*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

What Stock Traders Can Teach Currency Traders

Boris Schlossberg

All of my investment money is run by @HedgeFundGirl -- not only because she the best stock picker I have ever seen, but because she knows how to put together an intelligent portfolio. Whenever I check the statements I am always surprised at how many losing positions there are on the books and yet how she is able to make money and beat my FX returns every single month and every year that we’ve been married.

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Portfolio management is one the best lessons that stock traders can teach currency traders. Most of us in the FX land are used to basically following the prop model -- one trade at a time win or lose -- then count your pips at the end of the month. But constructing a portfolio of trades to diversify your bets can open up a whole new way of looking at the market.

A recent New York Times article about diversification put it best -- if you are not perpetually pissed off, you are doing it wrong. The portfolio approach to trading basically assumes that you will always be losing on part of your positions. The underlying philosophy of the portfolio approach is based on humility.

The portfolio trader assumes at the outset that he does not know which bets will pay off and therefore makes a multitude of them, hoping that when the dust settles the winners will outrun the losers. Instead of serially picking his trades, the portfolio manager will spread the risk (and yes possibly dilute the return) in order to dampen drawdown.

For forex traders the portfolio approach is especially interesting when applied to algorithmic trading. If you are running the same strategy on multiple pairs then you are in fact practicing the portfolio method. However, quantitatively based currency traders often commit a very serious sin. They love to over-optimize their strategies creating very different entry and exit parameters for each currency pair.

But portfolio trading is not like prop trading. It’s kind of like the difference between team and individual sports. ( I can still hear my football coach yelling, “There is no “I” in team boys!”)
What may in retrospect be good for one currency pair may not be good for the portfolio as a whole.

The truth of the matter is that if you change the strategy parameters on one currency pair you are in fact over or under weighting that pair relative to all others and that creates a whole set of risk factors that you may not have anticipated. That’s why when trading algorithmically, its best to give equal weight (i.e. same entry/exit rules) for all the currency pairs -- because after all you really don’t know which ones will succeed and which will fail.