Global Macro Trading Journal

Quote from Butterball:

EURCHF printed around 1.2000 for a second there. Getting out the popcorn.
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Would you believe it !!!! I bought 1.20005 leveraged myself 30 times, stop at 1.1970, hopefully target 1.22/1.23 (if SNB intervenes strongly). If nothing happens in next 2-4 hrs, will close the position maybe around 1.2030 or so.

Seems like a concerted speculative attack on the peg. Things will be interesting next few days/weeks.
 
Quote from Butterball:

EURCHF printed around 1.2000 for a second there. Getting out the popcorn.
More...

Long EURCHF, small position, 1.20174. Wish I was the guy at 1.20
 
Swiss inflation has hit almost -1%. I have a hard time seeing the CB, giving up the peg given that FX intervention is the perfect opportunity for them to engage in QE

Dropping the peg would effectively tighten monetary policy, equivalent to several interest rate hikes, I don't think even the BOJ is that bad to do something like this(They liked to hike when inflation was turning positive)

Downside is protected, the question is, where the upside is. I'm not quite sure where to take profits
 
Quote from Daal:

Swiss inflation has hit almost -1%. I have a hard time seeing the CB, giving up the peg given that FX intervention is the perfect opportunity for them to engage in QE

Dropping the peg would effectively tighten monetary policy, equivalent to several interest rate hikes, I don't think even the BOJ is that bad to do something like this(They liked to hike when inflation was turning positive)

Downside is protected, the question is, where the upside is. I'm not quite sure where to take profits
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Since this is a trade based on mean reversion where I believe the downside has a very small chance of happening I might use some kind of statistic based on standard deviation, like bollinger bands to take profits here
 
Normally I would believe these sorts of metrics are flawed due the black swan possibility but here I believe the market is overestimating the chance of a tail even where they let the currency go and jump into more deflation
 
Quote from Ghost of Cutten:


Here is where I disagree:

" The great traders start small, wait for premium situations to develop, and then "vary their size massively" as a favorable scenario unfolds and the market tips its hand."

Not necessarily - that assumes that moves are always uncertain or have marginal odds at the start, and then become more favourable later on. In fact it can be the other way - the best R/R and win-rate can happen at the start, and then degrade as the move takes place. A good example is buying a market crash once its in the exhaustion or early rebound phase (i.e. extreme mean reversion trade), or making a deep value investment during a period of dire news, high uncertainty and bearish sentiment. The further things went in your favour, the more good news and price action, then the more obvious the trade is, so the higher the price, the lower your remaining profit potential, the less value remaining in your trade.
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Yes, this is a fair point. Sometimes it is wholly appropriate to "back up the truck" in respect to deep value investments.

I find it interesting to consider the "why" of such opportunities, as in "why do such opportunities exist."

While many trades exploit relative uncertainty, deep value trades in post-crash situations arguably exploit something else -- outlier dislocations due to lack of cash or lack of staying power.

Forced selling no doubt creates opportunities. Being able to buy high quality "cash boxes" at 3x earnings with larger cash positions than market cap in Q109, due to the biggest tsunami of non-fundamentals-based forced selling the market had ever seen, was a nice example of that.

Under these conditions I agree w/ the Buffett perspective that "volatility is not risk" as described through the classic Washington Post example.

I would classify this more as value investing technique than trading technique, but then again, opportunity is opportunity. Your point stands that sometimes it does make sense to "go big" from the start, though I would caveat that by saying, for my style at least, this class of opportunity happens fairly infrequently.

(Adding as a final point that, for traders who use leverage, going big can mean VERY big. It is no big deal for us to put 10-15% of capital into an equity trade, on a regular basis, given that the relative planned risk is still quite small, e.g. 1% or less.)

Cheers
 
Quote from Specterx:


I should note that in practice it's common for me to close prior to my initial targets for exactly these reasons, but there is nevertheless a grey area. Perhaps the way to think of it is to consider market action as a flow of noise interspersed with occasional actionable signals. It is simply not possible to re-assess the entirety of evidence for and against the trade, expectancy, precisely adjust position sizes and risk etc. with every tick, only at certain points. In between these points a breakeven stop or similar tactics to 'lock in profits' may be a perfectly acceptable means of preserving capital, in the absence of a detailed fine-tuning of risk or full reassessment of the trade.
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Yes exactly -- continuous-time analysis is an attractive idea in theory (not unlike Merton's continuous-time finance), but in the real world it runs into unavoidable constraints.

An overlay of mechanical trade management may bear an optimality cost (relative to continuous analysis), but makes up for it via freeing up time and energy to hunt for the next great trade.
 
Quote from Specterx:

The logic is clear enough, but I would point out that on every trade (or at least, every one of my trades) there comes a time when the distance from the current price to my target is many times greater than the distance from the current price to my stop. You enter ABC at 10 with a stop at 9 and target at 50, it goes to 49 and in the meantime you've raised the stop to 35. What do you do - use a fixed mechanical trailing stop at your maximum initial risk? I would suggest that in most cases this would lead to strategy failure, or at least lower profits than would otherwise be realized. Is the implication that, with no position on and given an identical setup, one should always, as a standalone strategy, buy at 49 looking to sell at 50 with a stop at 35? Strict logic would suggest doing so but experience tells me to pass.

I should note that in practice it's common for me to close prior to my initial targets for exactly these reasons, but there is nevertheless a grey area. Perhaps the way to think of it is to consider market action as a flow of noise interspersed with occasional actionable signals. It is simply not possible to re-assess the entirety of evidence for and against the trade, expectancy, precisely adjust position sizes and risk etc. with every tick, only at certain points. In between these points a breakeven stop or similar tactics to 'lock in profits' may be a perfectly acceptable means of preserving capital, in the absence of a detailed fine-tuning of risk or full reassessment of the trade.
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one way to adjust those positions is using pre heavily traded areas as test barriers within your 50 point range ( http://www.elitetrader.com/vb/showthread.php?threadid=64965&perpage=6&pagenumber=17995 ) using different timeframes for macro /micro analysis....ghost thanks for your reply
 
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