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Global Macro Trading Journal
- Thread starter Daal
- Start date
I think short yen is a better trade than NIkkei, personally...
I am thinking of NOKJPY again, because of the horrendous beating that NOK has suffered of late.
I am thinking of NOKJPY again, because of the horrendous beating that NOK has suffered of late.
Short yen to me is a pretty interesting macro trade. You have the combination of Japan's poor long-term fundamentals (shrinking population plus massive government debt); a proximate catalyst that could finally cause these fundamentals to "matter" in the form of Abe's attempt to upset the apple cart, which could easily have unexpected massively negative consequences; and a technical chart situation which looks to me like the past year's move in the Yen could be followed by a breakout and further acceleration.
It seems to me that going short on a break of 105 or so has attractive odds and R:R: if you are right then the Yen could move to 250 to the dollar or lower in a very short time and with minimal intra-trade drawdown, if wrong then the lack of immediate follow-through will be a pretty clear sign to get out quickly without too much MAE.
It seems to me that going short on a break of 105 or so has attractive odds and R:R: if you are right then the Yen could move to 250 to the dollar or lower in a very short time and with minimal intra-trade drawdown, if wrong then the lack of immediate follow-through will be a pretty clear sign to get out quickly without too much MAE.
Quote from Specterx:
Short yen to me is a pretty interesting macro trade. You have the combination of Japan's poor long-term fundamentals (shrinking population plus massive government debt); a proximate catalyst that could finally cause these fundamentals to "matter" in the form of Abe's attempt to upset the apple cart, which could easily have unexpected massively negative consequences; and a technical chart situation which looks to me like the past year's move in the Yen could be followed by a breakout and further acceleration.
It seems to me that going short on a break of 105 or so has attractive odds and R:R: if you are right then the Yen could move to 250 to the dollar or lower in a very short time and with minimal intra-trade drawdown, if wrong then the lack of immediate follow-through will be a pretty clear sign to get out quickly without too much MAE.
Why wait for 105 if this year's high is 103.70-something ?
Quote from m22au:
Why wait for 105 if this year's high is 103.70-something ?
Just personal preference. I usually like to wait for a little bit of extension beyond my trigger level, because I find it significantly reduces the odds of trade failure and the failures are also easier to manage, while the amount of foregone profit on a winning trade is minimal.
not to mention fukishima's impactQuote from Specterx:
Short yen to me is a pretty interesting macro trade. You have the combination of Japan's poor long-term fundamentals (shrinking population plus massive government debt); a proximate catalyst that could finally cause these fundamentals to "matter" in the form of Abe's attempt to upset the apple cart, which could easily have unexpected massively negative consequences; and a technical chart situation which looks to me like the past year's move in the Yen could be followed by a breakout and further acceleration.
It seems to me that going short on a break of 105 or so has attractive odds and R:R: if you are right then the Yen could move to 250 to the dollar or lower in a very short time and with minimal intra-trade drawdown, if wrong then the lack of immediate follow-through will be a pretty clear sign to get out quickly without too much MAE.
Quote from Specterx:
Short yen to me is a pretty interesting macro trade. You have the combination of Japan's poor long-term fundamentals (shrinking population plus massive government debt); a proximate catalyst that could finally cause these fundamentals to "matter" in the form of Abe's attempt to upset the apple cart, which could easily have unexpected massively negative consequences; and a technical chart situation which looks to me like the past year's move in the Yen could be followed by a breakout and further acceleration.
It seems to me that going short on a break of 105 or so has attractive odds and R:R: if you are right then the Yen could move to 250 to the dollar or lower in a very short time and with minimal intra-trade drawdown, if wrong then the lack of immediate follow-through will be a pretty clear sign to get out quickly without too much MAE.
There's a major inconsistency here - you are using long-term reasons to support the trade, but using short-term small blips in price to determine if you enter or not.
Your trade thesis is identical whether the Yen is at 103 or 105. NOTHING about it hitting 105 makes you more likely to be correct long-term.
Now I agree that in the short-term, a convincing breakout gives a bit of edge in where the next few days or even 1-2 weeks might go. But beyond that, nothing.
If you think about it, what you are saying is that your multi-month, fundamentally based macro trade thesis is proven right or wrong based on a 1.75% move in the Yen in the next few days/weeks. That is obviously nonsensical. None of your trade factors alter whether the Yen is at 103 or 105.
You are confusing short-term technical factors with medium-term trade factors IMO. It's like someone laying out a case for a value investment, then using a close stop loss policy.
Now, I'm the first person to like a nice technical setup like a strong breakout. But I don't kid myself that it's anything other than a quick short-term play. If you are right and the Yen hits say 110, all that waiting for 105 has done is given you less profit. And if you are wrong, there is nothing to say it doesn't hit 105, then 103, then 106, then 102, and chop you up for 5-10 points worth of losses in the next month before making the real move.
Stop should be set at a point where them being hit proves the trade wrong. Similarly with entry stops. 105 does not prove the trade probably right. 107, 109 maybe. Not 105 vs 103. Similarly, once you enter at 105, a blip to 103 doesn't prove you wrong either.
Quote from Ghost of Cutten:
There's a major inconsistency here - you are using long-term reasons to support the trade, but using short-term small blips in price to determine if you enter or not.
Your trade thesis is identical whether the Yen is at 103 or 105. NOTHING about it hitting 105 makes you more likely to be correct long-term.
Now I agree that in the short-term, a convincing breakout gives a bit of edge in where the next few days or even 1-2 weeks might go. But beyond that, nothing.
If you think about it, what you are saying is that your multi-month, fundamentally based macro trade thesis is proven right or wrong based on a 1.75% move in the Yen in the next few days/weeks. That is obviously nonsensical. None of your trade factors alter whether the Yen is at 103 or 105.
You are confusing short-term technical factors with medium-term trade factors IMO. It's like someone laying out a case for a value investment, then using a close stop loss policy.
Now, I'm the first person to like a nice technical setup like a strong breakout. But I don't kid myself that it's anything other than a quick short-term play. If you are right and the Yen hits say 110, all that waiting for 105 has done is given you less profit. And if you are wrong, there is nothing to say it doesn't hit 105, then 103, then 106, then 102, and chop you up for 5-10 points worth of losses in the next month before making the real move.
Stop should be set at a point where them being hit proves the trade wrong. Similarly with entry stops. 105 does not prove the trade probably right. 107, 109 maybe. Not 105 vs 103. Similarly, once you enter at 105, a blip to 103 doesn't prove you wrong either.
I have limited experience with 'macro' trades - but my current thinking is that the best way to exploit these opportunities is to use the fundamentals as overall directional context, but then enter and manage the trade based primarily on technicals. In this case as with most potential macro trades I've come across, the fundamental thesis alone is just too vague and imprecise to be operationally useful in terms of entry/sizing, target and stop-loss - rather it shifts the odds in favor of movement in a certain direction, and increases the probability of a range of unlikely tail events (e.g. very high-percentage panic/capitulation move). But you still have to make your initial entry using run-of-the-mil technical setups.
The main difference with pure chart trading is that the support of the fundamental thesis should theoretically deliver higher winrate and R:R over time, allowing us to take a bit more risk in the trade than otherwise, via bigger sizing and giving the trade somewhat more room to run so long as the thesis remains valid. This mirrors what I do in my regular trading, except there I use larger timeframes rather than fundamentals as the context - but the 'positive skew' effect ought to be similar. It wouldn't be unusual to get faked out a couple of times even if the thesis turns out to be perfectly correct.
That said, how would you play it?
Quote from Specterx:
That said, how would you play it?
I'm not Cutten, but if you have a fundamental view that there will be significant JPY depreciation, then you just sell it first thing when the markets open on Sunday evening.
Alternatively, if you're after some price movement confirmation, wait for the break of the 103.70-ish high from May.
It's the classic dilemma of long-term trend versus short-term timing. My solution to this is fairly straightforward - always have on the long-term position, unless the short-term is so hostile that you'd actually consider the other side for a trade. I.e. don't exit a long-term bull position unless you'd go short for a trade (or be very tempted to).
This way you still take account of dominant short-term factors. But at all other times you maintain a position that will benefit from the perceived long-term drift in your favour.
A corollary is that when the short-term is bullish too, you should have on bigger size in your long-term view.
So, unless you think the current Yen situation is so unfavourable that you actually want to BUY IT FOR A TRADE, then you should have on a short position. It might not be a huge position, maybe you are just short small size. But if you are long-term bearish, and short-term you aren't clearly bullish, then the logical position is to be somewhat short.
The other factor I always try to consider is "what price action would prove my thesis wrong"? A stop should never be set at a level that doesn't demonstrate anything meaningful. It should be at a level which tells you the trade needs to be jettisoned. If playing for a 15-20%+ move in a currency, a 1-2% stop clearly proves nothing other than that there's a bit of a pullback. Long-term moves usually require wide stops.
This way you still take account of dominant short-term factors. But at all other times you maintain a position that will benefit from the perceived long-term drift in your favour.
A corollary is that when the short-term is bullish too, you should have on bigger size in your long-term view.
So, unless you think the current Yen situation is so unfavourable that you actually want to BUY IT FOR A TRADE, then you should have on a short position. It might not be a huge position, maybe you are just short small size. But if you are long-term bearish, and short-term you aren't clearly bullish, then the logical position is to be somewhat short.
The other factor I always try to consider is "what price action would prove my thesis wrong"? A stop should never be set at a level that doesn't demonstrate anything meaningful. It should be at a level which tells you the trade needs to be jettisoned. If playing for a 15-20%+ move in a currency, a 1-2% stop clearly proves nothing other than that there's a bit of a pullback. Long-term moves usually require wide stops.
Quote from Specterx:
I have limited experience with 'macro' trades - but my current thinking is that the best way to exploit these opportunities is to use the fundamentals as overall directional context, but then enter and manage the trade based primarily on technicals. In this case as with most potential macro trades I've come across, the fundamental thesis alone is just too vague and imprecise to be operationally useful in terms of entry/sizing, target and stop-loss - rather it shifts the odds in favor of movement in a certain direction, and increases the probability of a range of unlikely tail events (e.g. very high-percentage panic/capitulation move). But you still have to make your initial entry using run-of-the-mil technical setups.
The main difference with pure chart trading is that the support of the fundamental thesis should theoretically deliver higher winrate and R:R over time, allowing us to take a bit more risk in the trade than otherwise, via bigger sizing and giving the trade somewhat more room to run so long as the thesis remains valid. This mirrors what I do in my regular trading, except there I use larger timeframes rather than fundamentals as the context - but the 'positive skew' effect ought to be similar. It wouldn't be unusual to get faked out a couple of times even if the thesis turns out to be perfectly correct.
That said, how would you play it?