Thank You Warren Buffett. You Took My Scalping to the Next Level.

Boris Schlossberg

(Editor’s note: In the American academic system A is the highest grade you can get, followed by a B, then C, then D and finally F -- for Fail)

I love Warren Buffett even though my market approach is the very antithesis of his. I trade noise on the 5-minute chart while he trades value on a decade or even century-long time frame. He believes that you can’t have any control over an asset on anything but a multi-year view while I believe that you lose 90% of your control after anything longer than a few hours. About the only thing that we both agree on is that you should get paid while you wait (but that’s a topic for another column).

Despite this, I love Warren Buffett because his insights into business, markets, and psychology can be life-altering.

Let me tell you how Warren Buffett took my scalping to the next level.

Those of you who’ve been following me recently, know that I have been battling with the 5-minute chart for the better part of the past few months. My system has had its fits and starts until I stumbled across this quote from Mr. Buffett,”After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them.”

This was an eye-opening revelation. I realized that the path to success did not lie in endless tweaking and optimization but rather in simply avoiding the stupid trades.

So I isolated the absolute perfect winning trade of my setup and studied all of the price flow mechanics behind it. This became my “Platonic” template which I graded as A+. Then I looked at the setups that weren’t as clear-cut, but still fulfilled most the criteria and offered the prospect of a modest edge, grading those charts as B to B-. Lastly, I looked at all the other trades I took over the past few months that offered no clear connection to my rules and graded them F.

You know the F trades. Those are the trades that you take when you are bored. When the market shows zero clear direction or better yet when you are convinced (ABSOLUTELY CONVINCED!!!) that the direction of the market is wrong. You know .. the idiot trades.

Then I just stopped taking the F trades.

The results were nothing short of miraculous. My win rate, daily P/L, Drawdown to runup ratios -- all improved markedly. More importantly, I stopped committing the single greatest sin of scalping -- overtrading. More importantly yet, since I was only taking A and B trades my confidence increased and I accepted the losing trades with complete equanimity.

In short Mr. Buffett’s advice set off that most elusive and valuable of trading experiences -- the virtuous cycle -- where the better I did the more disciplined I became.

So props to the guy who probably never placed a 10 pip trade in his life for making me a much better scalper.

Thank you, Mr. Buffett.

EUR/USD – The 1.08 Level is Key

EUR/USD – The 1.08 Level is Key

Chart Of The Day

EUR/USD – The 1.08 Level is Key

Nearly all of the major currencies are trading lower versus the U.S. dollar today including the euro but an upward revision to Eurozone PMIs helped euro stave off deeper losses. EUR/USD traded as low as 1.0781 but bounced back above 1.08, an important support level as the selling eased. Tomorrow’s labor market report from Germany should also help the currency because according to the PMIs there was strong job growth in the manufacturing and service sectors. While fundamental forces still point to a weaker euro, strong U.S. data or weak Eurozone data is needed to push the pair significantly lower. On a day when AUD/USD is down 1.3%, EUR/USD is down a mere 0.25% and this goes to show how sensitive the market is to data. Monetary divergence signals a lower EUR/USD but unless data supports the move, investors will be skeptical of adding to this crowded trade.

Technically, we don’t think it’s a coincidence that EUR/USD is unable to break 1.08. This level has been support for the past month and today’s attempt to break below it backfired. Whats more important however is that EUR/USD is also above the 50-day SMA. We’ve been watching the pair trade between the 100/200-day SMA cross and the 50-day SMA for a few weeks now and we need to see a convincing close below today’s low for the EUR/USD to make a run for its December lows. Until then, a ounce back above 1.09 appears more likely.

NZD/USD Needs this Key Level to Break

NZD/USD Needs this Key Level to Break

Chart Of The Day

NZD/USD Needs this Key Level to Break

Fundamentally we believe that NZD/USD is headed lower but technically, it needs to break a very important support level in order for the downside to open up. In fact, today’s sharply 1.7% decline in NZD/USD stopped short of this very level, the 38.2% Fibonacci retracement of the 2009 to 2011 rally. If and when NZD/USD closes below this level shown in the chart, it should be clear sailing down to 72 cents. On the topside 75 cents remains resistance but given the technical and fundamental backdrop, we are looking for an eventual move down to 70 cents

The New Zealand dollar has been hit hard today by speculation that the Reserve Bank could lower interests twice this year. Economic data from New Zealand has been very weak and earlier this month, the central bank warned they could ease if prices fall further. However today’s more than 1.5% slide versus the U.S., Australian and Canadian dollars was sparked by ANZ bank’s prediction that the RBNZ will cut 25bp in June and another 25bp in July. We believe that the weakness in data and change in monetary policy outlook is very bearish for the currency and the main catalyst for further losses will be the central bank’s Financial Stability Report and Wheeler’s press conference Tuesday afternoon / Wednesday morning local time. If Wheeler talks easing NZD/USD could drop below 72 cents. The New Zealand dollar is a currency that you should be trading this week and after today’s sharp decline, the best tactic would be to sell on a bounce towards 75 cents.