a good broker you must be able to lie consistently
   Terry Smith – renegade broker”
6. The whole system is set up to take your money
7. If 90% of traders really lose then there is lots for you to take without having to worry about bankrupting your broker
8. Most brokers are white label advertisers for genuine market makers; they are marketing wizards, not market wizards
9. Brokers use incentives we’re all familiar with to entice new suckers - low margins, no commissions, high leverage, funding with credit cards, free software, data, indicators ,etc
10. Don’t listen to anything your broker tells you
11. Hidden costs
    1. No commission - higher spread
    2. Free software - encourages overtrading like a game
    3. Brokers have a short-term mindset. They can quote one customer a price while quoting a different customer a different price. Every pip matters to them.
    4. The more you trade the more they make on spreads
    5. Selective trading is not in their interest
    6. If the broker can guess what retail is positioned to do they can make money (and they have all the data you don’t)
    7. Lower TF tools and charts are provided so you can hang yourself

    
    

12. Leverage (now he’s stopped using ‘gearing’)
    1. 100:1, 200:1, 400:1 “this is just crazy”
    2. 10:1 seems ‘positively conservative’ but it’s still too high says DT!
    3. 5:1 is still too high!!
    4. Margin required and leverage are not the same thing
    5. “Low margin” = “low margin requirement” = “high gearing”

    
    

13. DT goes on to show an example of margin/leverage and while this is important to know it falls under basics already covered
14. Mini and Micro lots
    1. Basically a good thing as it allows traders with less money to participate
    2. But the marketing wizards got involved again by offering mini and micro accounts
    3. “Mini and micro accounts are not so good, because all that happens now is that the old 100,000 / 3,000 scenario repeats itself. Now people fund a mini account with $300 and trade 30,000 to 60,000 units with 100:1 to 200:1 leverage. Absolutely nothing has changed.”
    4. If you are trading a $1000 account do you have realistic expectations? (nope)

    
    

15. Free training provided by brokers
    1. You don’t think for one moment these guys are going to effectively teach the clients whose money they take to actually take theirs? (I do not)
    2. Free training by IBs
       1. It’s in their interest to encourage to overtrade as they get paid on your volume

       
       

    3. Trading is risky, leveraged trading is riskier, riskiest of all is putting stops 10-40 pips from ‘perfectly timed’ and ‘high probability’ entry points
       1. This results in continuous stopouts

       
       

    
    

Now suddenly without warning and no heading change DT tells us what he does (or more accurately what he doesn’t do)! This book has basically no structure. It was written in a fever dream in one sitting I’m guessing. So I’ll make up the chapter subheading:

What DT Does NOT Do

1. Not lots of trades - only as much as ‘he’s comfortable with’ (vague)
2. No high leverage - total leverage of all combined positions is low (vague but must be 5:1 or less I’m guessing)
3. No stop loss - only mental stops or opposite orders to offset the initial position
   1. No mental stop placed close to the entry price
   2. If that was necessary he would not trade

   
   

4. No pinpointing of entries any closer than a ‘price level’ in or around it is close enough
5. No hocus-pocus TA scheme
6. Takes profits quickly (but this is paradoxical with his position-trading attitudes? What does he mean by ‘quickly’. Vague.)
7. No ‘miniscule’ time frames
8. No studying of mini account trading competition winners or demo account trading competition winners (LOL - yeah those are a huge scam)
9. Bonus money is also a scam as it can usually not be withdrawn until you have done a minimum number of trades within a minimum time which is inherently unsustainable

Chapter 9 - Trading the Spot FX Market
So we’re only 9 chapters in before he finally gets to the point? Maybe? I must say there have been some refreshingly different perspectives in this book, especially with regards to how to view the sell-side industry, and there have been tantalizing hints about how to trade the DT way, but only hints so far. Is anyone old enough to remember this?

1. Price quotations (nope more basics)
   1. 2-way price, base/terms currency, bid/offers always from the market-makers pov, pips/points (DT uses this term interchangeably which I think reflects a misunderstanding on his part), the introduction of 5th decimal point pricing was intended to cause confusion
   2. Forex is not really a zero sum game as the spread always pays out to the service provider

2. Contract sizes, cross currencies, margin, leverage (and here DT tells us gearing is in fact his word for it), for DT leverage is the Great Satan and he goes on at much length about its dangers and effects
3. Trading costs
   1. You incur a cost as soon as you press the button
   2. Trading costs add up and are a drain on profit

4. Technical Analysis
   1. ‘Has its place’
   2. But know what that place is, is tricky
   3. Volume is not reliable in fx
   4. Most pros use fundamental analysis says DT

5. Time Frames
   1. DT continues to rant on about ‘noise’ implying that is the lower time frame and implying that the higher time frames have less of it which has yet to be proven to my satisfaction.
   2. “Successful trading requires one to find a workable balance between activity, time frame, cost, leverage, expectation and realisation.”

6. Fundamental Analysis
   1. Macroeconomic variables
   2. Interest rates
      1. Absolute
      2. Differentials
      3. Main news releases
         1. Interest rate expectations
         2. Employment data
         3. Inflation data
         4. Consumer confidence
         5. Manufacturing production

      4. “Why and how they affect markets differently on different days is a subtle and complex business and I deal with this using my relational analysis tool” explained in part 5
      5. Not even halfway done the book yet, ffs - should I skip to part 5???

7. Trading thoughts on economic data releases
   1. DT discourages straddling news
   2. Either take profits when it moves with you or sit it out
   3. Trading news is ‘cavalier’ says DT
   4. Single events usually get retraced quickly
   5. DT’s own research
      1. In 2 years
      2. Out of 13,000 hourly periods
      3. Only 35 periods had a points (he means pips) move in EURUSD of more than 100 points (pips obviously)
      4. Most of these occurred during ‘typical hours’ of US data releases
         1. Monthly employment, Greenspan speeches, Iraq War

      5. In 2008 however the number of 100 pip moves went up by 2000%

8. Relational analysis
   1. Is it part 5 already?? No it isn’t. Wacky.
   2. RA is a key part of DT’s success
   3. Recall PET - price event time
   4. Price-time relationships
      1. Price volatility declines with time (interesting statement)

   5. Event-time relationships
      1. Events can be external - (news)
      2. But events in your own life can have an impact on your trading
      3. State of mind due to recent success or failure are also important

9. Retail forex market regulation
   1. Usually UK and US regulated companies are safer but
   2. Regulators began to meddle, making both brokers and customers unhappy
   3. This is all part of the game and you have to ‘roll with the punches’
   4. DT sees the reduction of leverage maximums as a positive development

10. Hedging
    1. For the discerning trader, being able to open opposing positions allows behaviour more like institutions
    2. The US regulators decided to ban their brokers from allowing individuals to open opposite positions (FIFO)
    3. DT recommends using brokers that allow hedging and ‘per-ticket execution’
    4. DT does some shilling for his own introducing broker that will take US clients (but does it still - I’ve never heard of it - DayForex? And neither has the internet or FPA.)

Part 4 - The Edge

1. Introduction
   1. Now we get to the ‘nitty gritty’ says DT - only took 150+ pages
   2. Edges will be examined
   3. Use them in combination
   4. Your specific trading business is unique to you
   5. Don’t use high leverage just in case you weren’t sure how DT feels about this
   6. Trading is a business - not a turnkey, set of instructions (repeated from an earlier chapter I swear)

2. Trading is demanding
   1. Which is why I like EAs
   2. Ego
   3. Leverage
   4. Uncertainty
   5. Strain becomes stress with leverage

3. Trading is a personal business
   1. Failure lies in thinking of it as anything but a business
      1. Exotic
      2. Easy
      3. Not a job
      4. Do it anywhere in the world (in a hammock!)
      5. These are fantasies
      6. In internet marketing the latest thing is what sells
      7. In trading the older and more sustainable your business processes and tools, the better
      8. Marketing is not part of a trading business

"Trading is a path that cannot be taught, only taken"

Chapter 10 - Pre-trading Edges

1. Why do you want to enter a high-stress, high-failure business?
2. Your expectations will directly impact your success or failure
3. Oh dear DT has now entered ‘question-mode’!
   1. What is it that you want?
   2. Do you even know?
   3. Are you embarking on a business venture because you want some spare cash, a bigger house, or to make a living?
   4. Are you bored?
   5. Does a quick buck appeal to you?
   6. Are you intellectually stimulated by the financial markets?
   7. Etc, etc…

4. Trading is a business ,etc. Etc.
5. The story of the gas station owner whose clever timing in the petrol business allowed him to make a fortune
   1. When he tried trading and tried applying timing to it he failed

6. Set proper goals
   1. DT doesn’t want this to sound like a cheap motivational speech, but he fails
   2. More question mode
   3. 2-3 years learning minimum - live trading with money not demos
   4. “you will have big lessons to learn until you have basically experienced several interrelationships between the market and the outcome of your trading.”
   5. DT draws a table and devotes a page to tell us that market conditions will affect our account condition. Thank you, Dr. Einstein.

Example of a ‘Loser’ Strategy

1. General
   1. Use no more than 2% of my account on any one trade
   2. Daily Target of 20 Pips
   3. Stop at 30/35 Pips
   4. High Impact News times DON'T TRADE –
   5. Trading Times GMT + 1 Hour - 8 to 11 & 2 to 4
   6. Get the TREND by looking at the 20 bar MA in the Daily (longer trend) & the 60 (medium trend)

2. Entry Strategy
   1. Trade mainly off 5 min
   2. Only take trades with the trend
   3. Signal to have closed above/below the 20BMA & 5/10 MA have crossed or breakout of support/resistance
   4. Is the Tick volume higher than average?
   5. What are the buying/selling bars telling me?
   6. Is there enough distance for a possible profit using Sup/Res & Fib76.
   7. Enter with two positions

3. EXIT Strategy
   1. Exit half the position at 10 pip profit - move stop to 20
   2. If close above/below the 20 pip scalp target move stop to breakeven - free trade
   3. If tucked up well above/below the MA's can stay with the trade & lock in profits by
   4. moving my stop to - low/high of the last 3 bars

4. Do you recognize yourself asks DT
5. A financial goal
   1. What do you want to achieve in this early learning period
      1. Forget about wealth
      2. Aim for profits equal to your initial investment (training, service fees)
      3. Trading a demo cannot simulate the psychological strain of using real money
      4. Use micro lot accounts
      5. Start with ⅕ your actual trading funds

   2. Longer term goals
      1. Making a monthly return under pressure is tricky
      2. Calibrate risk taking and risk acceptance under different market conditions

6. Market conditions (all over the flipping place this guy)
   1. Losers dismiss this as they trade like robots
   2. When a new market condition hits they crash out
   3. If you can adapt to a big move you can ‘step it up’ when it is going your way (?)

7. Full time or part time?
   1. Academic as everyone’s circumstances are different
   2. However people tend to spend too much time trading/overtrading

8. BWILC traders
   1. Have a clear concept of what is dear and cheap
   2. Have a view of possible price ranges over next few weeks
   3. Not have too many surprises
   4. Know what to do at what price levels
   5. Are aware of the underlying drivers affecting the market
   6. Have a limited number of sources to check
   7. Understand correlations
   8. Have a fixed framework to place trades
   9. Classify upcoming trading periods as potentially active or quiet
   10. This would all be better placed AFTER unveiling the system so that the reader has some context for these statements!!

9. Handle pressure
   1. A story about a trader under pressure, basically
   2. By now you know how I feel about books dealing with psychology. Pointless.

10. Be skeptical, be critical, be wary
    1. Never confuse genius with a bull market - Nick Leslau of Burford
    2. Skepticism is an edge
    3. Be skeptical of your system as your develop it
    4. If a system works 10x in a row don’t bet your house it will work 11x
    5. Markets can stay irrational longer than you can stay solvent - John Maynard Keynes

11. The story of Long Term Capital Management
    1. John W Merriweather
    2. Took the fall at Salomon group for a bond-rigging scandal
    3. Rebuilding, he persuaded Merrill Lynch to raise cash for him to raise a team and pursue strategies
    4. For 5 years its dream team of math whizzes and economists dominates the financial landscape
    5. They found mispricings and bet those mispricings would correct based on an efficient market, a safe bet usually
    6. Returns were 40%+ year after year
    7. Wall Street hated them (this one simple trick) as they were perceived as secretive, aloof and arrogant
    8. Everyone was beating down their door to give them money. Their assets ballooned to $102B - leveraged 28:1
    9. 1998 they were managing $4.5B
    10. May 1998 rumours started to spread that there was a problem; the markets were not being efficient
    11. LTCM hangs on to their strategy
    12. Rumours spread that Russia might default on its debt (inconceivable at the time) and they were heavily invested in Russian bonds
    13. Their math told them it was impossible to fail, but markets are made of irrational people
    14. The moral is that intelligence untempered by wisdom (judgment) is doomed to fail

12. Learn from history
    1. When LTCM was hemorrhaging money it approached George Soros to invest.
    2. He agreed to invest $500M if they could raise a matching $500M
    3. “Long-Term envisioned markets as stable systems in which prices moved about a central point of rational equilibrium. I had a different view,” Soros noted. The speculator saw markets as organic and unpredictable. He felt they interacted with, and were reflective of, ongoing events. They were not sterile or abstract systems. As he explained it, “The idea that you have a bell-shaped curve is false. You have outlying phenomena that you can’t anticipate on the basis of previous experience.”
    4. Soros believes in real-time events and so does DT.
    5. They are unstable systems, which move about a constantly shifting central price range
    6. Since the market consists of exceptions to the rules, it is ill-suited to rigid rule-based systems, when they rely on consistently repeating patterns like the efficient market hypothesis
    7. DT says that the consistent patterns represent the efficient market hypothesis but I would counter that in fact it is the pattern-erasing (crushing) behaviour that is the efficiency in markets. So it wasn’t really that the market was being inefficient when it ruined LTCM, it was avoiding predictability which is what it must do. And it does this on every time scale on which people trade, which is why I find DT’s thesis dubious. Is he really avoiding randomness by hiding up in the longer term TF or is he simply delaying the inevitable?
    8. There are 2 risks in a trading business (isn’t this a good place for a new chapter or heading??)
       1. Blowing up
       2. Going Nowhere
       3. If you can recognize you are in a period with a potential big payoff you will get it
       4. But steadily growing equity can lure you into complacency
       5. The trick is to work at not losing what you have gained
       6. Make peace with inconsistency
       7. It seems to me an automated system can do all these things better than a human

13. No system is fail-safe
14. No one and no system is smart enough to beat overleveraging
15. Real time events are important
16. The bigger picture is the only picture you need
17. Make provisions for the impossible (how? apart from resigning yourself to it) don’t leave exception management to your system
18. Judgement is more important than genius
19. Tom Baldwin - “the smarter you are, the dumber you are.”
20. Be shrewd, not clever
21. No other trader will fill your depleted margin
22. “You are alone accompanied only by the consequences of your decisions.”

Negating Negative Effects

1. We feel negatives more strongly than we experience positives
2. The story of the dentist who checks his portfolio too often in Taleb’s ‘Fooled by Randomness’ which we have already covered.

Thinking in Probabilities

1. Think like the casino, not the gambler at the casino (feel the force, Luke)
2. Casinos make money because they limit player discretion

Evaluate your performance

1. I actually don’t know what DT is trying to say here. Evaluate your performance sounds like good advice though.

Summary (this chapter)

1. Set goals - be realistic
2. Trading is a business
3. Discretion and common sense are great advantages
4. Know that the market is not fully knowable
5. Negative results feel worse than positive ones feel good
6. The randomness in markets require you to think in probabilities
7. Evaluating performance is trickier than you think. Don’t discard the value of the learning you are doing while failing might be what he means?

Oh what a bloated gasbag of a book this is so far. I bet DT is the kind of person who talks your ear off on an airplane while you’re trying to read a book. It’s not that much of this is wrong, necessarily it’s just disorganized, and has been said better and more succinctly by others. And we're still waiting for the payoff - the system details.

Chapter 11 - General Trading Edges
Did you think last chapter was too long? Buckle up!
DT tells us he made ‘handsome returns’ trading bonds without complex formulas or newfangled tech.

1. “The cornerstone of a personal trading business is the concept of real time.”
   1. A fluid, dynamic and complicated concept
   2. All business in a sense operates on real-time
      1. A customer enters the store
      2. He is there because he saw an advert yesterday
      3. He wants to buy something now
      4. Must come back to keep the business afloat
      5. You have to act now to make the sale
      6. Real-time analysis must happen in real-time
      7. Your main function as the owner of a personal trading business is to do real-time analysis
      8. Professional real-time analyst = trader
      9. “Real-time analysis is about unwrapping the package, dissecting the value in the price, tagging it and doing something with it, even if that something is nothing.” (I get an Al Brooks vibe from this - as though price has that much meaning associated with it and isn’t simply the accumulated reactions of differing groups or the sell-side reacting to the inflows of the buy-side. I need evidence!!)
      10. You must also monitor your own state (finances) in real-time
      11. Can you afford to take advantage of an opportunity if you already deep in draw-down
      12. You must also monitor your own state (mental) in real-time

2. Real-time decision making
   1. Making decisions constantly is the most exhausting aspect of trading (robots to the rescue)
   2. The real-time nature of trading causes pressure (but also, at higher TF do you really have to repeat your analysis daily??)
   3. Real-time analysis is those 3 elements - analyze the market, your business finances and your emotional state
   4. Ignoring these while being obsessed with technical analysis is many traders’ downfall
   5. Ask yourself if you’re up for working today

Analysis tools: technical analysis

1. The marketing wizards (sell-side) have made TA seem indispensable
2. For many traders, ‘trading forex’ and ‘doing TA’ are the same thing
3. This happened as a result of the history of forex trading - after the dotcom boom the forex brokers touted the advantages of forex trading (low commissions, high leverage, free data and charts, and TA tools)
4. They packaged the illusion of certainty that tech provides (reminds me of crypto)
5. The whole sell side participates in this rubbish
6. Euromoney forex forum 2004 - when the major players were asked their tools of choice they responded:
   1. Fundamental 41%
   2. Technical 26%
   3. Flow info 16%
   4. Quantitative 17%

7. DT asserts that this means we are missing out on something because we’re not using what the ‘big guns’ use

TA's edge, understanding its limitations

1. TA began with stocks and founds it way ‘willy nilly’ to forex
2. TA originated in a time when real-time info was unavailable or slowly disseminated
3. TA is always lagging but now that info moves at the speed of light around the world it gets stale almost instantly
4. In any case stocks and forex are chalk and cheese says DT
5. DT praises Reminiscences of a Stock Operator as he should
   1. Livermore realized the winners were on the ‘inside’
   2. He worked to become an insider, won money
   3. Reliance on TA keeps you an ‘outsider’
   4. Livermore was married to TA, not fundamentals or anything (but the motion of the tape)

6. The trick in a world filled with chattering is to distinguish between idle chatter and and the real thing (ain’t this the truth, and I hear a lot of chattering from you DT!)
   1. Crooks make it hard to trust fundamental analysis (Enron, Worldcom, Parmalat)

7. In the currency markets the only fundamental analysis worth anything is Real Time Analysis (ok! A definite statement. But are we any closer to really knowing what RTA is??)
8. Luc Bauwens, Winfried Pohlmeier and David Veredas - patterns exist but you can’t use them to make money.
9. The ‘innumerable’ failed EAs is evidence of the uselessness of technical indicators says DT (so, earlier he said TA had a ‘place’ what is that place?)
10. Then DT drops this bombshell
    1. He uses no indicators
    2. TA is divided into
       1. useful (support, resistance (AAAUGH) and trends)
       2. Useless but pretty (pattern indicators)
       3. Useless but ugly

    3. But then DT goes on to recommend a TA book! I’m getting mixed signals.
    4. Following some of the technicians in general gives a reading into the market’s mind
    5. There is a strong feeling in the market that the 200 day MA has significance so crossing it ‘may’ be evidence of trend continuation
    6. DT figures the technical tools may have worked for their inventors but won’t work for those who are less familiar with them
    7. DT cites John Bollinger on CNBC who talked about fundamentals and not his famous bands
    8. DT goes on to attack moving averages but he’s preaching to the choir
    9. A losing trader’s chart looks like a bunch of squiggles (sadly true)

Trading with the fundamental trend - your long-term edge

1. A big edge, one of the building blocks of the system
2. A trend is a bias of opinions that the market is likely to continue doing what it has done
3. Underlying fundamental factors cause this (which is why I question time spent on fundamental research when you can just glance at a chart)
4. DT does not worship trends though - they are caused by people and people will disappoint you
5. There is no such thing as an intraday trend says DT, that’s just ‘movement’
6. A sharp 2 hour move on the EURUSD is not a trend, just a move
7. Trends are trends only when they have been in existence a minimum amount of time (ah but there’s the rub. Once you see them, they are susceptible to reversal aren’t they DT? Also - what is the minimum???)
8. DT says you should use a properly zoomed out chart on daily or weekly intervals and draw a trendline - but you don’t even need that. I think it was in Reminscences that Livingston advises you to find a 10-year old associate and ask them if the line is going up or down. That’s all it takes.
9. Trying to identify intra-day trends is the way to go crazy says DT (reading this book is)

Support and Resistance - “bracketing” the market
Ah here we go, just when I thought it couldn’t get any worse

1. Anywhere you can draw a horizontal line connecting bottoms using candle sticks is a support level
2. Buyers won out over sellers causing the price to rise
3. Do the same at the top for resistance levels. Sellers overwhelmed buyers and pushed prices down
4. DT wants some ‘fixedness’ in this market. They give him comfort, if nothing else (his words)
5. Broken support becomes resistance and broken resistance becomes support (boooo)

Oh well, look I’m wrong there’s a bloody chart with support and resistance clearly evident. Except, half the bloody lines are missing. Every ‘resistance’ level drawn there was broken by the uptrend so what use was it? Finding support on the way back up? Well, no, look half the time the v-shaped bottoms aren’t actually touching a level, are they? Bloody support and resistance. How can you get so far as to reject TA but then embrace S&R???

“Prices bounce off the support or resistance, testing it and reinforcing the fact that it is a support or resistance level. A very important thing you should know is that prices will seldom test a level more than three times before either definitively breaking through it or definitively retracing back from that level.”

At last. Flipping brilliant. A testable statement. However does this actually diminish the predictive value of a support/resistance level as it’s basically only good for a max 3 touches before it crumbles or gets abandoned in most cases? I don’t want to put words in DT’s mouth as he certainly doesn’t have any shortage of them.

Let’s not waste a single further moment on this book until we put this chestnut to the nutcracker, shall we?

“Also, support and resistance levels are not clean straight lines, but price levels with a variance of up to 50 or even 100 pips depending on your perspective. Just as you shouldn’t try to pin-point your entries, don't try to pinpoint to the pip a support or resistance level.”

Well, heck, let’s go ahead and give it that 100 pips outer limit, ya?


First of all I hope you can see the problem with this. By using a 100 pip fuzzy zone for S&R and putting it on anything that remotely looks like a pair of connected tops or bottoms there is hardly any part of this chart that isn’t covered under this notion. You put enough lines on a chart and by pure chance some of them are going to look significant. That’s what S&R is (probably). I could have gone even crazier and found more possible ‘levels’ but let’s leave it at this already absurd amount of coverage.

Once I’m ready to start my test I realize there are a dozen unspoken assumptions about this 123 boundary check.

1. Does a test occur only once per bar of the time frame I’m checking or do I have to drill down to a lower timeframe to see what happens on H4? (assume no and stick with one touch per D1 bar)
2. Does price have to leave the level boundary and come back (assume yes)
3. Can I add one level check for any similar tops or bottoms or does it have to be a set of un-overlapping ‘stripes’ (assume no to the stripes)
4. What is a definitive break or retrace? (assume it means going clean through a 100 pip zone)
5. How far into the past do I need to check for a support level? (assume 1-2 years?)
6. Does the count reset if price breaks through a previous zone? (assume no)
7. Does the initial cross up or down on a boundary count as a test? For example
   
   Attached Image

   

Is the top edge (resistance) of this zone tested by the blue bar? I would say yes, but when price retraces slightly does that also count as a test of the support? (assume no) so only the following bearish bar is testing the support and starting the support level count.

1. All these ‘fill-in-the-blank’ assumptions add up to a lot of unspoken wiggle room!

Even with all that wiggle room it only takes me till February 2018 of my test that began January 2018 to find an example of a lot more than 3 tests of a support and resistance level.
Am I being unfair? It’s hard to know! What this is basically checking is to see how often price gets caught in an extended narrow range. I would say that is fairly rare, but not bizarre. And when it does happen it causes a lot more than 3 tests so if you were depending on not encountering 4,5,6 or even 7 touches, you’d be sorely disappointed.

So what’s the total count? How often does this happen?
I found 9 clusters of areas where price took 4 or more touches on a zone before moving on from the start of 2018 to present. Is that a lot? Maybe not. But honestly I don’t know what I’ve proved besides

1. Book authors say a lot of shit
2. Price levels don’t last very long before moving on I guess?

Maybe that is helpful if you consider, ‘I’ve seen price touch this area a few times, and I expect it to be somewhere else later’. But that’s a LOT different from saying - price was rejected at this spot and so I expect it to move in this other direction next. Also it’s still very much an open question about whether this is the nature of price in general. It moves. A lot. Otherwise dealers don’t make profits.

Overbought/Oversold Levels
Here DT starts to talk about his system and I don’t know if I should take notes from this point or just wait for the chapter where he actually talks about his system? I can probably depend on him repeating the details 3 times.

1. No indicators
2. Related to his one directional strategy and ‘median grid’
3. Prices are compared to the ‘median level’
4. This level is identified subjectively based on
   1. Recent price action
   2. Fundamental trend
   3. And both of these in relation to each other

5. The further price is from the median level, the more OB/OS it is
6. ‘As long as the trend is up’ you will have many ‘seemingly’ OB levels (as long as)
7. ‘I have done no more than’:
   1. Identify trend
   2. Wait for dip
   3. Buy it
   4. Wait for trend to continue (so it's a buy the dip strategy)

8. The timing isn’t important it’s the waiting (the hardest part)

I sure hope he explains the details behind this or I’m going to be pissed.

Analysis tools: fundamental analysis
Oh gawd, didn’t we already go over this???

Economic data releases

1. Not to be confused with news trading
2. News can cause volatility but not for more than 90 minutes
3. Not a good foundation for a forex trading system
4. News trading is not the same as trading the fundamentals
5. Price reactions to news are not always logical

The effects of new trading on brokers

1. Brokers make money by getting people to trade
2. The more trades, the more money
3. The broker makes money from spreads, and arbitrage of intra day retail traders positions and longer-term market prices
4. News trading began when a small group of retail brokers used high leverage to place bets around news releases
5. The high leverage brokers offered began to backfire
6. Minutes before a news release brokers would be exposed to a much higher volume of one security than they were used to; the broker also knows that volatility will take out 10 pips on either side at a minimum
7. 2M in exposure they can handle. 30M is not what they signed up for
8. Ordinarily they would hedge long and short at different clearing houses but with only one minute before a jobs report that’s not possible
9. Since forex was ‘largely unregulated’ at the time (pfft - nothing has changed, regulation or not) brokers simply manipulated the price to their advantage
10. Or they simply cancelled trades with the excuse that there was no tradeable price for them in the market
11. This caused a huge outcry.
12. DT has little sympathy for the traders however, calling them ‘irresponsible’.
13. The traders put ‘everyone’ at risk if the broker collapses. (and at this point I begin to actively dislike the author)
14. So now the brokers have in their agreements with traders stipulations that the broker cannot guarantee execution of stop and limit orders during ‘abnormal’ markets
15. Brokers will refuse to place orders before news releases (unannounced - the platform simply doesn’t place the order)
16. They also remove fixed spreads so the spread might widen to incredible proportions making trading all but impossible
17. Traders responded by ‘whining’ and jumping from broker to broker (chasing fixed spreads)
18. “You can bet your bottom dollar that most negative reviews had to do with some attempt of a trader to misuse some aspect of the brokers’ service – either intra minute scalping or news trading, or some funny scheme that isn’t conducive to a proper broker-client relationship and in this the forex broker has all my sympathy (not something I easily give brokers).”
19. Brokers realized that economic news could become a trade trigger which is why forex calendars have now become bloated with a myriad non-events masquerading as events.
20. Broker strategies are ruthlessly designed to lose your money
    1. Brokers:
       1. Do it often
       2. With high leverage
       3. Place ‘close’ stops (‘because it’s ‘suicide’ to use high leverage without close stops’)

    2. An individual touting this strategy would look the fool

A fundamental analysis framework for forex

1. Stocks and bonds use discounted future income streams to price securities
2. Forex has no such streams
3. Instead divide fundamentals between ‘trader fundamentals’ and ‘economist fundamentals’
4. Economist fundamentals
   1. PPP and such
   2. Makes no contributions to trader decisions

5. Trader fundamentals
   1. A function of horizon
   2. Long-term trader
      1. Someone like a US fund manager making global equity investments and local equity and bond investments
      2. He needs to sell US dollars to buy these investments
      3. He doesn’t really care about the US dollar value outside of a wide range
      4. Long term view - between 1.25 and 1.60 he wants to sell the dollar

   3. Medium-term
      1. Global macro hedge fund manager
      2. Hedge funds report quarterly so his horizon is shorter than long-term
      3. Trades interest rate differentials
      4. Focused on rate hike cycles

   4. Short-term trader
      1. Sensitive to market dynamics
      2. Buy the rumour sell the news
      3. Reacts to other traders more than long-term fundamentals
      4. Uses a larger part of his portfolio in response to one fundamental driver

Fundamental Analysis Correlations

1. Easier to identify than you might think
2. A correlation within a given day doesn’t mean much
   1. Intermarket correlations
      1. Major stock markets (is he saying they move in lockstep?)
      2. Interest rate markets - bond and treasury markets
      3. Commodity markets - gold and oil but also grains, metals
      4. These markets matter because of global investment managers creating flows
      5. Money flows from developed economies (US,Europe, Japan) to riskier markets in good times and flows back during hard times
      6. Linked to market sentiment
      7. Risk on and Risk off
      8. The notion of which market leads which is unanswerable (!)
      9. Not something one can describe in a handbook
      10. However in his mentoring programme...
      11. Not a silver bullet for short or medium term

3. Forex market correlations
   1. Stocks and currencies are different
   2. Stocks are mainly independent (no)
   3. Currencies are measures of a whole country’s economic health
   4. Claims there is no benefit to inter-company analysis
   5. EURUSD, GBPUSD, EURGBP
      1. If you own an equal amount of these the changes amongst them won’t affect your balance
      2. Not so if you owned 5 IT stocks
      3. A long and bloated story that basically says - if one currency strengthens, it affects all the others
      4. “If you combine knowledge of correlations between currencies with the principle that currencies trend and then reverse you have a very strong basis for making money from currency price changes that have absolutely nothing to do with traditional technical analysis trade identification principles.”

So you say, DT. You say a lot and show almost nothing.