Once, Yogi Berra’s wife Carmen asked, "Yogi, you are from St. Louis, we live in New Jersey, and you played ball in New York. If you go before I do, where would you like me to have you buried?" Yogi replied, "Surprise me."

Surprises of course are the lifeblood of our business. Those of you who have subscribed for a while know that we like to trade “event risk” which is simply a fancy way of saying we try to trade economic surprises. Event risk trading is a short term approach to the currency market with most trades typically lasting no more than 24-48 hours. Why do we trade in the short term? Because in the long term all trading is essentially random and we have very little edge to succeed.

That conclusion is not a matter of opinion but a statement of fact. A few weeks ago I visited with a founding partner of a very tony hedge fund at their 5^th avenue offices. The fund is involved in a very arcane form of reversion to the mean trading between various stock indexes (very successfully I might add) – but after the initial discussion about the mechanics of their strategy, conversation turned to more philosophical matters about markets in general at which point the founder shared some very interesting research with me.

Understand that this hedge fund employs some of the brightest math Ph D’s around and runs enough computer hardware to challenge the Department of Defense. What the founding partner showed me is that projecting future direction from past price data is an illusion that cannot be predicted with any degree of certainty. Using some very sophisticated statistical techniques applied to all markets from equities, to commodities and especially to currencies he showed me that within 48 hours all price behavior degrades into randomness. In fact price prediction was strongest in the first 24 hours and the lost more than half its potency by 48 hours from the start of the trade finally dissolving into complete uncertainty beyond that point. Needless to say this fund only trades short term.

Kathy and I often bristle when reporters try to ask us about the long term economic implications of a particular event. We always say that we are traders first, economists second, far more concerned with the immediate price impact of particular economic news rather than with any long term consequences to that country’s currency. Yet as human beings we are incessant “pattern seekers” always trying to project order out of chaos. As a species, that trait has served us well, allowing us to create a fantastically complex civilization and assert the most precise control over our natural environment. Unfortunately, the same attributes that help us build the George Washington bridge and the new rotating skyscrapers in Dubai can be our downfall in the markets.

To better understand why this is so, I highly recommend that everyone read Nassim Taleb’s new book, “The Black Swan” http://www.amazon.com/Black-Swan-Impact-Highly-Improbable/dp/1400063515/ref=pd_rhf_p_1/102-8650304-8432141?ie=UTF8&qid=1158510728&sr=8-1 which discusses our inherent need to produce post-fact explanations for market events when in reality we are utterly incapable of predicting them a priori. Taleb, shows with empirical precision the utter futility of all long term predictions by experts. (As an example, realize that despite more than $50 billion dollars worth of research, not one CIA analyst was able to accurately predict the collapse of the Soviet Union. Or for those with more of financial interest, remember Robert Precher’s notoriously wrong headed call of long term target of Dow 700 after the 1987 crash.)

Yet while long term predictions are impossible, short term forecasts can be much more accurate but are by no means bastions of certainty. For example, our proactive trade setup depends on two assumptions.

1. The event will surprise in the directions that we predict
2. The price will react in the direction of the surprise.

Generally this is the case in trading, but not always. Sometimes we can be right on the fundamentals but the price will respond in the exact opposite manner. This is the trading equivalent of a bad bounce. Sometimes in baseball a ball will hit a pebble instead of dirt and will bounce in a manner impossible to anticipate by the fielder resulting in a lucky hit for the batting team. Faced with a bad bounce, baseball players shrug them off understanding that there is nothing to be done. We as traders should maintain the same attitude towards trades that are analyzed right but go wrong or vice versa.

Allow me to stop philosophizing and put these ideas in concrete terms. This week we had four trades.

Short AUDUSD +100

This was the most perfect trade of the week as we analyzed the fundamentals perfectly and prices responded exactly as we forecast.

Short USDJPY + 15

A true “making lemonade” out of lemons trade as we were correct on our dollar bearishness, but chose the absolutely the wrong pair to express that view as USDJPY movements were driven by US equity market rather than US economic fundamentals

Short EURCHF +17

A trade where we were completely wrong on the fundamentals but managed to walk away with profits due to our T1 (short target) T2 (long target) money management style

And of course the most maddening trade of all

Short NZDUSD (-74)

A trade where we were wrong on the RBNZ rate hike got stopped out right at the top of the knee jerk spike only to see prices collapse and move our way. Classic bad bounce trade. The amateur lesson to draw from this experience is that our stops were too tight. Nonsense. Our stops were placed at the right point. In fact given the news it was just as probable that the pair could have climbed much higher only increasing our risk. Just as a good tradesman never blames his tools, a good trader never blames his stops. A stop almost always means that you were wrong on the trade. Good trades do not ever come close to triggering their stops.

But is there perhaps something else to learn from the kiwi trade? Yes there is. When a news trade goes bust it can present an interesting profit possibility – a concept we call the “anti-trade” and works something like this. If the price action cannot sustain the direction of the news, the probability of a reversal is quite high. The key are of focus is the price level prior to the news event. If, after the initial knee jerk reaction, the currency pair returns and then breaks that price level, it sets up a great reversal trade because it indicates that the news was not powerful enough to sustain further directional movement and the path of least resistance lies the other way.

Please take a look at the following two examples

http://docs.google.com/Doc?id=dn8z7zs_92fz2b5d

http://docs.google.com/Doc?id=dn8z7zs_94fh4bxv

Therefore, whether we trade with the news or against it, the market provides us with many opportunities for profit. It’s simply our job to uncover them.

Have a great weekend.

B & K

posted by BKTrader  # 4/30/2007 01:40:00 AM 0 comments

“Always know the reason you are getting in and the reason you are getting out”

Steven Ickow

From our upcoming book Millionaire Traders

The more I am in this business, the more I despise trading gurus who pull up a chart of past price data and demonstrate with uncanny precision how they would have traded every peak and valley the movement. There are many very smart and legitimate technically based traders who have interesting insights and can teach us a lot about the underlying logic behind the classic chart patterns. However, the longer you trade the more you begin to appreciate that every pattern can turn into anti-pattern. Head and Shoulders can turn into a channel and instead of being a reversal pattern can turn into a continuation. Same with double tops and double bottoms. In a range a tag of a Bollinger band is a great place to fade, but in a trend, the same setup is a great place to join the price action. In short everything depends on context and all trades look easy in retrospect. The easiest way to expose a charlatan is to ask in real time, ”Would you be short now or long?” and have him or her agree to answer that same question at least 10 or 15 more times during their presentation. Few if any “gurus” would be willing to subject themselves to such a test, because underneath their smooth banter, they know the real truth – trading is essentially guessing.

Well those you who have joined us in this journey in reality based trading you know that the one thing we will not do is lie to you. Trading is guessing, pure and simple. But before you shake you head in sheer disgust and walk away know this - so is neurology, meteorology and for that matter any business. investment. Medicine is perhaps the best example to look at because so many of us hold doctors in awe, but anyone who has ever had the misfortune to have a family member come down with a serious illness especially if its neurological or psychological in nature, will quickly learn t how inaccurate and imprecise most of medical diagnosis can be. “House MD” -one of my favorite TV shows – only gives us a glimpse of how frustrating the art of diagnosis can be for even the most educated professionals. Yet, we afford doctors far more benefit of the doubt that we do ourselves, although they can often be wrong many more times in their medical analysis than we are in our trading analysis.

Imagine if the weatherman on TV had to predict not just if today would be sunny or cloudy, but the exact temperature reading to 1/10th of a degree at say 3PM this afternoon. Furthermore, if the weatherman was wrong he or she would not get paid that day. How many meteorologists would be willing to work under those conditions? Yet we as traders do just that every day.

Hopefully however, understanding that trading is nothing more than intelligent guessing allows you to accept the fact that we will be wrong. A lot. Ironically enough, long term success in this game depends on the traders ability to disregard a monumental amount of short term failure. “Quitters never win and winners never quit,” is a trite old saying of every football coach I ever knew, but nevertheless it applies to trading.

Knowing that trading is guessing, however, does not absolve us of doing serious work. In fact the opposite is true. The difference between novices and pros is that novices guess randomly trading strictly from impulse, while pros spend enormous amount of time observing and thinking about everything from news flow to price flow in order to determine the proper speculation. So to trade effectively, whether it be proactive or reactive you need to plan and be prepared. As Steven Ickow, one of the traders we interviewed for upcoming book says, “You must always know the reason for getting in and the reason for getting out of a trade.” In a business rife with uncertainty, the only factors under our control are the entry and the exit, and we should understand the reasons for both of them before ever getting into the trade.

So let’s look at this week’s trades and see if we adhered to Steven’s rule.

Long GBPUSD +132

This was the best trade of the week because we had a great reason for getting into the trade, namely that the hot PPI would likely translate into hot UK CPI numbers and would therefore push the pound higher. The numbers printed as expected and our speculation paid off.

Long GBPUSD -90

We made a key mistake on this trade, trading reactively rather than proactively. Normally, given the good data, that should not have mattered, but with price action so overextended the pair was just too vulnerable to a sell off. We did however properly limit our risk by stopping at 2.0065 as cable tumbled to 2.0011 before leveling off.

Long GBPUSD +20

After the initial profit taking we felt confident that buyers would return to the pound given the strong data. We made T1 on the trade, illustrating the importance once again of using the two lot approach. Since we can only control risk not return, taking some profit on par of the trade ensured that we did not turn a winner into a loser

Long EURUSD-80

The worst trade of the week. Why were in this trade? For the worst of all reasons - because it was going up at the moment that we looked at it. We had neither a reactive nor a proactive reason for why the price action might continue and got stopped out. Just like poker, price action lies all the time. Without a reason this was a classic chase trade gone wrong.

Short USDCAD -20

Unfortunately, a great example of a good plan improperly executed. This was supposed to be a proactive trade which I botched up by turning into a reactive trade. In short I was a minute late and a penny short. What would have worked well proactively, did not work reactively as prices did not extend. The only saving grace was my realization that the trade was not responding and quickly covering it for a nominal loss.

Long GBPUSD +20

A very good example of how you can make money even if you are wrong by properly controlling risk. We were wrong in our assessment of the strength in UK Retail Sales, but the price action before the announcement allowed us to make T1 and exit the rest at breakeven when prices turned down.

We’ll be back next week, with Steve’s rule burned firmly into our minds.

Have a great week-end

B&K

posted by BKTrader  # 4/23/2007 12:46:00 AM 0 comments

"Trying to understand what's happening in the currency markets is like watching South Park for the first time and trying to figure out what the plotline is. At first, a viewer
has confusion, then revulsion, then anger, and then maybe some laughter as you realize the absurdity of it all."

Our good friend Andy Busch. Global FX Strategist at BMO Capital Markets expressing our feelings this week far better than we ever could.

Last week we wrote that, “There are only two types of assumptions underlying every trade ever made.

1. A trader either anticipates some future events that will force the market to re-price the current value of the position in his favor. Or -
2. A trader believes that the most recent news events are so significant that they will result in continuation of price direction as more and more market participants accept his point of view”

For simplicities sake lets call the first method, proactive trading and the second reactive trading. In proactive trading we are trying to anticipate some future event while in reactive trading we believe that the current price action will extend further in the same direction. Note that these two approaches have nothing to do with fundamental or technical analysis per sei. There are simply two overarching methodologies of trading. The actual reasons for the trade can come from either fundamental or technical analysis or perhaps both.

For example, a trader who looks at the hourly chart of the EURUSD pair and notices that prices are approaching 200 SMA and then decides to short the pair on the assumption that this area will serve as strong resistance is practicing proactive trading based on technical analysis alone. Meanwhile another trader who believes that the upcoming piece of economic data will be extremely bullish for the dollar and also decides to short the EURUSD is practicing pro-active trading as well, but this time strictly from a fundamental point of view. Thus, an exact same trade can often take place in the FX market for markedly different reasons. The key element that unites both traders is the anticipatory nature if their approach.

Now let’s flip the scenario around. Suppose the EURUSD rallies strongly through the 200 SMA on the hourly charts and closes near the top of the candle signifying a strong breakout to the technically oriented trader. Based on this information he decides to go long, forecasting that the strength in the pair will continue. Meanwhile our fundamentally driven trader sees that instead of being bullish the US economic release prints a major disappointment, taking the markets by surprise and completely changing the price direction of the pair. Therefore based on this new information the fundamentalist also decides to go long, as the new data suggests far gloomier prospects for the US economy.

Note, by the way how frequently technicals and fundamentals express the same story, however, that not the point we want to make. The unifying aspect on the technician and the fundamentalist in the second example is that they are both behaving reactively.

Once we understand, the two approaches the next question we must answer is how to best execute each setup. Ironically enough, the matter of timing each strategy is the exact opposite of what common sense would dictate. Normally, most traders would say that reactive trade setups should be put on instantly after the event occurs. However, markets can be maddening in their ability to frustrate the most logical of plans.

When news hits the tape, prices do adjust instantly, but continuation often does not take place for a while. Lets look at out first trade of the week the USDJPY long which we actually took a week ago Friday, after the much better than expected US NFP numbers convinced us that US yields would rise and provide further support for the carry trade.

http://docs.google.com/Doc?id=dn8z7zs_89cmhj4s

Prices did move higher, but did not follow through as defense of the 119.50 option barriers kept a lid on any gains. In fact the pair retraced strongly during the trade coming close to our stop. However, during all of this time the fundamentals facts for the trade did not change (US yields continued to rally and Japan stated that it had no intention to raise rates anytime soon) so we stayed in the trade. Eventually the fundamentals overwhelmed resistance and took out our first profit target at 119.52.

The two lessons to learn here are:

1. Reactive trades can often provide you with better entries on the retrace of the move rather than immediately following it
2. Unless the reason for the trade changes, traders should stick with the trade until they either reach their profit target or hit their stop

Pro-active trades, however are a totally different matter. Typically anticipatory traders try to get into the move well ahead of their expected action, but that can be a mistake because prices can be effected by a myriad of factors preceding the event. This Friday’s short USDJPY was a perfect case in point. We entered the position on the assumption that there was a strong chance that G-7 officials would not necessarily be as accommodative on the issue of yen weakness as the market thought. Specifically we thought that while the official communiqué would include the standard neutral diplomatic language, side comments by the EZ ministers would not be nearly as tolerant of yen strength and may produce some USDJPY selling in post G-7 reaction. Already, EZ car manufacturer sales showed a sharp decline this month, while the Toyota juggernaut continued as the Japanese car maker was well on it way to selling 1.3 million vehicles on the continent in 2008. With political election in France scheduled this month we thought the fiscal authorities in the 13 member union may lash out at the persistent yen weakness. Our idea was predicated on some possible news out of the G-7 on Saturday but unfortunately we entered the trade too early. When y Friday morning news came out that G-7 communiqué would not criticize the yen we were swept in a vicious short covering rally and got stopped out before our thesis had a chance to be tested in the market. Therefore the lessons to take away from proactive trading is:

1. Don’t anticipate too early
2. Position yourself just before the event is about to occur (no more than 2 hours preceding the news)

Please understand that neither reactive nor proactive trades in and of themselves will guarantee you profits. In reactive trades, prices may adjust but not necessarily continue in your direction. In proactive trades events may come true as you expect them, but the market may not necessarily respond to the event.

Still, as one very wise man once said "The battle does not always go to the strong; nor the race to the swift - but that's the way to bet." By trading reactive setups a bit we may be able to get better pricing on the retrace while trading proactive setups just before the anticipated event, we should be able to eliminate some of the noise risk that could sabotage the trade. By fine tuning not jus the analysis but the mechanics of the trade we hopefully put the odds in our favor.

Have a great week-end,

We’ll be in touch next week with new trades

B & K

posted by BKTrader  # 4/16/2007 03:21:00 AM 0 comments

This is Masters week, and although my personal golf experience has never extended much beyond clearing the windmill on our local putt putt course, given everyone’s obsession with the game, I thought it might be interesting to focus on the preeminent player of the game – Tiger Woods – to see if there is anything he can teach us about trading.

In fact there is.

Here is an exert from Wikipedia that describes Mr. Wood’s approach to the game.

While he is considered one of the most charismatic figures in golf's history, Woods' approach is, at its core, cautious. He aims for consistency. Although he is better than any other Tour player when he is in top form, his dominance comes not from regularly posting extremely low rounds, but instead from avoiding bad rounds. To illustrate, the standard deviations of Woods' 18-hole scores are typically lower than those of most Tour players. Woods plays fewer tournaments than most professionals (15-21 per year, compared to the typical 25-30), and focuses his efforts on preparing for (and peaking at) the Majors and the most prestigious of the other tournaments.

Note the emphasis on playing fewer tournaments. This may seem counterintuitive to most of us who might think that playing golf more would make Mr. Woods a better player, but in fact this is the core reason for his success. Tiger Woods does not enter tournaments merely to play, he enters only those tournaments where he believes he has a reasonable chance of winning. The lesson to us traders is clear. Long term success in both golf and trading is highly depended on the participants ability to judiciously select the best possible opportunity for winning. We shouldn’t come in to the market merely to trade, but only when we think we have an overwhelming chance of winning. Thus making fewer, but more accurate trades is a much better method to creating a long term profitable record.

Yet, making good selections does not guarantee success. Before the Master’s tournament began many experts would have picked Mr. Woods to win or at least to share the leaderboard. Yet here we are on Saturday and Tiger is 5 strokes back all the way in 15^th place. Why? Well there may be many reasons but one possible explanation is that no one anticipated the unbelievably cold weather (thank you Canada) that has settled over most of the Eastern United States this week likely affecting Mr. Woods play. He simply ran into a meteorological “brick wall” as his performance to date speak to that fact.

Figurative “bricks walls” appear in many times in real life. Our USDCAD short was a perfect example of this dynamic in action. We went into the trade based on the following assumptions.

1. Iran –UK conflict would be resolved peacefully
2. Price of oil would recede from its recent highs
3. Canadian Housing Activity would decelerate in March
4. US Non-Farm payrolls would print materially higher than forecast.

So, did #1 happen? Yes.

#2? Yes

#3? Yes

#4? Yes again.

Yet the trade failed. Why? Because we ran into a smack dab into a brick wall of economic data when Canadian employment rose 5 times more than forecast greatly surprising the market. The news of course turned sentiment completely around and stopped us out of the trade.

The key thing to understand however, is that while USDCAD was a losing trade it was a good one. The analysis behind the setup, both technically and fundamentally was sound, but we ran into unexpected news. Every single trade you make is ultimately an expression of faith. There are only two types of assumptions underlying every trade ever made.

1. A trader either anticipates some future events that will force the market to re-price the current value of the position in his favor. Or -
2. A trader believes that the most recent news events are so significant that they will result in continuation of price direction as more and more market participants accept his point of view.

That’s it. You can only be pro-active or reactive in the markets. Just like in golf and for that matter in life, the best prepared plans in trading can always go awry. That is why focusing on one or two or three losing trades is a common but terrible mistake that most traders make. As human beings we don’t like failure, yet we accept it in sports all the time. The best baseball players fail 7 put of 10 times. The best soccer players fail probably 49 out of 50 time before they score a goal. Yet somehow when it comes to the markets we expect to pitch a perfect game every time.

As we noted every trade is a matter of faith in the future. Presently we are holding USDJPY long on a sound assumption that the positive US NFP numbers and rising US Bonds yields will create more demand for the carry trade. So far we are in the money, as the trade is confirming our thesis – but could it be sabotaged? Of course. The BOJ could come out Monday night and raise rates another 25bp – creating turmoil in the market and negating our assumption. Is it probable that they will hike rates? No, that why we are in the trade. Is it possible? Of course, that why we always trade with stops and control our risk

As you know our goal with BK Advisor is to show you reality based trading rather than offer you just a bunch of platitudes, so we will leave you with the following chart http://docs.google.com/Doc?id=dn8z7zs_87d56kc7. We cannot tell you specifically who generated these trading results, but suffice it to say this comes from a bank that is one of the biggest FX players in the world. Furthermore, know that if you followed the trading recommendations of this bank you would have made 1.5 Million dollars on a 1 Million dollar account without any leverage in a period of five years. Yet looking at this series of results, which were part of the long term trading record, how many traders would have the patience to have absorb 14 losses in a row? Yet those who did, persevered and walked away net winners.

Please don’t misinterpret our message. We certainly have no intention of generating 14 losers in a row. We know our record lately has been horrid. We are now both back on the desk and both back in sync with the market. Although much as we would like to we cannot guarantee success, we can assure we will be doing everything we can to provide you with much better ideas going forward.

Next week is extraordinarily boring from an economic calendar point of view, but as usual I will email everyone on Sunday with the major theme and event risk calendar in tow.

Wishing you all the best week-end

B & K

posted by BKTrader  # 4/08/2007 04:54:00 PM 0 comments

Visit us at http://www.bkforexadvisor.com

When you come to a fork in the road take it.

Yogi Berra

As many of you know I trade fundamentals while K generally focuses on technical ideas. One of the problems as well as advantages of my trades is that they typically move fast. The good part however, is that most of my trades are clearly spelled out on the economic calendar and therefore allow us plenty of time for preparation.

This week I decided to try out an experiment by posting my thoughts on particular event 15 minutes before the news release. The news in question was the New Zealand GDP release and here is the transcript in all of its misspelled glory (for those of you who don’t know I am undoubtedly the world’s worst typist)

Mar 29 6:30 PM [Boris] Hey everybody

Mar 29 6:30 PM [Boris] we are awaiting NZD GDP which is expected to print at 0.9%

Mar 29 6:32 PM [Boris] The unit has been string all day currently trading 7147 as carry trade buying has boosted the currency since Asia yesterday. The US stock market rallied to recover its losses, so risk appetite is back.

Mar 29 6:33 PM [Boris] We'll see how the numbers print. If there is a big miss to the downside then it sets up one of my favorite trades

Mar 29 6:36 PM [Boris] Where the techs are highly overbought and we have a negative funda surprise. NOte on the charts that NZDUSD has a double top @ 7200 which shuld serve as strong resistance. On the other hand we need to keep in mind that last three times the GDP number was only good for 20-30 point sof continuation, so targets will most lilkey be modest if we do have a trade

Mar 29 6:36 PM [Boris] Release is at 18:45 EST so lets see what happens.

Mar 29 6:46 PM [Boris] NZD print 0.8% vs 0.9%

Mar 29 6:46 PM [Boris] a small disappintment

Mar 29 6:47 PM [Boris] but not horrid

Mar 29 6:47 PM [Boris] both housing and sepending are up

Mar 29 6:48 PM [Boris] this may push the kiwi lower, but the news is not bad enough for me to act

Mar 29 6:50 PM [Boris] One of the things that makes me hold off is tonight's JPY CPI numbers which are expected to be weak.

Mar 29 6:52 PM [Boris] and that my create more carry support which would push NZD higher. On the other hand I will keep an eye on this for rest of the night. Because if JPY data proves better than expected then NZD may weaken later in the night. But overall this number is not weak enough to make the market doubt further RBNZ rate hikes, so for now we are going to stay pat.

Although there was no trade on that event many of you wrote that you liked this new approach because it helped you not only to see new trade ideas but to follow our analytical process in real time. So I will certainly continue to do this and from now on I will email you a note ahead of time whenever I see a news release on the calendar that may turn into a tradable event.

But today let’s explore the idea of news trading a little further. The standard approach to news trading follows the following methodology.

1. News event surprises varying widely from consensus
2. Price action reacts to the surprise moving in the direction of the news
3. Trader follows the price action, looking for continuation as other market participants react to the news.

Often this approach works well. One the reasons why I like to trade fundamental setups is that in absence of any other developments, news in the FX market will dictate direction and if I am trading on the side of the news I an usually trading with strength, However, in trading as in life there are always two sides to every story. Sometimes the news is not strong enough to sustain much of a follow through and after the initial reaction the markets will change and trade the other way. Now novices who still believe markets are rational and expect to bank profits with the regularity of a bureaucrat collecting his paycheck such an illogical turn of events can be shocking. However, the fact of the matter is every time we consider an idea we are faced with the following question – trade or fade? In other words do we follow the news or ignore it?

This week we had one instance where the news trade worked:

Short USDCHF +34

This was a very clear cut trade. Earlier that day I was on CNBC squawk box and said that if new home sales printed at 1M annual run rate or better, the dollar would rally but if demand for New Homes cratered the dollar would come under strong selling pressure. Sure enough the 848K print was so much worse than expected that the dollar quickly slid and we made 34 points in less than 20 minutes

One instance where the news trade failed

Short GBPUSD -22

The UK Current Account deficit widened considerably worse than expected to –12B from –8B, but CA is not a huge market driver, The trade went into our favor for about 10 points, but that was all that this news release was good for. News trades depend on two factors – surprise and importance. I had one but not the other and should have stayed away.

And one instance where the news trade left us flat

Long EURUSD 0

We generally hate to trade on Friday afternoon because markets thin out and we have a rule of never holding trades over the weekend. But the news that US imposed tariffs on China for the first time in 20 years was certainly unique and so we felt it was worth the risk. The trade came to within 8 points of our target but in typical Friday fashion reversed so quickly that we had no time to take profits. We closed at breakeven which proved fortunate as late afternoon profit taking pushed the pair lower.

So the question still remains when do you trade news and when do you fade it? The answer ironically enough may lie in technicals. If price recovers to its pre-news release levels, that is typically a good sign that a fade trade may be in offing. In short, it means that traders rejected the importance of the news and decided that the opposite argument was stronger for the time being.

Take a look at the GBPUSD trade

http://docs.google.com/Doc?id=dn8z7zs_83f8ntsq

As well as the NZDUSD trade I passed on.

http://docs.google.com/Doc?id=dn8z7zs_85hcfpqs

In both instances once price cleared the pre-release news levels going in the opposite direction of the most recent news proved profitable. Jesse Livermore once said that our job as traders was not to join the bull side or the bear side but to join the winning side. I hope that today’ s discussion of the news trade helps you to do that.

Finally our two other trades this week were generated off techncals.

Short NZDUSD 0

This trade was +25 in the money but ran into great Trade Balance numbers from NZ so we were stopped at breakeven

Short EURUSD –35

This was perhaps the most frustrating trade of the week as it just managed to stop us out when German unemployment data printed far better than expected only to turn and go our way. We could discuss endlessly the woudda coudda shoudda ramifications of placing stops just 6 or 7 points higher, but the fact of the matter is that this was simply a busted setup. It was based on out MAMACD strategy in the book but like all trading strategies it does not work every time and this was just one of those cases.

In the meantime we both wish you a good week-end and a great week ahead

B & K

posted by BKTrader  # 4/02/2007 03:21:00 AM 0 comments