The initial reaction would be that it's bad for the US Dollar (UUP) (UDN) which was reflected in Friday's move of EURUSD (FXE) to above 1.31 against the US Dollar. But just last week, traders were expecting a collapse of the EURUSD as the European financial crisis deepens.
With their long-cherished secrecy practices increasingly under attack, Swiss banks are scrambling for a new way to attract wealthy foreign clients.
"Banking secrecy is no longer there. That's gone. It is over," international wealth management consultant Osmond Plummer told a gathering of Swiss bankers in Geneva last week.
And once the secrecy ends, he stressed, Swiss financial institutions will have to come up with a new magnet if they want to remain attractive for large foreign placements.
"Something has to change in Switzerland," he told the seminar, focused on wealth management and banking secrecy.
The yen tumbled as Japan looked increasingly likely to intervene to weaken its currency, which had soared to a seven-month high against the dollar earlier this week.
Japanese Finance Minister Jun Azumi strongly hinted Friday that market intervention to tackle the strong yen may be imminent and urged the Bank of Japan to act, as the currency's strength increasingly threatens to worsen the country's economic slowdown.
The dollar traded ¥78.36 Friday afternoon in New York, up from ¥77.49 late Thursday, its strongest close since Feb. 8, and the seven-month low of ¥77.13 earlier that day. Traders with Citigroup said the dollar began to rise and the yen to fall Thursday after the Bank of Japan inquired with market participants about trading activity in the yen, a move known in the market as a rate check and which can serve as a final warning before an intervention. Japan last intervened in the market in October, when the dollar traded as low as ¥75.31.
TOKYO—A Japanese ruling-party heavyweight said the government must intervene in the currency markets if the yen's rise accelerates sharply, adding to the level of jawboning aimed at controlling the currency's moves and its impact on the economy.
"It will be imperative for [the government] to take steps such as intervention," if the yen surges to threaten Japan's export-reliant economy, Hirohisa Fujii, a former finance minister and current tax policy chief of the ruling Democratic Party of Japan, said in an interview Wednesday.
"I believe that the yen's current high levels are out of line with the real economy," he said
America’s central bank is to launch a third round of “quantitative easing”, Fed chairman, Ben Bernanke, announced, while extending the length of its pledge to keep interest rates at rock-bottom. On cue, global equities surged, as confidence grew that the world’s leading central banks have “finally taken decisive action” to buttress both the US and European economies.
Bernanke’s move, of course, followed news in early September that the European Central Bank is to engage in “unlimited” buying of the sovereign bonds of “peripheral” eurozone members. This encouraged the belief that monetary union is less likely to crumble, which cheered up global equity markets just before last weekend.
Many traders are celebrating this weekend too, following Bernanke’s words on Thursday, which caused the S&P 500 to extend a rise that has now pushed the index to its highest level since 2007. European shares also reached highs not seen for over a year.
Specifically, Bernanke said that rather than buying US Treasuries, this round of QE will focus on mortgage-backed securities (MBS) – financial instruments linked to bundles of loans previously extended to home-buyers.
Ratings firm Egan-Jones cut its credit rating on the U.S. government to "AA-" from "AA," citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country's credit quality.
The Fed’s launch of QE3 looks more than a tad desperate. If you believe the central premise of the Fed’s action, that propping up asset price gains would have enough effect on consumptions to lift the economy out of stall speed, it would seem logical to sit back a bit and let the recent stock market rally and the (supposed) housing market recovery do their trick. But the Fed has finally taken note of the worsening state of the job creation in an already lousy employment market and has decided it needed to Do Something More. Read more at http://www.nakedcapitalism.com/2012/09/the-feds-qe3-no-exit.html#Gv1iHbCxHdDBXjPh.99
Global stock markets have risen after the US Federal Reserve moved to kick-start recovery by pumping more money into the economy.
It followed the Fed's decision on Thursday to inject $40bn (£25bn) a month into the US economy.
What's the number one reason we riot? The plausible, justifiable motivations of trampled-upon humanfolk to fight back are many - poverty, oppression, disenfranchisement, etc - but the big one is more primal than any of the above. It's hunger, plain and simple. If there's a single factor that reliably sparks social unrest, it's food becoming too scarce or too expensive. So argues a group of complex systems theorists in Cambridge, and it makes sense.
In a 2011 paper, researchers at the Complex Systems Institute unveiled a model that accurately explained why the waves of unrest that swept the world in 2008 and 2011 crashed when they did. The number one determinant was soaring food prices. Their model identified a precise threshold for global food prices that, if breached, would lead to worldwide unrest.
The MIT Technology Review explains how CSI's model works: "The evidence comes from two sources. The first is data gathered by the United Nations that plots the price of food against time, the so-called food price index of the Food and Agriculture Organisation of the UN. The second is the date of riots around the world, whatever their cause." Plot the data, and it looks like this:
Based on the financial crisis in Europe, we wrote an article about a euro shorting opportunity, "Sell the euro on spikes." On Friday, the euro (FXE) reached recent highs above $1.28. This is clearly a spike. However, the euro may be in for a short-term rally, so traders should wait until the momentum subsides before shorting. It seems the spike is not over.
The euro has strengthened to a two-month high against the US dollar, as the European Central Bank's bond-buying plans continued to please the markets... http://www.bbc.co.uk/news/business-19516323
Since there have been tens of thousands of lawsuits filed internally in Germany with its constitutional court alleging the ESM is illegal, it was only a matter of time before the Germans decided to sue the ECB as well for its "unlimited" bond buying. The time has arrived. From Bloomberg:
TILLICH SUPPORTS LEGAL STEPS AGAINST ECB BOND BUYING: WELT
TILLICH SAYS ECB BOND BUYING SIGNALS EFSF, ESM NOT ENOUGH: WELT
TILLICH: ECB MANDATE SHOULD NOT INCL. UNLIMIT. BOND BUYING:WELT
Perhaps all those rumors of the Bundesbank's death were, as we expected, rather exaggerated.
FXstreet.com (Barcelona) - EUR/CHF is currently moving higher printing fresh 3-month highs at 1.2058, last at 1.2054, a +0.36% higher from previous Asia-Pacific open yesterday, on the back of mounting rumors of SNB rising the peg to 1.22 in the first place.
According to Commerzbank's strategist Peter Kinsella , as reported by Clare Connaghan for DowJones: "ECB bond purchasing basically removes tail risk of a euro-zone breakup," the analyst says, as reflection of previous Franc strength based on fears of a euro area breakup. Rising the peg could bring many positive effects for Switzerland, but according to Citi, it could also bring extra risks as the foreign currency reserves might reach as high as 100% of its GDP, making the country very vulnerable to Euro exposure in case can't be able to sustain the peg, reported Ira Iosebashvili for DowJones.
Immediate resistance to the upside for EUR/CHF comes at recent session and 3-month highs at 1.2058, followed by March 27 highs at 1.2069, and May 24 highs at 1.2075. For the downside, nearest term support shows at yesterday's highs 1.2046, followed by Feb 27 lows/June 29 highs at 1.2038, and Aug 02 highs at 1.2029. http://www.fxstreet.com/news/forex-news/article.aspx?storyid=ebaa98d8-19b6-43dd-93dc-e6df7b16733f
While traders are bearish on the euro we need to remember the greater context of Europe and the origins of the euro currency. The euro as an economic union was built on a similar U.S. model, that of a Federal State comprised of individual "united" states. However, Europe is much different than the U.S. historically, demographically, and geopolitically. http://seekingalpha.com/article/845531-europe-s-crisis-much-deeper-than-euro-currency
Moody's Investors Service has changed its outlook on the Aaa rating of the European Union to “negative,” warning it might downgrade the bloc if it decides to cut the ratings on the EU's four biggest budget backers: Germany, France, the U.K., and the Netherlands.
After working six years as a senior executive for a multinational payroll-processing company in Barcelona, Spain, Mr. Vildosola is cutting his professional and financial ties with his troubled homeland. He has moved his family to a village near Cambridge, England, where he will take the reins at a small software company, and he has transferred his savings from Spanish banks to British banks.
“The macro situation in Spain is getting worse and worse,” Mr. Vildosola, 38, said last week just hours before boarding a plane to London with his wife and two small children. “There is just too much risk. Spain is going to be next after Greece, and I just don’t want to end up holding devalued pesetas.”
Manufacturing output across the 17-country eurozone shrank again in August, according to a widely-watched survey.
The Purchasing Managers Index (PMI) showed the region's manufacturing sector contracted despite factories cutting prices.
Markit's final PMI was 45.1, above July's three-year low of 44.0.
However, the figure was the 13th month in a row that it was below the 50 mark that indicates growth.
The latest figures from China showed its manufacturing activity fell, too, to a nine-month low in August, adding to fears that its economy is slowing faster than estimated.
China's PMI fell to 49.2, the lowest reading since November 2011.
Meanwhile, in the UK, the downturn in manufacturing unexpectedly eased last month as domestic orders boosted output, with its PMI rising to a four-month high of 49.5 in August from a downwardly revised 45.2 in July.
All banks in the eurozone would be supervised directly by the European Central Bank in Frankfurt under new EU proposals to be unveiled next month.
The European Commission wants to create a single supervisory mechanism for the 6,000 banks, with the ECB at its heart.
It would replace the current system of national regulators supervising banks. But it requires EU leaders' approval.
In many cases the national authorities failed to foresee and deal with banks that got into funding difficulties.
The banks then needed to be bailed out by national governments. This in turn increased the pressure on public finances.
The Commission proposals form a crucial part of the plans being worked on to help stabilise the single currency, and to avoid a repetition of the current chronic debt problems damaging public finances across the region.
Officials hope it could be in place by early next year.
It is one step towards creating a genuine banking union for the euro. Policy makers say such a union is necessary to help convince markets that mechanisms are in place to safeguard the single currency's future.
For the first time, companies including Nissan Motor Co. (7201) are building products abroad to ship home as a stronger yen, aging workforce and improved skills overseas erode a century-old mantra that what’s sold in Japan should be made there.
Nissan’s decision to import foreign-made vehicles in 2010 paved the way for some of Japan’s biggest companies, including cosmetics company Shiseido Co. (4911) and electronics maker Toshiba Corp. (6502) Shipments home from Japanese producers’ overseas plants have more than doubled in a decade to a record, including a 31 percent jump in the past two years, compared with a 61 percent gain in total importsover the 10 years, government data show.
“Nissan’s decision was epochal,” said Masato Sase, an auto-industry analyst and partner at Deloitte Tohmatsu Consulting Co. in Tokyo. “Before then there was a tacit assumption that cars sold in Japan would be made in Japan.”
The shift reflects one of the biggest departures from an industrial strategy begun by the Meiji leaders who ousted the last shogun in 1868 and set up western-style factories. A “made by Japan” model, where manufacturers base operations with less regard to nationalism, may boost corporate competitiveness at the cost of jobs in the world’s third-biggest economy, deepening deflation pressures.
“People see the sale of cars made abroad as a sign of the times, as globalization,” said Shiro Kakinuma, a salesman at Taiyo Nissan Auto Sales Co.’s Shibaura Chuo showroom in Tokyo, which offers the Thai-made Nissan March subcompact. “When the new March came out there were some articles questioning the quality of a car made in a developing country. Not anymore.”
system developers know, the process of building automated trading systems is complex and filled with biases. A machine is not necessarily a physical mechanical machine. It can be a virtual machine, electrical machine, or in our case, software-based logical trading machine. System trading is the process of building and implementation of algorithm-based systems that execute trades automatically. While many associate this with machine intelligence, only the execution is fully automated.
Don't allow the low volatility in August to make you complacent.
Most of the world is on vacation, even in the hard working United States. Kids are off from school, some hedge funds even shut down in August. Those who aren't on vacation, use this as a quiet time for planning so they are ready for a big September.
BofA strategists Arjun Mehra and Cheryl Rowan have a warning more precisely aimed at the stockmarket. In a note to clients entitled Code Red, Mehra and Rowan claim there is "limited upside from here" and the "risk of a sell-off is high."
Peter from Ireland wrote in asking me to do a piece on liquidity on
the forex market. Although the market trades 5 trillion dollars per day
in volume, even forex traders face limitations in how much volume they
can push through in a short period of time.
A Zero Hedge article on the Reuters 3000 platform outage
cited some interesting statistics for the currency markets and where
the trading actually occurs. Although I was familiar with Reuters and
EBS previously, the Dow Jones article was the first place where I've
seen volume statistics published. Apparently Reuters, the biggest
platform, trades approximately $130 billion dollars in volume per day.
That's an astronomical amount of money. Intuition makes it feel like hitting
the ceiling on executing large transactions might be a problem for only
the biggest institutions. Let's take a look at where we might expect to
run into problems.
When I went through broker training at FXCM,
the team leader cited the EUR and USD as being involved with 60% of all
forex trading volume. That number does not imply how much volume occurs
in the specific EURUSD pair. Also, that that was seven years ago. I dug
around looking for more up to date numbers. Forex trading volume is
notoriously hard to track due to it being an over the counter market.
The best proxy that I know of is the FX futures market.
The CME publishes FX futures contracts volume
(page 16), which I used to estimate the proportion of the EURUSD pair
in relation to all traded volume. FX futures contracts, like their spot
counterparts, are all denominated in different currencies. Except for
the e-mini and e-micro contracts, which resemble the mini lots of retail
forex trading, the contract size is roughly $150,000. I'm counting
contracts rather than actual notional value to speed up the
calculations. You can double check my calculations by downloading this spreadsheet. The EURUSD pair represents 33% of all forex trading volume based on my rough estimates.
The
EURUSD value traded per day on Reuters is 33% of $130 billion, which is
43.33 billion. The average trading consists of 1,440 minutes per day.
43.33 billion trades per day / 1,440 minutes per day yields an average
traded amount of $30,092,592 traded per minute. Again, this is a huge
number.
Everyone in forex trades on margin. Institutions
traditionally keep their margin very low. Assume that 3:1 is the norm
for the big players. That means that the actual funding in the account
only needs to be $10 million dollars (30/3). That's a lot of money, but
that is chump change by institutional standards. That's more on par with
a wet behind the ears CTA that launched within the past few years. This
scenario is for the most liquid currency pair on the largest currency
trading platform in the world.
Dropping down to the retail scenario, the numbers involved get much, much smaller. The Financial Times cites FXCM's average trading volume
as $55 billion per day. This is tens of multiples higher than an
average broker's volume. I picked it because it's the highest that I
know of and I wanted to demonstrate a big scenario. 33% of $55 billion
is $18.15 billion traded on the EURUSD. $18.15 billion / 1,440 minutes
per day is $12.6 million traded per minute.
Retail traders
leverage far higher than institutions. Again, let's be kind and make the
assumption that the average retail trader employes 15:1 leverage on the
account (hint: it's much higher). $12.6 million / 15 implies that it
only takes an account balance of $840,277 to trade all of the expected
trading volume in an average minute. One trader is unlikely to have a
balance that large, but a segment of a broker's customers most certainly
do.
The fragmentation of the market combined with leverage makes
it strikingly easy for a group of traders to suck up all of the
liquidity available on a given platform. Even though trillions are
available across the broader market, the broker or platform where a
trader participates is substantially more limited. The scenarios modeled
use the EURUSD, the most liquid pair in the world. Liquidity gets
exponentially worse when examining exotics or cross currencies. The
volumes are far lower, but the available leverage and account balances
remain the same.
When too many traders buy the same EA, all orders
fire off at the same time. Blockbuster EAs easily reach the combined
account equity floor where demand overwhelms supply. Finer details like
all of the supply is being one sided make the situation all the worse.
Based on an overwhelming bearish negative bias on the euro (FXE) from multiple sources (individuals, banks,
analysts, and fund managers) we believe selling the euro on any run-up is a
viable strategy.
The euro climbed to a fresh seven-week high against the dollar on Thursday on news Spain is negotiating with the euro zone over conditions for international aid to bring down its borrowing costs though the country has not made a final decision to request a bailout.
Earlier, the single currency set a fresh seven-week high against the U.S. dollar after Federal Reserve minutes hinted at more monetary easing in the U.S., while French and German business activity surveys were not as bad as feared.
In today's volatile business environment, organisations must be ready to reconfigure their strategic priorities at speed, and with certainty.
Crucially, instead of basing major business decisions on intuition, they need to mine the data and information at their disposal to drive rapid decision making.
This is why analytics - the use of data, statistical and quantitative analysis, explanatory and predictive models - has moved centre-stage.
According to market research firm IDC, the market for business analytics software grew 14 percent in 2011 and will hit US$50.7bn by 2016.
Of course, analytics itself is nothing new.
Organisations such as Google, Tesco and Caesars Entertainment are well recognised for their ability to predict market trends, customer behaviours and workforce staffing requirements and turn these into top-line growth and/or bottom line savings.
But for the many other businesses now seeking to take advantage of analytics, there continues to be a lack of clarity around certain fundamental questions.
What is analytics? How can it propel and improve an organisation's competitive positioning or effectiveness?
What does it mean to truly become an analytical organisation? And how does an organisation set out on this critical journey?
Although the development of analytical capabilities and capacity is obviously important, a focus on data, methods and technology alone will not magically deliver the insights needed for competitive edge.
UBS AG (UBS) is starting a unit aimed at attracting clients among quantitative hedge funds, combining services from its prime brokerage and direct-execution trading businesses.
Scott Stickler in New York will be global head of the operation, called UBS Quant HQ. Strategies across equities, options and futures will be supported with fixed income and foreign exchange to be added later, he said. The business targets startups and established funds with long-short or hedged strategies and those focused on arbitrage.
Investment firms formed as a result of regulations to curb risk-taking within banks are looking for help with technology consulting services, trading and financing, according to Stickler, who was hired in July 2011. The unit began working with more than a dozen hedge-fund clients in the second quarter as it prepared for the Quant HQ introduction, he said.
“One of the trends we’re seeing is a number of startups, folks coming out of big banks because of the Volcker rule and starting their own hedge funds,” Stickler said in a phone interview. “Clients are coming to us who wanted us to be in this business and who want to be able to take advantage of our global presence and our counterparty safety, stock-loan and execution capabilities.”
Banks, companies and investors are preparing themselves for a collapse of the euro. Cross-border bank lending is falling, asset managers are shunning Europe and money is flowing into German real estate and bonds. The euro remains stable against the dollar because America has debt problems too. But unlike the euro, the dollar's structure isn't in doubt.
Otmar Issing is looking a bit tired. The former chief economist at the European Central Bank (ECB) is sitting on a barstool in a room adjoining the Frankfurt Stock Exchange. He resembles a father whose troubled teenager has fallen in with the wrong crowd. Issing is just about to explain again all the things that have gone wrong with the euro, and why the current, as yet unsuccessful efforts to save the European common currency are cause for grave concern.
He begins with an anecdote. "Dear Otmar, congratulations on an impossible job." That's what the late Nobel Prize-winning American economist Milton Friedman wrote to him when Issing became a member of the ECB Executive Board. Right from the start, Friedman didn't believe that the new currency would survive. Issing at the time saw the euro as an "experiment" that was nevertheless worth fighting for.
Fourteen years later, Issing is still fighting long after he's gone into retirement. But just next door on the stock exchange floor, and in other financial centers around the world, apparently a great many people believe that Friedman's prophecy will soon be fulfilled.
Banks, investors and companies are bracing themselves for the possibility that the euro will break up -- and are thus increasing the likelihood that precisely this will happen.
There is increasing anxiety, particularly because politicians have not managed to solve the problems. Despite all their efforts, the situation in Greece appears hopeless. Spain is in trouble and, to make matters worse, Germany's Constitutional Court will decide in September whether the European Stability Mechanism (ESM) is even compatible with the German constitution.
There's a growing sense of resentment in both lending and borrowing countries -- and in the nations that could soon join their ranks. German politicians such as Bavarian Finance Minister Markus Söder of the conservative Christian Social Union (CSU) are openly calling for Greece to be thrown out of the euro zone. Meanwhile the the leader of Germany's opposition center-left Social Democrats (SPD), Sigmar Gabriel, is urging the euro countries to share liability for the debts.
On the financial markets, the political wrangling over the right way to resolve the crisis has accomplished primarily one thing: it has fueled fears of a collapse of the euro.
AFTER a promising May and June, Steffen Knoop has seen his sales dip by 30%. His small Hamburg-based company, Wascut, sells cooling and cleaning oils for big machines, including those that make cars. “I have a pretty good window on the economy,” he says. Mr Knoop wonders whether the dip is caused by people taking extra long summer holidays or something more serious. Others with a broader and more long-term view of the economic landscape are asking the same question.
Building forex trading systems is the reason that this company
exists. Nearly every one of our clients aspires to be a fully automated
trader.
The percentage of clients that succeed over the long run,
however, is incredibly small. I don't think that is a big secret. If
that is news to you, allow me to be clear. The chances of developing a
successful expert advisor over the long term are minimal.
The
inevitable next question from new clients is an attempt to pick my brain
for some features common to successful systems traders. I decided to
outline the traits common to this rare breed and some of the challenges
that they encounter.
Traits of a successful EA developer
Expert
advisor developers that succeed are either incredibly bright
(engineers, Ph.D. holders, etc) or dumber than a sack of rocks. No
middle ground exists. A friend/client told me about an experiment that
struck me as telling. If you put a mouse in a cage where cheese appears
40% of the time on one side of the box and 60% of the time on the other,
all mice eventually pick the side that "wins" 60% of the time. The mice
stop guessing and go with what works more often than not.
That's
my theory for why the "intellectually challenged" crowd seems
disproportionately likely to profit from trading. They see right through
the noise to pick out a simple observation that wins more than it
loses. Holy grail systems certainly do not come from this group. That's
not honestly not the goal. It's about eating cheese more often than
going hungry.
The brainy crowd benefits from a heavy dependence on
analysis. Ideas usually stem from pet theories, many of which look like
the crackpot variety on first glance. The theory shifts and twists as
market tests reveal strengths and weaknesses. Logical conclusions
instill a robustness and variety into the system. Interestingly, the
approach to testing and verifying the systems follows the opposite path
of most developers. The ideas tend to get simpler with time rather than
more complex.
Emotion does not play a large role in the rationale
for developing an expert advisor. Again, the reasons are usually
logical. Examples like "I've been trading this system for 20 years and I
need to automate it" or "I came up with a way to accurately predict
market direction."
It may sound a bit zen, but the systems that
make money are the ones that do not set their primary goals as making
money. Making money is a totally open ended goal. The potential
variables know no limit. The lack of constraint encourages would be EA
traders to shoot off on tangents. Unless the wild ride accidentally
leads to the pot of gold at the end of the rainbow, they will fail. The
limitless bounds make it impossible to measure any progress.
In
that same vein, the journey is as important as the destination. Many
traders pay lip service to limiting drawdown. Few are able to
effectively rein in drawdown, especially within the context of an expert
advisor. To a certain extent, limiting drawdown is not possible. My
experience with money management makes it clear how much wandering a
return can make, even with a heavy advantage.
The easiest way to
limit drawdowns is to fight against severe losses. The goal is to obsess
over risk and reduce it to the lowest possible point. I want to
emphasize this point carefully. Risk always exists. The market
chaotically switches from deep slumber to extreme violence. No amount of
system engineering eliminates or alters the structure of the market.
The most effective way to handle risk that I see is not to prevent it
from happening (not possible), but rather how to react when risk
eventually flares up.
Approaching system design as a process
rather than a destination also encourages global thinking. My old boss
would describe it as the 40,000 foot perspective. When a forex trader,
for example, emphasizes a system's percent accuracy, it typically comes
at the expense of exiting at a better point in the market. A need to win
slightly more often actually drags the system away from its optimal
performance. A process oriented design watches how changes in the entry
method affects the exit efficiency. Clever money management removes the emphasis from entry and exit methods.
Designing
these systems takes hundreds of man hours or results from more than a
decade of experience. Emotion will certainly enter the equation at some
point. The real question is not how to remove it. It is how to
appropriately channel it.
Designing an expert advisor quickly
takes on the characteristic of an obsessive hobby. If the system's
success is measured in quantities of dollars, the emotional roller
coaster rises in tune with the account balance. A more appropriate use
for the emotion is to take heart in the system working correctly, not
profitably. Ideally, correctly also means profitably. They are not the
same thing, however. Drawdown and unlucky losing streaks are an inherent
part of trading. Gaining satisfaction from the trade behaving as
designed rather than as desired makes your emotional well being far less
dependent on market performance.
I have been running this company
for nearly five years and literally spoken with thousands of traders
over that time. In spite of that overwhelming number, I still have yet
to speak with anyone that traded a commercial EA successfully for more
than a few months.
The successful traders that I know personally
all developed their systems and strategies on their own. Maybe that
reflects on the abysmal quality of expert advisors for sale on the
internet. Maybe it reflects on not-so-expert trading coaches, or perhaps
genuine trading coaches and hapless traders unable to follow sound
advice. I suspect it's a little of everything. Regardless of the
problems, the take away point is that the person doing the succeeding is
also the person doing the developing. They take control of the
experience from the beginning and lead it into a successful outcome.
Systems trading is not a process where you buy your way to success or
follow like a sheep to green pasture. You must earn it.
Challenges of using a winning expert advisor
The
path to achieving a profitable strategy on paper is a long, hard road.
The switch from theoretical turns to live trading is a challenge in its
own right. Backtests spit out instantaneous results. Traders see
something like a 20% annual return, then mentally prepare themselves for
the steady accumulation of funds.
That kind of trajectory puts a
number in the trader's mind that is terribly misleading in real life.
Steady annual growth of 20% suggests a constant return of 1.67% (20/12).
That number 1.67% is a hiccup in a trading account. Many forex traders
risk more than that amount on a single transaction. Factoring in the
inevitable drawdown or periods of loss, the market makes it impossible
to distinguish whether or not the expert advisor is behaving correctly
or if it is falling apart.
Uncertainty in the face of risk makes
any normal person panic. At the very least, it instills a degree of
anxiety over the future. The moment that the machine stops churning out
profits is the moment where doubt enters the picture. Doubt feeds on
itself, which leads to changing the trading plan in midstream.
I
can tell you from experience that the transition from research to
execution is huge. A learning curve exists, like with everything. I
learn to cope by taking the confidence that I gain through the same debugging techniques
used in testing. The same techniques work for comparing live results to
backtested results. Does the backtest over the same time period as my
real trading match the actual performance? If so, then all is well. If
not, it at least gives me as the developer an opportunity to think about
specific problems. Execution or forex broker manipulation
can cause problems. More often that not, however, is some flaw in the
strategy design or code. Developing a methodical, reason based process
helps calm nerves and to stay focused. The alternative is a general,
undefined worry.
Exotic bar types, as NinjaTrader likes to call them, create unique challenges when backtesting strategies. The primary problems is that the backtests are usually bogus. The trader often has no idea that the profitable backtest calculated from errant data.
Renko
bars form based on the order of incoming ticks to create specific box
sizes. Say, for example, that a trader creates a box size of 5 pips. If
the price rises 5 pips from the close price of the last Renko bar, then
the chart creates a new bar 5 pips tall. Every 5 pip increment, whether
up or down, draws a new Renko bar.
Using increments that easily
fall within normal market gaps creates the false impression of
trade-able prices where none existed. Minor news events frequently
result in 5-10 pip market gaps. In the case of the 10 pip gap, a box
size of 5 pips creates 2 Renko bars. The two bars do nothing to
communicate the fact that the prices never existed. Their presence
merely indicates the direction of a move and eliminates the idea of time
altogether. Time, or more specifically the absence of it, strikes me as
rather important.
Small box sizes more commonly lead to questions about wildly inaccurate backtests. I received two questions last week inquiring why NinjaTrader showed $19,000 returns in a backtest, but the same forward test lost nearly an identical amount.
The backtests rely on a selected data set to generate the Renko bars used for testing. Users nearly always overlook the data source option in NinjaTrader.
It defaults to one minute charts. One tick bid is the only type of data
that will form perfectly accurate charts. Any other increment risks
creating Renko bars that never existed.
Change your backtest settings to use not only Renko charts, but also Bid data.
Take
an extreme example of one minute chart data drawing Renko bars with a 3
pip box size. Say that the over-all height of the bar is 10 pips, the
low is 1 pip from the open and the M1 bar closes 8 pips higher. How many
Renko boxes does the chart need to draw? The correct answer is that
there is no way of knowing.
Examples:
The market goes down 1 pip, then up 10 pips and settles at the close price. This draws 3 total box with one box in progress.
The
market goes down 1 pip, then up 3 pips, then down 3 pips, then up 10
pips. This draws 5 boxes total with one box in progress.
The
market does down 1 pip, then up 3 pips, then down 3 pips, then up 3
pips, then down 3 pips, then up 10 pips. This draws 7 boxes total with
one box in progress.
As you can see, we have no way of
knowing which of the above options is correct, if any of them are
correct at all. Summarizing price over time inevitably papers over what
happens in the middle (information entropy). NinjaTrader has no option but to guess the unknowable.
It's done in good faith, but NinjaTrader is
essentially making up Renko data to cover up gaps in the price data.
When you're running a backtest, the whole point of the exercise is to
eliminate guessing and deliver solid answers.
Most people make the
hand waving assumption that it all averages out in the end. The two
clients asking me this week about why their Renko backtests came
out so screwy, and the reason that I'm writing this post, is that the
hypothetical versus real performance was as different as night from day.
It most certainly does not average out. Rather, it introduces so many
errant points as to make the tests worthless.
Don't make assumptions in your backtest. Get tick data and, if you're using Renko bars, make sure to set the test up properly.
Swiss banks are turning over thousands of employee names to U.S. authorities as they seek leniency for their alleged role in helping American clients evade taxes, according to lawyers representing banking staff.
At least five banks supplied e-mails and telephone records containing as many as 10,000 names to the U.S. Department of Justice, according to estimates by Douglas Hornung, a Geneva- based lawyer representing 40 current and former employees of HSBC Holdings Plc’s Swiss unit,Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER) The data handover is illegal, said Alec Reymond, a former president of the Geneva Bar Association, who is representing two Credit Suisse staff members.
“The banks are burning their own people to try and cut deals with the DOJ,” said Hornung. “This violation of personal privacy is unprecedented in the Swiss banking industry.”
Swiss banks want to settle a U.S. tax-evasion probe after the Justice Department indicted Wegelin & Co. on Feb. 2 for allegedly helping customers hide money from the Internal Revenue Service. Credit Suisse, HSBC and Julius Baer, which have said they expect to pay fines to resolve the tax matter, are handing over data to mollify the U.S., according to Hornung.
Credit Suisse said the Swiss government authorized the delivery of staff names and that the “large majority” of employees have nothing to fear. Julius Baer and Zuercher Kantonalbank also said they received authorization. HSBC said it has delivered documents and is cooperating with the U.S.
Europe’s failure twice plunged the world into war. In today’s globalized economic world, Europe’s failure to resolve its financial crisis could plunge the world into economic chaos. This is a global crisis — not a euro-zone crisis — and we must take international action to deal with it. http://www.nytimes.com/2012/08/16/opinion/the-global-not-euro-zone-crisis.html
Peregrine Financial Group Inc. CEO Russ Wasendorf Sr. could face up to 155 years in prison if convicted on all counts, prosecutors said. His attorney didn’t immediately return a phone message Monday, and the date for an arraignment, where Wasendorf will enter a plea, has not been set. Peregrine operated as PFGBest.
Wasendorf, 64, a major player in Chicago’s futures industry, was arrested last month while hospitalized in Iowa City following a failed suicide attempt outside Peregrine’s office in Cedar Falls. Authorities said Wasendorf left a detailed suicide note in which he confessed to a 20-year scheme to commit fraud and embezzle customer funds.
For any PFG Best Customer, in case you have not seen this:
Important Message for Customers of Peregrine Financial Group and Peregrine Asset Management - Updated on August 3, 2012
As you aware, PFG filed for liquidation in a U.S. bankruptcy court in Chicago and the U.S. Trustee appointed Ira Bodenstein to act as trustee for PFG and its assets, including customer property. On July 13, the bankruptcy court authorized the trustee to continue to operate PFG's business for a limited time in order to (among other things) prepare and distribute final customer statements, and record transactions related to customer accounts. At this time, it is not clear how long it will take to complete these processes or when the trustee will be authorized to release any funds to customers.
The trustee has established a website, www.PFGChapter7.com, that contains information about the PFG case. The website was created to assist the trustee in providing information to customers and to receive comments or questions from customers. According to the website, the Trustee has not yet determined whether PFG customers will need to prepare a claim form. Customers are encouraged to visit the site regularly for updates from the Trustee regarding customer claims.
Once triggered on Aug. 1, the dormant system started multiplying stock trades by one thousand, according to the people, who spoke anonymously because the firm hasn’t commented publicly on what caused the error. Knight’s staff looked through eight sets of software before determining what happened, the people said.
Knight, based in Jersey City, New Jersey, hasn’t explained in detail what caused the trading losses, which depleted its capital and led to a $400 million rescue that ceded most of the company to a group of investors led by Jefferies Group Inc. (JEF) The 45-minute delay in shutting down the malfunction has confused some securities professionals, who say that trading programs can typically be disabled instantly.
Investors are losing confidence in the single currency and seeking havens for their cash outside the euro area asEurope’s debt crisis drags on in its third year. That has forced the Swiss National Bank to buy euros to prevent the franc from appreciating, and prompted the Danish central bank to charge for the use of its deposit facility while yields on U.K. two-year notes are less than 0.14 percent.
“Now there are growing signs that the crisis of confidence in the euro zone has assumed a new dimension,” Kressin wrote. “Whereas initially investors fled to the safety of the euro zone’s core, now they are taking their capital out of the euro zone altogether.”
The Swiss central bank’s sales of the euro to rebalance its reserves are “reinforcing” pressure on the single currency, according to Kressin. Its purchases of top-rated Europeangovernment bonds, particularly bunds, are also forcing down yields on those securities, he said.
(Reuters) - U.S. regulators directed five of the country's biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help.
The two-year-old program, which has been largely secret until now, is in addition to the "living wills" the banks crafted to help regulators dismantle them if they actually do fail. It shows how hard regulators are working to ensure that banks have plans for worst-case scenarios and can act rationally in times of distress.
Officials like Lehman Brothers former Chief Executive Dick Fuld have been criticized for having been too hesitant to take bold steps to solve their banks' problems during the financial crisis.
