*Good morning/afternoon everyone!* The U.S. dollar is trading lower against most of the major currencies this morning as risk appetite improves after yesterday’s brutal selling. Stock futures are up, helping to bolster pairs like EUR/USD and USD/JPY. However as we begin the NY session, the decline in Treasury yields could also tip the scale and push USD/JPY lower. Yen crosses on the other hand will take their cue from stocks today. The currency most vulnerable to weakness is the Canadian dollar because oil prices are down more than 2% after President Trump tweeted that he hopes Saudi Arabia and OPEC will not cut oil production because he thinks oil prices should be much lower based on supply. Despite a softer Eurozone ZEW survey, EUR/USD is trading above 1.1250 on the hope that progress could be made on the Italian budget front. the expectations component of the ZEW surely also increased. The best performing currency this morning is sterling which is up on higher wages (despite a higher unemployment rate) and continued Brexit optimism. On the Brexit front, we are getting closer to a deal but with some counterproductive headlines, traders are still reluctant to overload sterling positions but when an announcement is made, we can almost be assured that there will be a strong followup rally. AUD and NZD are also up from yesterday but having risen strongly in Asian trade, they are mostly consolidating and even weakening slightly. We also have our eyes on the Swiss Franc which appears to be topping below 1.0130. *The MAIN THEMES I see today are* +EUR +CHF -CAD -JPY *Trading Biases* +EUR, +CHF, +GBP, -CAD, -JPY mildly +AUD, +NZD, -USD *Today’s Initial Trades* Here’s the summary – 1. Buy EURCAD at 1.4885, Stop at 1.4857, Target 1.4912 2. Buy EURUSD at 1.1247, Stop at 1.1219, Target 1.1275 3. Buy AUDCAD at .9531, Stop at .9503, target .9559 4. Sell AUDCHF at .7270, Stop at .7298, Target .7242

Swing

*Good morning/afternoon everyone!*

The U.S. dollar is trading lower against most of the major currencies this morning as risk appetite improves after yesterday’s brutal selling. Stock futures are up, helping to bolster pairs like EUR/USD and USD/JPY. However as we begin the NY session, the decline in Treasury yields could also tip the scale and push USD/JPY lower. Yen crosses on the other hand will take their cue from stocks today. The currency most vulnerable to weakness is the Canadian dollar because oil prices are down more than 2% after President Trump tweeted that he hopes Saudi Arabia and OPEC will not cut oil production because he thinks oil prices should be much lower based on supply. Despite a softer Eurozone ZEW survey, EUR/USD is trading above 1.1250 on the hope that progress could be made on the Italian budget front. the expectations component of the ZEW surely also increased. The best performing currency this morning is sterling which is up on higher wages (despite a higher unemployment rate) and continued Brexit optimism. On the Brexit front, we are getting closer to a deal but with some counterproductive headlines, traders are still reluctant to overload sterling positions but when an announcement is made, we can almost be assured that there will be a strong followup rally. AUD and NZD are also up from yesterday but having risen strongly in Asian trade, they are mostly consolidating and even weakening slightly. We also have our eyes on the Swiss Franc which appears to be topping below 1.0130.

*The MAIN THEMES I see today are*

+EUR
+CHF
-CAD
-JPY

*Trading Biases*

+EUR, +CHF, +GBP,
-CAD, -JPY
mildly +AUD, +NZD, -USD

*Today’s Initial Trades*

Here’s the summary --

1. Buy EURCAD at 1.4885, Stop at 1.4857, Target 1.4912
2. Buy EURUSD at 1.1247, Stop at 1.1219, Target 1.1275
3. Buy AUDCAD at .9531, Stop at .9503, target .9559
4. Sell AUDCHF at .7270, Stop at .7298, Target .7242

In Trading – Great is NOT Good

Boris Schlossberg

In our winner take all world, we are often told to try the best, do the best, be the best.

That advice is a road to ruin in most aspects of life and very certainly in trading.

The very latest in research suggests that human accomplishment does not come from trying to push ourselves to the limit, but rather from gradual and consistent repetition and improvement.

As Brad Stulberg writes, “Take the case of Eliud Kipchoge, who just shattered the marathon world record. He’s literally the best in the world at what he does. Yet Kipchoge says that the key to his success is not overextending himself in training. He’s not fanatical about trying to be great all the time. Instead, he has an unwavering dedication to being good enough. He recently told The New York Times that he rarely, if ever, pushes himself past 80 percent—90 percent at most—of his maximum effort during workouts. This allows Kipchoge to string together weeks and weeks of consistent training. ‘I want to run with a relaxed mind,’ he says.”

The paradox of performance is that when you push less you achieve more. Stulberg again, “This mindset improves confidence and releases pressure because you don’t always feel like you’re coming up short. It also lessens the risk of injury — emotional and physical — since there isn’t a perceived need to put forth heroic efforts every day. The result is a more consistent performance that compounds over time. Research shows that sustainable progress, in everything from diet to fitness to creativity, isn’t about being consistently great; it’s about being great at being consistent. It’s about being good enough over and over again.”

This is certainly true with trading. We are always pushing for more -- more edge, more leverage, more trades when we should all be pushing for less. It’s perfectly ok to take profits early. It’s perfectly ok to miss some setups. It’s perfectly ok to trade on very low leverage for as long as you want. Every one of those behaviors will push you toward success whereas the exact opposite of those behaviors will guarantee failure. Trading -- like marathon running -like almost everything in life -- is a test of endurance.

There is an old movie with Paul Newman and Robert Wagner called Winning. It’s about the 24 hour race at LeMans. (It was actually the catalyst for Newman becoming a professional race car driver later in life). In the movie, Wagner plays a hot shot driver who “breaks things” because he always pushes everything -- the car, himself, the people around him too far. Wagner is the quintessential example of what not to do in trading. In his quest for excellence, he winds up only with failure.

It’s easy to see how that can happen in trading. Hell, I’ve been the Robert Wagner character many times in my life. Always looking to “optimize”, always looking to push trades beyond their limit. But recently I created a process to change that behavior. And it all starts with the 0.01 lot.

Basically anytime I have an idea for a setup or strategy I start trading it with 0.01 lot. My iron clad rule is to trade at least 10 times at that tiny size, but the more I do it, the more I realize that at least 30-50 times is best (this assumes you are day trading, which is all that I do). The money is real, the quotes are real but the size is so tiny that it does not dissuade you from pursuing the setup even after multiple stops out. More importantly, it is truly amazing how many things you notice the more you trade. Every setup and I mean EVERY setup will change its rules as it develops under real market conditions. That’s because even if you have years of market experience your original notion of how the trade should proceed will come with preconceptions that actual market price action will very quickly destroy. But here is the thing. The more you trade your set up. The more you adjust it to actual market conditions. The more accurate it becomes. The more confident you will be.

That confidence will allow increasing the size to the next level which in my case is 0.1 lot -- and inevitably when the losing streak appears you will not abandon ship. You will have that reservoir of confidence from the 0.01 lot days to ride out the drawdowns. This is where the power of gradual improvement really pays off. This is where you realize that good is not the enemy of the great, but rather its basic building block and at that point, you can finally step up to your regular trading size knowing that you have created a truly durable setup to trade.

Everything Good is An Accident

Boris Schlossberg

Every “guru” advice about the “secret of success” is pure bullsh-t.

Every success in life is an accident.

No, I really mean that.

Everything.
Is.
An.
Accident.

Penicillin -- the first antibiotic that literally changed life expectancy on earth?

Accident.

(from https://www.healio.com/endocrinology/news/print/endocrine-today/%7B15afd2a1-2084-4ca6-a4e6-7185f5c4cfb0%7D/penicillin-an-accidental-discovery-changed-the-course-of-medicine)

“Sir Alexander Fleming, a Scottish researcher, is credited with the discovery of penicillin in 1928. At the time, Fleming was experimenting with the influenza virus in the Laboratory of the Inoculation Department at St. Mary’s Hospital in London.

Often described as a careless lab technician, Fleming returned from a two-week vacation to find that a mold had developed on an accidentally contaminated staphylococcus culture plate. Upon examination of the mold, he noticed that the culture prevented the growth of staphylococci.”

The iPhone?

An accident. Steve Jobs was trying to create a tablet computer. Only when he shrunk it down to palm size did he realize that he had a smartphone on his hands which became the best selling product of all time. Steve Jobs did not invent the iPhone. It was an accident of an open mind.

Warren Buffett’s wealth?

All accidental.

Seriously?

YES!
(from
http://basehitinvesting.com/case-study-the-story-of-geico-graham-and-buffett/ )

“GEICO, for most of its storied history, was considered a high flying expensive growth stock. Buffett occasionally got interested in growth businesses, more so as his career evolved, but Graham was basically allergic to stocks selling for high price to earnings ratios or high price to book ratios.

So it was ironic that Graham ultimately made far more money in this single GEICO investment than all of the other investments he made during the course of his lengthy career… combined. It was also strange that Graham invested nearly 25% of his partner’s capital into GEICO in 1948, acquiring 50% of the growing enterprise for the small sum of just $712,000. This would eventually grow to over $400 million 25 years later!! That is a 500 bagger. To make an understatement: For a guy who made a living hitting base hits, this was a home run.

Around this same time, a young 21-year-old Warren Buffett became interested in GEICO after learning that Graham was chairman of the board. Buffett famously took the train to DC on a cold winter Saturday morning and luckily met Lorimer Davidson, an executive at GEICO who spent 4 hours with this “highly unusual young man”.

Buffett began buying stock the next Monday after being “more excited about GEICO than any other stock in my life”. He put 65% of his small fortune of $20,000 into Geico (the initial seedlings that would grow into his massive fortune). He also tried to sell the stock to every one of his clients and wrote this excellent research report called The Security I Like Best.

So GEICO caused Graham to put 25% of his capital into the business when no other security ever represented more than 5% of his well-diversified portfolio. And it caused a young Buffett to put the majority of his capital into the stock, also violating his mentor and role model’s investment policy.”

So basically the Buffett value approach investment myth is pure bulls-t. He rolled the dice on one great play and it paid off in spades.

My point is that all great ideas in life are bottom up not top down. They are all a result of trial and error process and those of us who are open to the possibilities we never even imagined existed stand a much greater chance of success that those of us who plan every waking moment of our day.

For us as traders, that means that every part of our trading plan is subject to revision. Constantly, adjusting and refining your trading setups is a sign of strength, not weakness.Adapt or die is both the rule of savannah plain and capital markets. Nothing remains constant. That’ why entries, exits, trailing stops are never sacrosanct. Always question and refine your approach and remember that the best ideas will likely be an accident. So never fear to experiment.

GBP/CAD – Where’s Good Place to Sell?

GBP/CAD – Where’s Good Place to Sell?

Chart Of The Day

GBP/CAD – Where’s Good Place to Sell?

Fundamentally, we believe that the recent decline in GBP/CAD marks a top for the pair. Sterling faces a host of problems in the short and medium term while CAD, which has been hit hard by lower oil prices is nearing a bottom. This morning we learned from the Confederation of British Industry in the U.K. that manufacturing orders fell sharply in the month of January. While this is not a widely followed release, it shouldn’t be ignored as it has a strong correlation with the broader PMI manufacturing report. Export orders fell at a sharp pace in January, which does not bode well for U.K. growth. GDP is the only piece of market moving U.K. data on this week’s calendar and recent reports such as retail sales and trade point to a slowdown in growth. At the same time, last week’s Canadian economic reports were good with retail sales in Canada rising 1.7%. Oil is obviously a problem but $25 should mark a bottom for crude.

So that leaves the question of where is a good place to sell GBP/CAD and that’s where technicals come into play. The currency pair is attempting to break above the 100-day SMA and while that is important, the main resistance is level is 2.04. So the first opportunity to sell would be near 2.04 with a stop above 2.06. The more conservative option would be to sell closer to 2.06 with a stop above 2.08 for a move back to 2.000.

*This is NOT an official Big Trade recommendation but rather an interesting opportunity to watch.

In Trading – Good Advice or Bull-t that Just Sounds Good?

Boris Schlossberg

I am going to borrow the title of today’s column from a recent piece of Jason Zweig of the Wall Street Journal who is using to make other points -- but I liked it so much that I will appropriate it for my own means. Mr. Zweig often writes about the various behavioral weaknesses of investors and his advice which leans very heavily towards passive, patient long term investing is generally very valid -- FOR INVESTORS. But if you are going to trade you better forget every one of those ideas.

As the great investor Ben Graham, who Mr. Zweig quotes, once noted stocks have prices companies have values. Exactly. If you ever want to learn how to trade well, the idea of “undervalued” or “overvalued” better be erased from your brain. We don’t trade value. We trade price. And very often the right trade is actually opposite of what the proper value should be. It’s one of the reasons why I never spend a minute of my time trying to prognosticate the “value” of any currency any further than 24 hours forward.

But there is so much bulls-t advice in the trading industry itself that I thought we should try to set the record straight. This week Kathy and I did a live trading seminar on Wall Street with a small group of traders from around the world and some of those very bad ideas cropped up. So I thought I’d summarize the three most odious notions that continue to circulate in trader’s minds.

1. Have a high risk reward ratio (risk $1 of loss for $3 of profit). Bulls-t, bulls-t, bulls-t. Anytime I hear someone on Wall Street pontificating about how they never take a trade unless it has 4-1 r/r ratio I know they have never laid a penny of their own money on the line. You know what has a great r/r ratio? The lottery. As the New York Lotto ad goes -- have a dollar and a dream. And a dream is all you will ever get. The markets are brutally efficient. They don’t leave dollar bills lying on the floor that you can pick up for a quarter. There is a direct correlation between rate of success and the amount of risk you assume. Even most HFT algos trade with a NEGATIVE risk reward ratio because the computers know if you want to earn money you need to work for it and that means assuming more risk than reward.

2. Don’t Overtrade. Bulls-t Bulls-t Bulls-t. If by “don’t overtrade” you mean don’t place many random trades without any thought to entry or exit. Then yes I agree. But if you mean don’t trade a lot because it will cost a lot commission and you will just make your broker rich -- then you are total idiot who doesn’t understand trading at all. You know who made their broker obscenely rich? Steve Cohen. Marty Schwartz. Paul Tudor Jones. Michael Steinhardt. You know who also became obscenely rich in the process? The very same guys I just mentioned. The best traders in my room all have the highest commission bills. High commissions costs guarantee trading success, but they certainly dont guarantee failure and in fact more often than not they are a sign that you are doing something right.

3. Trade with Trend. Almost never is that a good idea. Trend only occurs in the market 20% of the time so that means you have an 80% chance of failure whenever you try that strategy. On an intraday basis the odds are even worse. And it’s almost always better to trade noise rather than trend if you are day day trading. Even if you are position trading it’s better to get into a trend trade on a counter trend move. Ever since I helped Kathy tweak her entries that way she has nailed 54 out of the last 61 trades for nearly 90% success rate trading “with trend”.

The BEST Swing Trades. The BEST Day Trades -$145 All in

Jason Zweig is right. On Wall Street there is a lot of advice that sounds good but really isn’t. In trading the same dynamic take hold. So its about time we actually started to follow good advice, rather than the well worn lies of gurus that just sound good.

BK Big Trades – Stopped out of NZD/CHF

Swing

BK Big Trades -- Stopped out of NZD/CHF

NZD/CHF Big Trade -- The Ultimate Carry Trade

The Trade:

NZD/CHF


Buy NZD/CHF at market (now 0.6715)

Stop for whole position at 0.6500

Targeting move to and above 70 cents

Risk on our BIG TRADES is large, so make sure your position is small.

We will manage the take profit dynamically and send out alerts on when to take profit and/or move your stop.

—--

We Like the New Zealand Dollar

A few weeks ago, we bought ourselves some NZD/CAD on the premise that dairy prices would bottom before oil. Today, oil prices are down 4% while dairy prices settled at higher levels for the third auction in a row. We traded the currency pair, taken money off the table and are now shifting our focus to the ultimate carry trade -- NZD/CHF.

Lets start with the New Zealand dollar. NZD fell sharply today on the back of a more modest increase in dairy prices. While it would have been nice to see dairy prices rise by a larger amount, the fact that prices increased at the last 3 auctions is GREAT news for New Zealand. Earlier this month, dairy prices rose 3.6% the biggest increase in 12 months -- matching that pace would have been unrealistic. Considering that dairy is New Zealand’s biggest export earner, accounting for approximately 30% by value, this increase will bolster the confidence of the RBNZ who meets next week.

The last time we heard from the central bank, they were surprisingly comfortable with the current level of monetary policy and while they felt that the New Zealand dollar value was unjustified and unsustainable, they also believed that further policy adjustment will be necessary after a period of assessment. In other words, they are still looking to raise interest rates -- eventually. Their hawkish monetary policy bias and 3.5% interest rate will prevent NZD from falling much further and instead lead to a recovery in the very near future especially if the ECB rolls out Quantitative Easing, forcing investors to look elsewhere for yield.

NZD/CHF -- The Ultimate Carry Trade

Buying the New Zealand dollar against the Swiss Franc is the ultimate carry trade. In addition to abandoning their 1.20 peg, the Swiss National Bank also deepened the negative rate environment by cutting rates 50 basis points to negative 0.75%. Last week, the SNB made the conscious decision to shift from exchange rate to interest rate driven monetary policy. If the recent appreciation in the Franc poses a major threat to the Swiss economy, they could lower interest rates further -- increasing the attractiveness of selling Francs. Even if they don’t and other central banks lower rates, NZD will become more attractive as a result. We also believe that most if not all of the long EUR/CHF trades have been flushed out with all stops already triggered.

Chart -- NZD/CHF Headed for 70 cents.

We think NZD/CAD is eventually headed for 0.70 or higher and our stop of 0.6500 is well below pre-SNB levels. Here’s the trade:

NZD/CHF

Buy NZD/CHF at market (now 0.6715)

Stop for whole position at 0.6500

Risk on our BIG TRADES is large, so make sure your position is small.

We will manage the take profit dynamically and send out alerts on when to take profit and/or move your stop.

EUR/CHF – Good Time to Buy?

EUR/CHF – Good Time to Buy?

Chart Of The Day

EUR/CHF – Good Time to Buy?


Fundamentals

After sitting on their hands for the past 2 months watching EUR/CHF test their floor of 1.20, the Swiss National Bank finally took action this morning by adopting a negative interest rate. Their announcement sent EUR/CHF to a high of 1.2097 but as we have seen in today’s price action fighting the market can be difficult. The rally fizzled by the end of the North American session with the currency pair trading back within its month long range. Strong fundamental factors have driven investors into the Swiss Franc including euro weakness (driven by ECB policy), Russian inflows (from the currency crisis) and a general demand for safe haven assets. Unfortunately for the SNB, the problems that have caused pressure on EUR/CHF are not expected to improve anytime soon. However central banks have deep pockets and the SNB understands the consequences of letting the EUR/CHF peg break. The whole credibility of their currency and monetary policy would come into question if they allowed EUR/CHF to drop below 1.20 by more than a few pips so a lot is at stake. We believe that the SNB will overtly intervene in EUR/CHF if the rate cut does not work which is why we feel it is a good time to buy EUR/CHF between 1.2020 and 1.2040 for a move back towards 1.21.

Technicals

When it comes to EUR/CHF, the 1.20 peg distorts the effectiveness of technicals. Nonetheless, there are certain levels within the EUR/CHF breakout that is important. EUR/CHF needs to be trading above the December 2nd 1.2047 high to have any chance of extending its gains without intervention. If it drops back towards 1.2020, the 1.20 peg could be tested once again but we do not expect EUR/CHF to drop below 1.1990.

AUD/NZD – Can it Take out 1.1000 for Good?

AUD/NZD – Can it Take out 1.1000 for Good?

Chart Of The Day

AUD/NZD -- Can it Take out 1.1000 for Good?

Fundamentals

AUD/NZD has been in a tug of war over the 1.1000 level for the past two weeks and this week we have key event risk that may finally decide the battle. Aussie has become the darling of the high yield hunters as the ECB turned to negative rates while the Fed shows no signs of tightening any time soon. The stabilization in China has also helped ease concerns about the Australian economy and pushed the unit above 9300. Meanwhile in New Zealand worries the declining milk prices have put a cap on kiwi which is under pressure due to fears that RBNZ will truncate its tightening cycle. This week many of these issues will be resolved as the market gets a look at the latest RBNZ decision on the same day that Australia reports its monthly jobs number. If the authorities in Auckland suggest that the hikes may be over for now, the AUD/NZD has a chance not only to hold above the 1.1000 level but to climb above 1.1100.

Technicals

Technically the AUD/NZD pair has resistance just underneath the 1.1050 level and support just above 1.0900. A break either way could lean to a more extended move with upside targeting 1.1100-1.1200 area while the downside could push all the way to 1.0700.