Boris and Kathy's FX Blog www.bktraderfx.com

2007-09-11T02:38:00.001-04:00

Top 10 Investment Stories The Week

1. Unemployment Rises

2. Was Back to School Strength Just a Mirage?

3. Is this the end of the Correction? The state of the Dow now drives all other financial markets which in turn may determine the difference between an economic slowdown or a full blow recession. WSJ has an interesting article about the volatility that precedes prior market bottoms.

4. Borrowing short and lending long is the sure fire formula for banker's bankruptcy. Unfortunately that's what many of the money center banks have been doing through their off balance sheet Special Investment Vehicles. Mish explores the issue in detail

5. Meanwhile Housing continues to be a slow motion car wreck. After CFC announced that is was firing 12,000 employees last week Wamu just chimed in that it will take more than $2 Billion write down on sub-rime loans.

6. The next shoe to drop? LBO financing. Remember investment banks hold more than $400 Billion worth of loans that they guaranteed to private equity shops. The stuff is not moving and today comes news that KKR which has been playing hardball with Wall Street up to now, finally blinked.

7. Despite the woes, someone smells a bargain. UK billionaire Joseph Lewis just took a very significant chunk of Bear Stearns - the epicenter of the sub-prime mess on Wall Street.

8. Who is going to buy our debt? Bloomberg worries that China is paring down its position in Treasuries.

9. But Brad Setser thinks that is much ado about nothing, arguing that China basically shifted from Treasuries to Agencies.

10. Finally best trade in Great Depression? Gold. Check out the rise of Homestake Mining while everything else was liquidated for pennies.

1. Unemployment Rises

Nouriel Roubini argues that hard landing is inevitable after the worst numbers in 4 years.

http://www.rgemonitor.com/blog/roubini/

There is now a vicious circle where a weakening US economy is making the financial markets’ crunch more severe and where the worsening financial markets and tightening of credit conditions will further weaken the economy via further falls of residential investment and further slowdowns of private consumption and of capital spending by the corporate sector.

A housing recession alone cannot lead to an economy-wide recession as housing is only 5% of GDP. But now the housing slump is spreading to other parts of the economy: the auto sector is in a recession; the manufacturing sector is sharply slowing down; demand for housing related durable goods (furniture, home appliances) is falling. Moreover, US private consumption – that represents over 70% of aggregate demand – is now under pressure. The US consumer is now saving-less, debt-burdened and buffeted by many negative forces. As long as home prices were rising it made sense for US households to use their homes as their ATM machines, borrow against their rising home equity and spend more than their income (negative savings). But now that home prices are falling there is the beginning of a retrenchment of consumption whose growth rate slowed down from a 4% average until the first quarter of 2007 to a weak 1.3% in the second quarter, even before the summer financial market turmoil.

There are now many negative factors squeezing US consumers and forcing them to retrench spending: falling home values leading to a negative wealth effect; sharply falling home equity withdrawal preventing households from overspending; a credit crunch in mortgages and consumer debt markets rising debt servicing costs for consumers; still high oil and gasoline prices; the beginning of a serious weakening of the labor market – as signaled by today’s employment report and other data - that will significantly reduce income generation in the months ahead. As long as income generation and job generation was robust, one could dismiss the risks of a hard landing; but the signal from today’s employment report is that the only force that was preventing a hard landing (jobs and income generation) is now starting to falter.
Thus, in the next few months you can expect a further slowdown of consumption growth from its already mediocre growth rate of 1.3% in the second quarter. Indeed, after an ok July, retail sales were weak in August: based on the Redbook Johnson and the UBS Securities/ICSC data same store retail sales in August actually fell relative to July; and in real terms such retail sales in August were lower than in August 2006. Thus, the deceleration in consumption in Q3 is already clear in the data.

The August Retail Sales data was actually not so bad as both Walmart and Target beat estimates but Barry Ritholtz casts a skeptical eye on the numbers

2. Was Back to School Strength Just a Mirage?

http://bigpicture.typepad.com/comments/2007/09/back-to-school-.html

It turns out that a the retail data came with a big fat *asterisk, which (as happens all too often) presented a very misleading view of the data.

Why? Well, we track these numbers so as to have a good read on the strength of the consumer, and how sustainable their present spending pattens are. Given that the US consumer is 70% of the economy, their actions are quite significant.

That's what makes today's asterisks so significant: Much of the volume gains came via one offs, unusual factors, and huge discounting, with retailers sacrificing margin in exchange for volume:

What other asterisks are out there for retailers?
* Florida and Texas pushed back the start of their school openings by several weeks this year, inflating the August sales of teenage-oriented retailers (Abercrombie & Fitch, Aeropostale)

* Tax-free shopping days — formerly a single day or week, have been extended through much of August. Abercrombie (ANF) admitted that without the delay of tax-free shopping days in Florida and Texas, its sales would have risen just 1% rather than 5%.

* The International Council of Shopping Centers (ICSC) noted that August 2007 saw a 2.9% increase -- relatively weak compared with August 2006's 3.8% sales gains.

* Marketwatch reported that "the hottest August weather in 113 years also sent shoppers buying air conditioners and other hot-weather items as retailers cleared out their summer merchandise in a transition to fall goods, said weather consulting firm Weather Trends International

* Retail slumming is in full effect: Discounters, rather than full-price chains, reported the strongest performance in August '07. At stores open at least one year, sales rose 6.1% at Target (TGT) and 3.1% at Wal-Mart (WMT).

* Gasoline prices below $3 a gallon made consumers feel more comfortable about shopping. However, since then, Oil has ticked back up towards its highs, with gasoline prices sure to follow

* The NYT reported that Wal-Mart said "Consumers flocked to its stores for bedding, apparel and towels, categories that the chain had struggled with for much of the year." Why the sudden reversal of fortune? Big discounts.

* Who else was the big winner? Luxury chains. Sales rose 6.6% at Nordstrom and 18.2% at Saks.

* Whose struggling? Full priced department stores. Sales fell 4% at J. C. Penney, 5% at Dillard’s and 0.6% at Kohl’s.

3. Is this the end of the Correction? The state of the Dow now drives all other financial markets which in turn may determine the difference between an economic slowdown or a full blow recession. WSJ has an interesting article about the volatility that precedes prior market bottoms.

http://online.wsj.com/article/SB118937309413321829.html?mod=todays_us_nonsub_money_and_investing

The question on everyone's mind is, when will the market hit bottom? Analysts who dissect market movements have many theories about how to pick the bottom. One that has been effective is to look for days of exceptionally heavy selling, followed by days of exceptionally heavy buying. The logic: When stocks are approaching the end of a decline, investors tend to be in a panic, and their sell orders dominate trading. Then, once the selling runs its course, bullish investors step in with heavy buy orders that dominate trading and, in turn, signal the beginning of a rally.

Lately, that combination of heavy selling followed by heavy buying is exactly what the market has seen -- on steroids.

"We have been getting these days at the rate of one every 3½ days, and that's just crazy," says Paul Desmond, president of research service Lowry's Reports in North Palm Beach, Fla., who has done extensive research on the subject. "We don't have anything like that anywhere in our history" of data, going back to 1933, he says.

Heavy volatility can excite investors when markets are rising, but it is scary when markets are disturbed, as they have been lately. The trick is to figure out when the down volatility is running its course, and that is what seems to be getting harder to do.

To identify one-way days, Mr. Desmond looks at total trading volume for all stocks that finished up and for all stocks that finished down. He also looks at the total price moves, in dollars, for those two groups. The days to watch are those on which 90% of volume was in the same direction, and 90% of price moves were as well.

On the Friday before the 1987 crash, 90% of volume and 90% of price movement were accounted for by declining stocks, according to Mr. Desmond's data. On Monday, Oct. 19, 1987, the crash day, trading was even more heavily centered on decliners. But that was the low point of the selling. On Oct. 21, 90% of stock volume and price movement was up, indicating the worst was over.

Similar days occurred at the bottom of the 1990 bear market. There was only one such day at the 2002 bottom, but several such days hit a few months later, in 2003, when the U.S. invaded Iraq and stocks fell almost to the 2002 low. After that 2003 decline, stocks entered the bull market that has continued until now.

The article has a great chart showing the phenomena

4. Borrowing short and lending long is the sure fire formula for banker's bankruptcy. Unfortunately that's what many of the money center banks have been doing through their off balance sheet Special Investment Vehicles. Mish explores the issue in detail

http://globaleconomicanalysis.blogspot.com/2007/09/duration-mismatch-causing-severe-stress.html

Leverage is a wonderful thing when spreads are moving in your direction. It's now payback time for those who borrowed short and lent long. Short term borrowing costs are rising while the value of long term assets, especially mortgage debt is sinking.

See Duration Mismatch to Bankruptcy (in one week flat) for the saga that caused Sentinel to go bankrupt in short order once their mismatch mattered.

The issue is not whether it's absurd for Lehman or Bear Stearns debt to be trading at a discount to Columbia, the issue is how much leverage Lehman (LEH), Bear Stearns (BSC), Merril Lynch (MER), Goldman Sach (GS), Citigroup (C), Morgan Stanley (MS) are using as well as the timing and size of needed debt rollovers.

It was a huge mistake for corporations to assume they could perpetually roll over short term debt at good prices. If you stop and think about it, many homeowners over leveraged in homes have a similar mismatch problem. Incomes have not risen as expected but short term financing costs have gone through the roof with no way to roll over the debt.

5. Meanwhile Housing continues to be a slow motion car wreck. After CFC announced that is was firing 12,000 employees last week Wamu just chimed in that it will take more than $2 Billion write down on sub-rime loans.

http://www.reuters.com/article/bankingfinancial-SP/idUSN1030940720070910

Washington Mutual Inc said on Monday that most U.S. housing markets are weakening, creating a "near perfect storm" that may force the largest U.S. savings and loan to set aside more money for bad loans.
Chief Executive Kerry Killinger said the thrift may set aside $500 million more for loan losses than the $1.5 billion to $1.7 billion it had forecast in July. Any increase would be Washington Mutual's fourth this year.

Speaking at a Lehman Brothers Inc financial services conference, Killinger said the housing market faces rising delinquencies and foreclosures, higher borrowing costs, tighter underwriting standards and tough capital markets, "creating what we call a near-perfect storm for housing.

"Most housing markets appear to be weakening, to us," Killinger said. "We would not be surprised to see declines in housing prices in many regions of the country ... for the next few quarters." He said corrections in the housing and credit markets will last longer than the thrift expected.

6. The next shoe to drop? LBO financing. Remember investment banks hold more than $400 Billion worth of loans that they guaranteed to private equity shops. The stuff is not moving and today comes news that KKR which has been playing hardball with Wall Street up to now, finally blinked.

http://online.wsj.com/article/SB118946745104023162.html?mod=googlenews_wsj

The truce private-equity giant Kolhberg Kravis Roberts & Co. has reached with its bankers on the financing of First Data Corp. could provide the model for other deals coming to market over the next few weeks.

KKR, known for vowing to hold the line against banks seeking better terms, agreed to make several concessions to bankers, according to people familiar with the matter. But the firm changed the terms largely at the margins. That assured that market attention will remain focused on the $26.4 billion First Data leveraged buyout as the first and most important in a string of coming deals valued at about $400 billion.
First Data "is the canary in the coal mine. If it gets done, then another $350 billion is doable," says the co-head of private equity at one major Wall Street firm. "But if not, then the whole market may plunge, and the rest of the capital markets will react badly."

Sunday night, KKR reached an agreement with its bankers to introduce one covenant, or performance standard, on First Data debt, said the people familiar with the matter. Under the covenant, First Data, a processor of electronic payments, must maintain a certain ratio of earnings before interest payments, depreciation, tax and amortization to its amount of senior debt, these people said. The covenant somewhat reduces risk for investors who buy the debt, though people familiar with the matter say the ratio is modest.

Still, KKR declined to agree to increase fees to the banks to enable them to cut their losses on financing the $24 billion in debt. And more importantly for investors, KKR declined to agree to an increased interest rate on the loans. The concessions were sufficiently toothless, said one banker, to describe them as offering the banks "sleeves on the vest."

7. Despite the woes, someone smells a bargain. UK billionaire Joseph Lewis just took a very significant chunk of Bear Stearns - the epicenter of the sub-prime mess on Wall Street.

http://investing.reuters.co.uk/news/articleinvesting.aspx?type=tnBusinessNews&storyID=2007-09-10T151443Z_01_WNAS3723_RTRIDST_0_BUSINESS-BEARSTEARNS-INVESTOR-DC.XML

Reclusive billionaire Joseph C. Lewis, who made his fortune trading currencies, has taken a 7 percent stake in Bear Stearns Cos Inc (BSC.N: Quote, Profile , Research), snapping up the investment bank's sagging stock to become one of its largest shareholders in less than a month.
Bear Stearns' shares were up 1.5 percent at $107 in early trading on the New York Stock Exchange. Lewis was not available for comment.
Lewis disclosed the stake on Monday in a filing with the U.S. Securities and Exchange Commission. His stock purchases - between August 6 and September 4 -- make him one of Bear Stearns' biggest shareholders, if not the largest.

Lewis owns 8.1 million shares of Bear Stearns, according to the SEC filing. That's more than what any other shareholder reported at the end of June. At that time, Putnam Investment Management was Bear's largest institutional shareholder with 7.03 million, or 6 percent, of Bear's outstanding shares.
Bear Stearns Chairman and Chief Executive Jimmy Cayne owns about 5.8 percent of the company's stock, including restricted stock and incentive-related shares, according to the company's latest proxy statement.
The company was not available for comment.
Bear Stearns' shares are down about 35 percent this year, hammered by the collapse of two hedge funds and its heavy reliance on mortgage-related revenue amid a meltdown in the subprime lending industry.
Born in London, Lewis operates from the Bahamas and Florida. His investments include English Premier League soccer club Tottenham Hotspur, golf course developments in Florida, Alcatraz Brewing Co. and life sciences companies. His investment vehicle, Tavistock Group, holds interests in more than 170 companies in 15 countries.
A New York Times profile of Lewis in 1998 said he was born in 1937 in London's rough-and-tumble East End, the son of a pub owner. The newspaper said he dropped out of school when he was 15, but built his fortune on theme restaurants, currency trading and real estate speculation.
Lewis-controlled entities named Aquarian, Cambria, Darcin, Mandarin and Nivon bought large blocks of Bear Stearns shares in August and September, the SEC filing shows. The last reported purchase was a block of 400,000 shares on September 4.

8. Who is going to buy our debt? Bloomberg worries that China is paring down its position in Treasuries.

http://www.bloomberg.com/apps/news?pid=20602007&sid=a6zQi5wESdK0&refer=rates

Treasury investors basking in the biggest rally in four years have reason to fear for their profits: The largest owners of U.S. government debt are heading for the exit.
Two-year Treasuries returned 1.09 percent in August, the best monthly performance since 2003, according to indexes compiled by Merrill Lynch & Co. At the same time, holdings of U.S. bonds by governments and central banks at the Federal Reserve fell 3.8 percent, the steepest decline since 1992.

The dollar's slump to a 15-year low against six of its most actively traded peers is turning the gains into losses for international bondholders, prompting China, Japan and Taiwan to sell. Overseas investors own more than half of the $4.4 trillion in marketable U.S. government debt outstanding, up from a third in 2001, according to data compiled by the Treasury Department.

``The support that Asia has shown in buying U.S. Treasuries has been a major supporter of keeping long-term interest rates lower than where they probably would be,'' said Gary Pollack, who oversees $12 billion as head of fixed-income trading in New York at the private wealth management unit of Deutsche Bank AG, Germany's biggest bank. ``This could put some upward pressure on yields in the United States.''

U.S. long-term interest rates would be about 90 basis points, or 0.90 percentage point, higher without foreign government and central bank buyers, according to a 2006 study for the Fed by Professors Francis and Veronica Warnock at the University of Virginia in Charlottesville.

9. But Brad Setser thinks that is much ado about nothing, arguing that China basically shifted from Treasuries to Agencies.

http://www.rgemonitor.com/blog/setser/213948/

Over the course of 2007, three things have been happening.

First, some central banks with large existing holdings of Treasuries have been slowly reducing their Treasury holdings – whether by selling into the market or by not rolling over maturing bonds – and adding to their Agency holdings (and perhaps otherwise diversifying as well). Korea and Japan are the obvious examples. If nothing else was going on, that would tend to lower Treasury holdings.

Second, those central banks that are adding to their reserves rapidly have been buying more Agencies and fewer Treasuries – China is the most obvious example (Russia is, strangely enough, buying more Treasuries than in the past … but that isn’t saying much, since it previously held an “all Agency” portfolio)

And third, the overall pace of global reserve growth picked up sharply. In the first two quarters of the year, I suspect it will be about $300b a quarter – a $1.2 trillion pace – though that estimate hinges on the q2 IMF data and some expected revisions to the q1 data.

The result – central banks were buying a lot more of everything, including Treasuries. So their Treasury holdings were going up, just not as fast as their holdings of other assets. In some parts of the Treasury market, there actually aren’t many outstanding bonds left for the central banks to buy.

August though was a bit different. Global reserve growth slowed, particularly in places where global reserve growth reflected large capital inflows. International investors took profits and took money off the table. Money even flowed out of a few markets – Russia most notably.

Absent those inflows, the trend move out of Treasuries and into Agencies looked a bit more prominent. And I suspect that central banks needing liquidity sold their most liquid asset – Treasuries. That is a good thing. Right now the private market wants Treasuries.

But the fall in the Fed’s custodial holdings exceeds Russia’s need for liquidity – and even if you add in a few other countries, my guess is that the fall is a bit bigger than can easily be explained by a slowdown in global reserve growth.

So a few central banks that previously held long-term Treasuries sold – and either bought Agencies or moved into bank deposits.

That could include Japan and Korea. This would be a great time for both to accelerate their long-standing plan to diversify away from Treasuries.

And it also might include various European central banks. Remember, a lot of European banks right now have an enormous need for dollar liquidity (all their conduits) ….

I hadn’t thought of the European angle, but Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co in New York, did. Reuters:

"half of the decrease (in Treasury holdings) relates to the purchases of agency securities. The rest of it may be that central banks are looking to hold dollars, rather than investments because there has been a shortage of dollars in the European banking system."

It makes sense to me.

This is a case where the easy conclusion (central bank Treasury holdings are falling, China must be selling) is not likely to be the right conclusion.

I have long argued that there is a risk that central banks are a potential source of financial instability should they stop adding to their dollar holdings at points in time when the market doesn’t want dollars. That still strikes me as a risk – though not a high probability one. There are a set of countries that hold far more dollars than makes economic or financial sense, and at some point they might decide that they don't want to continue to buy even more.

But all indications suggest that emerging market central bank have been a stabilizing, not a destabilizing, force in the markets over the past month.

10. Finally best trade in Great Depression? Gold. Check out the rise of Homestake Mining while everything else was liquidated for pennies.

http://www.gold-eagle.com/editorials/great_crash.html

Financial assets as reflected by the Dow Jones Industrial Average (DJIA) reached its peak value of 385 in October 1929, marking the beginning of our country's worst bear market. And although the DJIA finally bottomed at 41 in June 1932, the vast majority of stock investors continued to suffer the effects of the languishing bear market during the next three years. By December 1935 the stock market (DJIA) had only recovered to 140 from its 1932 bottom -- still down a whopping 64% from its October 1929 peak.

As might be expected, interest rate sensitive equities were also decimated during the Great Crash of 1929. In September 1929 the Dow Jones Utility Average (DJUA) hit its peak at 145. From late 1929 the DJUA tumbled to its abysmal l o w of only 15 in March 1932 and again in March 1935. The interest rate sensitive utilities had plunged a cardiac arresting 90% from their unrealistic and lofty 1929 highs.

Three years after hitting its nadir, the DJUA was still severely depressed. Imagine: A $10,000 investment in the relatively "safe" utilities in late 1929 was only worth a mere $2,100 on New Year's Eve 1936! This is heart-wrenching financial history...
What Did Smart Money Do In the 1929 Crash and Aftermath?

During the same bear market period smart-money moved from the plunging equity markets (i.e. financial assets) to hard asset investments, like Homestake Mining - which is used heretofore as a surrogate for all gold stocks.

The stock price of this gold mining company soared relentlessly upward during the entire bear market. Homestake Mining stock rose continuously from $80 in October 1929 to $495 per share in December 1935 - which represents a total return of 519% (excluding cash dividends) during the devastating bear market period.

Contemplate and appreciate the monumental difference in investment returns during a serious bear market. Smart-money invested $10,000 in Homestake Mining (hard assets) in late 1929 - which increased in value to almost $62,000 by December 1935. This represents a compound rate of return of 35% per year in appreciation alone!

It is meaningful to note that in late 1929 the value of Homestake Mining was about $80 per share. Moreover, during the next six years Homestake Mining paid out a total of $128 in cash dividends. In fact the 1935 dividend alone reached $56 per share. That's almost a 70% dividend yield payout (basis 1929) in only one year! Indeed, hard asset investments (gold mining shares) were islands of economic refuge during the grueling years of the Great Depression.

2007-08-26T05:24:00.001-04:00

The Prettiest Girl on the Floor

If markets are always right how come they are always changing?

Ben Stein

Ben Stein’s snarky observation in this Sunday’s New York Times, put a smile on my face and got me thinking about John Maynard Keynes. I’ve written about Keynes before noting that while he is recognized as the most influential economist of the 20^th century, few people realize that he was also one the greatest traders of all time. Unlike most pointy headed academicians, Keynes understood that markets - and for that matter all business activity - were controlled more by emotion rather than reason.

Rather than trying to construct complex mathematical solutions, Keynes produced a psychological model to explain the dynamics of the market. It is quite bittersweet to see the accuracy of his approach in light of the fact that so many “brilliant” quantitative hedge funds chuck full of “the smartest people on earth” relying on some of the most complex financial algorithms ever created, experienced double digit losses this month. One of the more famous of those funds, Goldman Sachs’ Alpha fund is located in the same building on Wall Street as our company and as I came in to work this week, looking at the signatures of Goldman traders on the building’s sign-in ledger I often wondered what they must be thinking now.

Perhaps they would have been better off reading a bit of Keynes who had a decidedly non-academic view on how the markets worked. Keynes likened the markets to a beauty contest. It was the traders job to find and identify the contestant that the majority of the audience would find the most beautiful. Setting the anachronistic sexism of the metaphor aside, let’s focus on what Keynes actually meant by this idea. Note that Keynes specifically emphasized that the trader should not judge contestants by the trader’s personal standards of beauty, but rather try to figure out how the crowd would make its choice. This was Keynes’ great insight into trading, teaching us that our view does not matter. Only the market’s opinion matters. As speculators it is our job to figure out how the majority will feel on any given day and then construct a trade based upon that hypothesis.

In the currency market, there was only one question to answer this week. Risk or no risk? Depending on how well you handicapped that question on any given day resulted in whether you won or lost. It was almost immaterial what currency pair you chose to trade. During moments of risk aversion yen rose and all other majors declined against the dollar and during periods of risk assumption the reverse dynamic ruled true. Fortunately we were correct in our assessment two out of three times catching EURCHF for 57 points and EURUSD for 52 points.

Indeed reduced to their Keynesian terms, the markets are actually quite easy to comprehend. “Understand the story, understand the trade,” is the catchy little phrase we often use in our trading seminars, It is, of course easier said than done. Stories can turn on a dime as unexpected news changes the crowd’s opinion. Still as traders this approach offers us the best chance for success. It also helps us to properly deal with losing trades. Instead of viewing those trades as some signs of our personal inadequacy we should accept them for what they really are – occasional mistakes in our ability to gauge crowd behavior. Looked from that perspective stops are then not some sort of moral transgressions but rather proper expressions of mature decisions making. After all, the key to being a well developed, grown up individual is our ability to accept mistakes graciously. Is there anything more pathetic and infantile than an adult man or woman who refuse to see the error of their ways throwing an emotional temper tantrum in the process?

If nothing else, Keynes “beauty pageant” model teaches us to not take the markets too seriously which in turn provides us the proper distance to make mature, adult like decisions with respect to each trade.

Have a great weekend.

We’ll be back next week with more trade ideas.

B & K

2007-08-18T10:53:00.000-04:00

Direction and Amplitude

Novice traders often think that finding proper direction is the most difficult aspect of trading. No doubt getting direction right is a challenge, but with experience that task can be mastered. After some time in the markets many traders can accurately forecast direction as much 60% to 70% of the time. However in order to succeed, a trader must no only predict direction but also the amplitude of the move. Put simply we need to accurately forecast not only if the instrument will go up or down but by how much it will do so. And amplitude can be maddeningly hard to estimate. Every time we see a moving average crossover, a Ballinger band breakout or an event risk reaction we can never be sure if the move will last for 10 pips or for 100.

This week was a good case in point. We had two long term trades that initially moved our way but ultimately reversed and hit the stops. Our short EURGBP stayed very quiet while the rest of the market was caught in a whirlwind of activity. The trade even slowly moved 10 pips our way as our forecast of stronger UK Retail Sales and therefore more bullish cable posture proved accurate. Bu the move was short lived. The market this week wasn’t paying attention to economic news – it was strictly trading off risk aversion theme as carry trades were liquidated wholesale. The EURGBP got caught in the cross fire of volatility as the 1000 point declines in GBPJPY ultimately pushed the pound lower.

In the GBPUSD trade we had a different dynamic but similar results. We bet on the fact that after Thursday’s massive sell off the high yielders would be due for a bounce. Going long GBPUSD into the Asian open we were right from the start and the trade moved 40 points our way. But when the Nikkei opened for Friday trade, panicked Japanese investors sold stocks at a frantic pace pushing the index –800 points. The pressure was just too much for the currency market and the pound buckled hitting our stop and falling for another 100 points lower before finding some support.

Some of you took us to task for letting a winner turn into a loser and rightly so. Generally we trade with two units so that when 1 unit moves into profit we take a small profit and move the rest of the position to break even. This, in fact, is the only practical solution to the direction/amplitude problem. Since you never know whether the move is good for 10 or 100 points you take some money off the table and look to ride the second unit to a much larger profit. However, we decided that using two units on our long term trades exposes subs to too much risk. A typical 100 point stop could generate a 200 point loss on two units of trade. Therefore we prefer using only one unit. The trade off for assuming less risk is that we will sometimes miss banking small profits. Of course some of you chose to use 2 units even on long term trade recommendations and wrote to us that you’ve been able to bank profits that way. You are more than welcome to do so. In fact the most successful BK subs are those that use our ideas but adapt them to their own trading style. For our part we will try to manage these trades tighter and will trail our stops to or near breakeven once they move in the money in order to minimize risk.

Overall the market continues to be dominated by themes rather than event risk and therefore we will maintain more of our focus on longer term trades rather than news ideas. We expect volatility to continue for at least another week as investors try to assess the magnitude of last weeks damage, We also have Category 5 hurricane Dean barreling into the Gulf of Mexico which may wreck havoc with oil markets and impact financial markets as well. All in all it promises to be another exciting week in the markets and we will be back to you with fresh trading ideas.

2007-08-05T07:30:00.001-04:00

Variation on the Theme Part II

This week we introduced our first long term trade and were able to bank 31 points out of the USDCAD short. At one point we had a 60 point profit and were hoping to milk it for more but the release of Ivey PMI which printed much weaker than expected forced us to change plans and cover sooner which proved prudent as the pair traded higher for the rest of the day. Overall, we’ve received overwhelmingly positive responses from subscribers on the long term ideas. They clearly allow for a more leisurely approach to trade entry and management and we will definitely continue to produce more of them as part of our repertoire as BKForexAdvisor.

On the short term trade front, we saw lots of heat, but little light this week as some of our better trade ideas were negated by offsetting news factors. For example we were dead right in calling for weaker Japanese Overall Household spending, but the trade was sabotaged by better labor figures that came out at the same time. Similarly US ISM Manufacturing was weaker just as we forecast, but US Pending Homes Sales (a notoriously manipulated figure by the NAHB) printed far better than expectations and took the string out of the dollar bearish ISM news. Alas, these are the vagaries of the market. These certainly weren’t the first obstacles to trading event risk, nor will they be the last, but as you saw we stayed very disciplined in our approach keeping our drawdown on the short term trades to a very manageable –40 points in what were very challenging conditions. One positive trade should erase most of those losses and two will put us square in the black. This is the essence of our trade approach – which is to keep our losses very contained so that they may be made up with only one or two good trades.

This week, I wanted to continue our discussion of various ways to trade event risk by sharing with you an exert from an article I wrote for the upcoming November issue of SFO magazine (www.sfomag.com). It deals with variety of approaches to trading event risk and I share it with you in the spirit of offering you some alternative methods to trading the news. Note that we do not follow this particular methodology with BKForexadvisor because collectively the logistics of pre- and post positioning are just too difficult to accomplish due to fast markets, but on an individual basis this may be an interesting idea to consider.

“If proactive trading is too volatile and reactive trading is too limited is there a better way to trade event risk? There is. The solution is really a fusion of the two techniques along with an assist from Jesse Livermore. Jesse Livermore, one of the greatest speculators of all time was well known for his probative approach to trading. Instead of committing to a position all at once Livermore would test out the waters by sending small orders into the market to see if his directional analysis was proven right. If the initial trade made money he would add to the position trying to pyramid his gains.

By adding to winners rather than adding to losers, the Livermore approach stands in stark contrast with the typical way most traders trade. Scaling up rather than scaling down into position is clearly the better money management technique as it minimizes losses while amplifying gains. However, the Livermore methodology is extremely difficult to implement because it requires the trader to forsake near term profits for the potential of much larger albeit more infrequent long term gains. There is perhaps nothing more frustrating to the average retail trader than watching profits turn into losses which happens quite often under the Livermore technique as prices retrace their initial gains. That is why most people do the exact opposite of what most trading professionals recommend – they allow their losses to run wild but cut their profits short.

However, the retrace risk which sabotages so many scale up trades can be generally avoided during news trades if the surprise is significantly large. Let’s use the EURUSD pair and the US Durable Goods report as an example. For purposes of illustration let’s assume that the EURUSD is presently trading at 1.3700 and the Durable Goods Number is expected to print at 1%. We are bullish the US Durable Good number and will therefore sell the EURUSD (a dollar bullish position since we are getting short euros and long dollars by selling EURUSD) a few minutes before the release. Just as we expected the Durables Goods number prints at 2% - much better than forecast and EURUSD immediately trades down to 1.3670. Our position is now 30 points in the money. We short another unit of EURUSD for the reactive part of our trade, move the stop on the whole position to breakeven and target 1.3655 as our profit target on the trade. A few minutes later as the news disseminates through the market, the EURUSD is pushed lower and our target is hit. Total profit on the trade is 60 points (45 points on our proactive position plus an additional 15 points on the reactive part). Why so little profit on the reactive part? Remember that most of the price adjustment had already taken place and we are looking only for a limited follow through. Nevertheless by making even a small amount of additional profit on the second unit we’ve been able to increase our gain from 45 to 60 points or nearly 33%!

What happens if the analysis is wrong? This is perhaps the best feature of the strategy. Often you are able to exit the position with only a 5 or 10 point loss before market prices fully react to the news. But suppose that the price adjustment is abrupt and the stop of –20 is hit. No problem. The loss is still minimized because you are only using 1 unit for your initial entry and are not adding to a losing position. Therefore, in the best case scenario the trade yields 60 points of profit when you are right. When you are wrong you are able to exit with 5 or 10 point loss most of the time and occasionally you get hit with –20 point stop. Overall that is a very favorable risk reward spectrum. You only need to be right 3 out 10 times to be net profitable. That’s the kind of margin of error that most traders could accept. However, very few traders can trade this way because most human beings cannot accept multiple losses in a row even they are very small. And make no doubt about it, news trading is a volatile strategy. Yet when practiced properly it can also be quite profitable. There are only three rules that the trader must follow in order to achieve success.

1. Exit trades immediately if there is no surprise in your direction

2. Add a second unit to your trade on those rare occasions when you are correct in your analysis and price has moved at least 30 points in the money.

3. Don’t be greedy and take quick profits as price continuation is often limited. “

I hope you’ve found this variation on the theme of interest. One final note. We are now in the dog days of summer and both K and I will be traveling next week, so there will be no weekly issue. But fear not we will have both short and long term trade ideas this week and will be back in touch in two weeks.

Wishing you best

B & K

2007-07-28T10:16:00.000-04:00

A Longer Perspective

Ever since we started Bkforexadvisor we’ve had requests for longer term trade ideas. That’s very understandable given our intense, short term orientation towards the FX market. Many subscribers found it difficult to follow all our trade ideas since they are issued round the clock 5 days per week. Despite the fact that our trading style probably has the shortest exposure to market risk of any FX newsletter (since the majority of our trades last no more than 30 minutes), the need to be in front of the computer to trade each specific event risk can be difficult for subscribers situated across the globe.

Over the past few weeks we’ve made several improvements in terms of delivery of signals by initiating positions only 15 minutes before the event (thus minimizing the impact of negative drift) and posting everything in the chat room first allowing for much better reaction time to the news. For those of you still not familiar with the chat room please note that its is the black button on the front of the www.bkforexadvisor.com that says Instant Trade Alerts. The direct link is http://www.bkforexadvisor.com/members/tradealerts.aspx and we highly recommend that you check it out if you haven’t done so already.

In any event we’ve received overwhelmingly positive response from those of you who’ve adopted the new features, but these improvements all revolve around our short term event risk model and didn’t address your requests for more longer term, less intense trade ideas. Well you will be happy to know that we took your suggestions seriously and over the past several months Kathy and I have been busy beta testing a longer term trade model that we believe to satisfy these requests. The model is a proprietary combination of technical and fundamental variables that tries to exploit reversals as well continuations of trend.

As always we will try to be as transparent as possible in providing reasons for various trades. In fact the single greatest compliment we’ve recently received on our service came from a gentleman at Dallas expo who told us that unlike all the other investment advisory services he has ever tried, we were the only one who provided clear well thought and easy to understand arguments for our positions. This is our greatest strength. Instead of just telling you buy X here, sell X there we always provide context and reason for why we are doing something. Win, lose or draw you always know WHY we are trading. Our most ardent subscribers truly appreciate that fact as they can evaluate each trade on its merits rather than just being forced to blindly follow every signal.

As you can imagine the long term trades ideas will very different from short term signals and its very important for you to understand the difference.

Leverage.

We do not recommend any specific amount of leverage for our trades since each person’s risk tolerance is unique. However, it is important to note that the long term trade ideas will have much wider stops because we will looking for very different risk and reward parameters. In our present short term model we generally do not allow more than 40 points of risk, In the long term signals the stops will be between 100-200 points so please lower your leverage accordingly to make sure you are not assuming a disproportionate level of risk for you profile.

Size

In our short term model we trade with two units initially and exit the first half of our position at 1 times risk, then go to breakeven on the rest of the position and try to make 2-3 times risk on the second half. The long term model will use a very different money management approach. We will always enter the trade with 1 unit and may occasionally ADD to the position if our initial entry moves deep into profit territory. We will never scale down into a trade by adding to a loser, but may at times scale up by adding to a winner.

Timing

The alerts will be issued at 5 PM EST (22:00 GMT) after the close of the New York session and the trades will generally last between 2-10 days depending on the price action of the market

Frequency

The model typically generates 1 or 2 trade idea per week, but there are some weeks when price action may be so quiet that we may not do any long term trades at all. Our goal is to select the best possible ideas and sometimes that simply means that we will be sidelined

Demarcation

We will clearly label the long term trade ideas in our emails, so that you will be properly informed on the type of trade you are receiving and can make your own judgments as to the recommendation. We will also mark the long term trade ideas with an LT prefix in the all trades page and will keep a separate tabulation since this is a different model with different trading goals.

Finally for those of you preferring the short term approach with much tighter risk parameters rest assured that we will continue to send out event risk trading ideas. In fact we have a full slate for next week. However, by offering the longer time frame signals we hope to address the overwhelming demand for this type of trading and provide an even richer array of services for our subscribers.

Have a great week-end

B&K

2007-07-21T11:44:00.000-04:00

Variation on the Theme

This week, to an overwhelmingly positive response we changed our entry procedures to eliminate as much of the negative drift as possible. As many of you know we used to take positions as early as two hours ahead of event risk, in large part to accommodate the inevitable delays in email that plague communication on the Internet. During that time we enjoyed periods of positive drift (when prices would go our way before the event) as well as occasional negative drift (when they went against us). However when negative drift began taking us out of positions before news even printed the costs clearly started to outweighed the benefits and we changed our procedures.

Therein lies the first trading lesson of the day – adjust, adapt, evolve or die. Those of you who have been with us from the beginning know that we always show trading as it really is with all of its travails and challenges rather than as some imagined make believe get rich quick scheme. You have seen us adapt and refine ideas as market environment have changed because truly successful trading always requires creativity, and adaptability in order to survive and thrive in the game.

BK Advisor trades event risk. The operative word here is risk. We believe that you cannot achieve excess profits in the market unless you assume risk. This strategy is therefore highly speculative and should only be used with risk capital – money that you can easily afford to lose. In fact we always recommend that new subscribers follow the recommendations on a demo account. That why we offer a 30-day money back guarantee. During this time you can paper trade our signals to get an idea of how they operate and even more importantly to see how you yourself can best fine tune and adjust them to your own trading style.

Some of our longest running subscribers incorporate our ideas into their own trading strategy rather then use them robotically like a machine. As we’ve always stated trading is an art, not a science. Those looking for the “magic” formula will be always disappointed. It doesn’t exist and never will. Trading will never be mastered by engineering and profitable trades will never be erected with the speed and efficiency of skyscrapers in Shanghai. If that were possible. Goldman Sachs, Merrill Lynch and all the other major players in global finance would have long ago eliminated all the risk out of their trading operations and would have minted profits the way that McDonalds manufactures hamburgers. But as we’ve seen this week in the case of Bear Stearns whose CDO hedge funds lost all of their capital such is not the case.

In fact McDonalds and Merrill Lynch serve as good examples to better understand the difference between trading and all other business activities. There is almost no reasonable scenario (short of nuclear Armageddon) under which we can imagine McDonalds losing 10 Billion dollars in one day. Their model is the essence of precision, efficiency and repeatability that is constructed on natural laws of physics. On the other hand it is quite easy to imagine ML losing $10 Billion dollars in a day if the Dow dives 2,000 points in a matter of few hours. Furthermore it is not at all inconceivable that such an event could occur once every decade or so. That’s because trading is not based on a rock solid laws of nature, but rather on the ever shifting whims of man.

Those subscribers who understand the fluid nature of the markets and are creative with our trading ideas tend to enjoy the BK service more as they add their variations to theme. As one sub recently wrote us, “I view my subscription to your service as my long-term commitment to educating my self. Thanks for your great service.” Adding in another email, “The MOST valuable is your service is anticipating the news. I am a technical/system day trader and my net average between 300 to 500 pips monthly. I used to avoid trading around the time of economic news. Now with your service, I can trade around economic news with confidence.”

So in the spirit of stimulating more creative possibilities for our model here is an idea that comes from another subscriber. He writes, “The new way you work is nice because we can prepare and anticipate the trades If we enter just before the new release do you think that we can put a SL closer from the entry point (10-15 pips) because usually the direction doesn’t hesitate just after the new and we can benefit of the first spike. Thanks for your help and best rgds.”

This is an interesting idea. Let me discuss its merits and drawbacks. As you know our trading model depends on cutting loses quickly and letting a portion of our profits run. Anything that can minimize risk is therefore a positive factor. We put our stop at –20 as a fair compromise between mitigating risk and giving room for some pre-event volatility. After the news comes out we often exit way before the stop if the news is contrary to our position, posting the reaction in the chart room first . http://www.bkforexadvisor.com/members/tradealerts.aspx

Therefore, moving the stop to –10 or –15 one or two minutes before the event may not be a bad idea for some of you to consider. By doing so you have a tighter control on your risk without the trouble of manual exit. One caveat however. Occasionally the news release can create post-event volatility where price may initially spike against your position only to move in your direction after a few seconds. Thus if you lower your stops you must accept the fact that you may get taken out of what may ultimately prove to be a profitable trade and you must judge if the trade-off of smaller stops is worth the cost of the premature exit.

Trading is full of such trade-off. In fact trading is nothing more than a series of trade-offs and we can never know ahead of time if we make the right or the wrong decision. All we can do is control our risk and make adjustments as the market demands. Being flexible and creative is of the essence and we will try our hardest to be both as I will share with you more variations on our trading style in upcoming weekly emails.

Wishing you the best week-end.

Watch for a trade idea Sunday night!

B&K

2007-07-16T14:39:00.000-04:00

Power Laws

I am writing this from Dallas Forth Worth airport as we are about to go back to New York after a great expo as Dallas where we had a chance to meet some of you in person. So this week’s missive will be brief but quite important.

The subject this week is power laws. For those you not familiar with this notion it can be best expressed in the well know example that in business 80% of profits come from only 20% of transactions. Many entrepreneurs or salespeople are probably shaking their head in agreement as they read this having seen this dynamic repeat itself over and over.

Yet while many people accept this fact in regular business, most novices somehow refuse to believe that power laws apply to trading. Everyone who starts out trading wants to achieve 80% profits and only 20% losses. As pleasant as that idea may be it’s utterly unrealistic. One can of course achieve such favorable ratios but only at the expense of suffering ruinous losses. In fact one can even record 99% accuracy in trading, by simply never taking any stops but the one wrong trade will wipe out all of your profits and all of your equity. History is littered with such examples and most recently investors into the subprime hedge funds of Bear Stearns learned that fact the hard way.

If traders could truly achieve 80% accuracy with minimal risk in their trades they would within a decade become trillionaires as such a powerful skew in odds would almost assure that they would be able to capture all of the profits in all of the financials markets of the world. In fact Jamie Saettele my technical analyst and I always smile at the naïve desires of most investors to look for a consistent track record. There isn’t a more dangerous investment to be made than one into a hedge fund that has had three winning years in a row. Inevitably those investments will experience losses rather than wins , because typically such steady returns are achieved through massive risk taking which is hidden from view.

Why do I bring up the idea of power laws this week? Because our trading approach very much follows those rules. We try to do the opposite of what is physiologically pleasing in order to achieve that which is financially prudent. In our journey for profits we will often take many small losers, but these losses will be overcome with only one or two winners. Instead of trying to please the psyche we try to adhere to the universal rules of power laws as we try to show you what reality based trading is really like.

That having been said our model this week, performed poorly, partly because the data simply did not go our way – something that is very much to be expected from time to time but also because of sub-optimal execution – something that can be definitely corrected. So let’s tackle the issues that we can correct and see what we can do better.

One of out vexing problems with trading event risk has been the lags in communication. Email is notoriously inconsistent in delivering messages on time. That was one of the reasons we used to issue our alerts an hour or two ahead of the event – in order to make sure that you received the message. Unfortunately, taking a trade so far ahead of the event subjects the position to negative drift and slippage. Prices can hit our stop before the news is even released, something that happened twice this week. Most of the time the stop out actually foretells that our direction was wrong as the news misses our expectations, but occasionally negative drift takes us out of what turns out to be a very profitable trade. Furthermore, our model is based on the idea of quickly cutting our losses and negative drift has the insidious effect of generating maximum rather than minimum losses.

So starting next week we are going to alter our message and entry delivery protocol to minimize the problem of negative drift. We will still issue our trade recommendations about 2 hours before the event, and we will still provide you with our 24 hour trading plans, but we will now actually enter trades 10-20 minutes before the event, minimizing the pre-event noise. We will post our entries in both chat room and on the website, which have a timestamp and provide as near an instantaneous information flow as possible –eliminating some of the slippage and communication problems we saw this week. We will continue to send out all exit and trade update alerts via email and SMS as before. In short this is a rather minor change. We will continue to offer you as much information as possible through email, SMS, web site and chat room, but by making this adjustment we will be able to provide you with better entry signals and hopefully offer you a more robust model to trade.

There will be no trade alerts on Monday but the rest of next week promises to be busy so stay tuned for our updates.

Boris and Kathy

2007-07-07T10:11:00.001-04:00

Risky Business

What’s trading all about? If I were to ask that question of a group of ten novices the answer inevitably would something like, “It about making money, fast!” In short to novices trading is all about reward. Indeed most investment newsletters prey on those misguided beliefs by promising vast riches with minimal effort or loss.

At BK Advisor we do the opposite, every week we strive to show you the “real” side of trading with its highs its lows and all of the mishaps that occur in such a human enterprise, especially one that is based primarily on psychology. This week we had a letter from a sub who informed us that he was looking forward to our stunning returns, but instead of promising him the moon, I tried to temper his expectations by telling him that this game is hard. Don’t get us wrong. Profit is our ultimate objective. We always try our damndest to pick the nest possible trades and we spend every day tying to improve our selection process, but it doesn’t mean that we always succeed. Which brings me back to my original question – what trading all about?

Pose that question to a bunch of pros and they will tell you in no uncertain terms that trading is all about risk. Note the difference. Novices think primarily about reward, pro’s focus almost exclusively on risk, and that I believe is the reason most novices lose to the pros in the long run.

Paying attention to risk does not mean that you shy away from trades. Another sub wrote to us that he thinks that is always better to give up an opportunity than to incur a loss. On the face of it this premise seems eminently reasonable, but in fact it is classic novice thinking. The reality of trading is that you can never obtain a reward unless you assume risk. There only two risk free ways to earn money. You can put it in T-bills or you can cheat. And since none of us wants to go to jail for insider trading we have to make our money the old fashioned way. As John Houseman used to say in those Smith Barney ads we have to “EAAAAAAAARN it.”

Trading is nothing more than taking risk. If you sit on the sidelines like a wall flower you will never be able to achieve the profits that you seek. This week illustrated that point quite well. If we simply curled up into a little ball after the bad BoE trade on Thursday, we would have never taken the CAD employment trade on Friday. While we lost 25 points on the long GBPUSD trade we made 53 points on the short USDCAD trade and the net result was that we were up 28 points overall. That’s reality based trading. It’s not simply an easy, smooth ride from one profit to the next, but a rather often bumpy journey of triumphs as well as setbacks. Hopefully once the dust settles it finds you further along on the road towards financial freedom.

Of course taking risks, doesn’t mean taking every risk, and some of you properly took us to task for trading the BoE rate announcement in the first place. As you noted, we typically trade Tier 2 or Tier 3 news releases where there is much les speculative scrutiny and opportunities for surprise are far better. What were doing trading a Tier 1 report like the BoE rate hike? Fair question and we will be far more circumspect in doing so in the future. The only thing I can say in our defense is that we traded 1 unit instead of 2 and therefore limited our risk considerably.

Tier 1 reports are of course the reason we rarely trade the US NFP number as well. In conclusion of this week’s letter, I think its very instructive to examine the price action following both the BoE rate hike and the US NFP reports. In the case of the BoE announcement, the UK Central bank hiked the rates as expected but lo and behold the price of pounds plummeted before reversing higher for 100 points! In the NFPs the EURUSD did momentarily dip in reaction of the news only to rally hard for the rest day in total contradiction to the underlying fundamentals. Like Claude Raines in Casablanca many of you were shocked! shocked! that such blatant manipulation occurred in the markets.

Welcome to the real world. During these Tier 1 releases when everyone is leaning one way, market makers and other large participants will often shake out the weak players before taking price in its true direction. That just part of trading and sometimes you will be the sucker in the move. The key as always is to limit you risk – to never get stubborn and try to prove the market right. That’s the difference between being a loser with a small “l” and a Loser with a big one. In the first case you can always walk away to fight another day, in the second they typically take you out of the market with a margin call. Financial markets only offer you opportunities, not guarantees and the moment you realize that will be the moment you’ll begin to think like a pro.

Next week both K and I will be in Dallas for the FXCM expp. Those of you in the area, please come by to say hello but next week’s weekly will be published on Sunday rather than Saturday.

Wishing you a great week-end

B& K

2007-06-30T09:37:00.000-04:00

A Fusion of Fact and Feeling

What a crazy, crazy week! It started with a release that didn’t materialize and ended with a false print on Bloomberg that made us exit a trade early. In between we made money on data that printed completely opposite of our expectations while lost money on data that printed exactly as we forecast.

Let’s just recount the absurdity in full detail.

On Sunday we traded Australian :LEI data, but guess what? At the very last moment the report was pulled from the calendar, delayed for no stated reason and we scrambled to get out before the AUDUSD long hit our stop.

On Monday we traded the NZDUSD surmising correctly that the Trade Balance would be weak. However, the kiwi showed no reaction to the news and we exited 15 minutes later only to watch the unit fall apart all night long as hawkish commentary from BOJ officials triggered a round of carry trade liquidation.

On Tuesday we traded the KOF which was the only “normal” release of the week, as the data failed to meet our forecasts and we exited the trade at scratch.

On Wednesday we traded the Durable Goods orders and couldn’t have been more wrong on our call but managed to bank 14 points on the trade nevertheless as pre-release price action went our way.

On Thursday we traded CAD Raw materials data and banked 56 points even though the data was much cooler than we projected. Merger and acquisition demand for Canadian companies trumped all other factors that day and gave us the best winner of the week.

Finally Friday the NZD GDP which we thought might beat simply matched the relatively strong expectations and according to our rules we exited the trade with a tiny 4 point loss before it fluttered 25 points lower.

But perhaps the strangest trade of the week came in the middle of the night on Friday. We traded the UK GFK Consumer confidence survey which we expected the be worse than the –3 expected. The release was due at 5:30 AM EST. Suddenly at 5:15 AM EST Bloomberg printed the number as +2. We immediately send out an alert to exit at scratch. At about 5:29 AM EST Bloomberg took the +2 print off the screen and posted a reading of –3. The GBPUSD did not react either way and in retrospect our exit was fortunate as GBPUSD eventually rose materially for the rest of the day.

The net takeaway from all of these misadventures is that if you are not willing to suffer the folly of human foibles don’t trade. Governments will pull releases, news agencies will post false readings, traders may not react to the news as intended. This is all part of the “reality based” trading that we share with you every week. If you want the precision of a profession such as electrical engineering don’t trade. Trading is about feelings first and facts second. That is why we focus so keenly on risk control. Markets are always chaotic and will remain unpredictable in ways no one can ever imagine, but our response to them as traders does not have to be impulsive. It is not the trade that matters in trading, its our reaction to it.

Thus despite the trials and tribulations of the week we are up 36 points and up 138 points for the month of June. More importantly since the start of May when we went full time to our event risk model we are up 493 points with the largest drawdown of 155 points meaning that we’ve earned about 5 dollars of profit for 1.5 dollars of risk. While there is absolutely no guarantee that such favorable odds will continue, it does show that this method of trading is robust and certainly validates our risk control approach.

Next week is July 4^th – we’ll be off that day, but the rest of the week will busy and we look forward to having you join us in our trades.

Have a great week-end

B&K

2007-06-23T08:42:00.000-04:00

We continue to attract many news subscribers and bring back some of the old ones all of which has resulted in serious misunderstanding of our trading style and trading record, so I thought this week I would reprint a few emails from the past several days to clarify the issues once and for all.

Dear B & K ~

Is there a track record showing gross and net total wins and losses over an extended period of time?

If you are netting 200+ pips in profit a month that looks pretty good, unless your gross total of trades reflects losses greater than the wins on record.

Listen, I am not someone who likes to be the gad-fly. It's not my strongest card in the deck nor is it something that anyone wants to do. It's just that doing one's due diligence is critical when it comes to this business and should therefore be seen as part of one's business plan. Nothing personal, only rational. So please understand the motivation for this inquiry. It's not motivated by some need to find things wrong with the system. In fact, the questions come up in real time and are based on observations that beg to be clarified..that's all. So, hopefully you can see this from my point-of-view.

To our long-term success and happiness... and, by the way, have a happy summer solstice.

My answer below

All our trades are net in the trade record. We do not hold any floating losses off the books.

Let me just explain this further. Some signal services will issues hundreds of trade recommendations with no stops or very wide stops of 1000 points of more. They will then book profits on trades that are successful but let the bad trades simply float on the account without recognizing those losses. So the next effect is that they will claim WE MADE 800 POINTS THIS MONTH, but neglect to tell you that if followed all of their recommendations you may also be floating 6000 points in losses on the books. Let me reiterate at BK we never do that. The record you see on the website is based on all of our trades, which are all closed out typically no more than 3 hours after we initiate them. Therefore the numbers you see are actual results of the recommendations, there are no hidden “off the books” trades ever.

In our calling all past members we’ve had this comment come up a few times – “I thought it was dishonest for them to count their losses with one lot when their advice was to always buy 2 lots”

That is not correct is it? How would you guys respond to that?

My answer below

Absolutely false, All losses are counted as 2 lots in the record.

K’s answer:

We don’t do that. We ALWAYS double count losses on our track record. If you go through the track record of closed trades- you can clearly see that. Only counting one loss is something that we are adamantly against and we pride ourselves on honesty. The -40 or -56 etc are all the additions of 2 lots since our stop is usually 20-30 pips away from our entry.

I hope that clarifies this issue, but just for the record from now on we will make sure to ALWAYS include the total 2 lot loss in our exit emails. As you can see we do that without fail in our track record, but occasionally in the heat of the moment as I am scrambling to send out a get out email I may forget to multiply by two in the email (I am notoriously bad typist and the task of typing quickly and multi[lying at the same time eludes me- my apologies - and I will make sure to correct that in all future correspondence.)

Finally I want to conclude this weekly with response that K wrote about our track record – most specifically why the results over the past 7 weeks have been so radically better than the prior 4 months. Her words say it best so I am just going to quote her.

This is a very active trading service and our forte is anticipating news. Typically you will get 5-8 trading alerts each week (more than the rep indicated), some during US hours, some during European or Asian hours. Every day, we send out our trading plan for the next 24 hours with specific times that we will be placing trades - so that you can plan accordingly and will never be surprised. The holding period for the trades is very short - so you should only subscribe if you can be an active trader. We send our alerts out in SMS, email and chat room format with audible alert, so hopefully one those if not all will work for you.

Our goal is to average 200 pips per month. We moved to this trading style in on May 1, which is why the rep stated that these are the most reliable results. During that time, we have made 56 trades. In those 8 weeks, we have only had 2 negative weeks. The biggest weekly loss was 117 pips, the biggest gain was 161 pips. Since we moved to this model, we are up 477 pips. The reason why we trade so much during the week is because you never know which piece of data will be the big surprise. We look for a few small winners, and even smaller losers or scratch trades and then maybe 1 or 2 big winners each week.

More specifically on performance:

So far in June, we are up 92 pips,

In May, we were up 385 pips

Between Jan and April - we were trading differently, sometimes the strategy worked, sometimes it didn’t and we realized that it wasn’t consistently replicable. In the new model, each trade is independent of the last, which means that we wont be trying to fight a trend trade after trade after trade. Instead, our analysis of economic data and our directional call is not sensitive to whether the market is range trading or trending.

In April we lost 329 pips, in March 116, in Feb we made 169 pips and in Jan we made 31 pips.

Since the beginning of the year, we are up 232 pips.

Our new model assures that the performance is far closer to the May and June results than the Jan to April results. The best way to see this yourself is to trial the service. If we do not deliver the results that we expect, you can always cancel with no obligation or fees.

I hope this answers your questions regarding BK. We greatly value your interest in our service as you join us in our “reality based” trading tour. Please feel to write us anytime.

Have a great week-end.

B&K

2007-06-18T02:43:00.000-04:00

Q and A with B&K

Over the past month we’ve had a number of new subscribers with varying degrees of expertise in trading the foreign exchange market join the BKForexAdvisor service so we thought we would take this opportunity to answer some of the more common questions directed to us in the hope that they may provide you with the information you seek.

Q, What is your trading approach?

A. We trade event risk. What does that mean? Every day the global economic calendar carries numerous economic releases and events. Often but not always these events have direct relationship on price of the currency we trade especially if the data surprises the market. It is our job to try to analyze these events and ascertain which ones have the best possibility of a positive or a negative surprise. Are we always right? Not even close. In fact we can be wrong more often than right and we can be wrong in two ways:

We can be wrong about the outcome of the data
We can be right about the data, but the price does not go our way.

So how do we make money? Because in trading as in life the key to success isn’t how many times you are right or wrong but what you do about it. We are extremely disciplined about cutting out losses short while trying to let our profits run. This is a very tried cliché in trading – but it is a cliché for a very good reason – it is absolutely 100% true. However, although the idea of keeping losses small and profits large may sound simple it is extremely hard to implement which brings us to the next question.

Q. How do you trade?

A. We always trade with two units in every trade. In the retail FX market transaction sizes are uniform. You can trade mini-lots which are comprised of 10,000 units of currency or you can trade standard lots which are comprised of 100,000 units of currency. When we trade we always trade in multiple of two lots. The actual size amount is totally dependent on the risk tolerance and size of the subscriber’s account. We have some subscribers that trade two mini-lots on each trade representing 20,000 notional units of a currency and other subscribers that may trade 20 standard lots per trade representing 2 million notional units of currency.

Why always two units? Because as we said the idea of letting your profits run is a lot easier said than done. When you are in a trade that is making you money and it suddenly moves a few pips against you the temptation to get out is overwhelming. The end result is that most traders take their profits too early. In fact the single biggest reason that most traders lose money is that they let their losses run but cut their profits short. Therefore in order to solve this problem we trade with two unit and two targets. Here is how all of our trading instructions are done. Lets take a look at a recent trade in the Australian Dollar:

BKForexAdvisor.com
News from the Desks of Boris and Kathy
6/5/2007, AUD/USD, Long
Tuesday, June 05, 2007 EMAIL TIME: 7:35:18 PM EST
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Dear btrader@gmail.com,

Long AUDUSD at market 0.8372

(We always enter at market. This is simply a reference price. Your prices may be better or worse depending on what broker you use and when you enter the order. Generally we try to enter during the quiet times in the market and most of the trade fills are one or two pips either way of our entry price. Way too many of you worry about missing the entry by a couple pips instead of focusing on the trade. Entries are the least important par of the trade. Exits are what matters. That having been said if you are consistently coming at 10 pips worse then our entry price, then you should change your broker. You can look on www.fxstreet.com for a listing of all the retail FX brokers out there.)

Stop 0.8350

(Unlike entries STOPS are fixed. While everyone may have different entry price, the stop must be the same. Stops are placed for a reason – usually a key technical point which if violated means that the trade is clearly wrong. That why you should set your stop at the point of where we specify it)

T1 0.8393

(T1 stands for target 1 and it is set close to our entry price. We always want to achieve a realistic profit on the first half of our position and then move to breakeven on the rest of the trade. This is the only way that we can allow our profits to run. By taking some money off the table we alleviate the psychological pressure of minute by minute fluctuations in price because once we make T1 we are trading with the “markets money” and can stay in the trade longer to see if it will work out our way. Additionally we always go to breakeven on the rest of the position because we never let a winner turn into a loser.

T2 0.8448

(T2 stands for target 2 and it is set far away from our entry price. We try to make it 2 or 3 times our risk. So that if we risk 20 points on the trade we try to make 60 points on T2. Although we certainly don’t make T2 on every we trade, if we reach our T2 target just once or twice a week we are able to offset many of the small losses and make good profits. Those of you who run your own business or are in sales know that 80% of all profits comes from 20% of your best customers. The same holds true for trading.)

A couple of other points. If the data does not print to our expectations we will exit the trade instantly without waiting for our stops to be hit. This at times creates several red “nicks” on our record as we sometimes post –10, - 5, -12 in row. However, this is a key to our success because it creates a highly favorable asymmetrical environment for our trade where our losses are tiny and require only one moderate win to put us back in overall profit. So when you evaluate the service you should never do it on a single trade basis but rather follow us for at least a month after we have produced at least 20-25 trades and you have a good sample size to judge us. That’s why we offer you 30 day free trial basis. This brings us to yet another common question.

Q. Why do you trade so often?

We believe that after 48 hours of any point in time the price action in the currency market is essentially random and subject to huge errors in prognosis. Just at it is easier to predict the weather 5 minutes forward rather than 5 days forward, the same holds true for trading. Furthermore, if we traded on a longer time horizon our risk would have to be much larger with stops of a 150 points or more. Since we started trading this model exclusively in the middle of April we’ve generated 395 points of profit against a maximum drawdown of about 110 point. That means for every $4 of profit we’ve only incurred $1 of risk. If we traded longer term and hit three losing trades in a row we would then subject you to a possible 600 points of loss and we feel that would be way too much risk to absorb. As you can see, unlike many advisory services who promise you the world, we trade for real and as reality based traders we are always much more concerned about managing risk since that is the only component of the trade that we can truly control.

Q. I missed the trade alert in my email. Why the f@##$$ did that happen?

A. We hear you. Bottom line is that email is woefully unreliable. We use an industrial size server and even that software occasionally has glitches. That why we have developed a very specific protocol to make sure you can always get our messages. We issue alerts through 4 different channels. This way if one channel fails you can always get the information another way. All our alerts go into:

Email
SMS – direct to your cell phone (please contact support to sign up if you haven’t yet)
The Website! That’s right the moment the alert is printed it is on the front page of the website at www.bkforexadvisor.com. So please check there first!
The Chat Room. The chat room is located at http://www.bkforexadvisor.com/members/tradealerts.aspx

Please get a username and password and join us there about an hour ahead of the trade event. We will post there right away

So now that you know about all of our communication methods you should be able to follow our alerts even if email fails.

We hope you found this Q&A useful and we will do more in the future if you like. Next week Monday is quiet but look for our Trade Plan starting Tuesday as we get back into action

Have a great week-end

B&K

2007-06-09T11:03:00.001-04:00

You find out that life is just a game of inches.
So is football.
Because in either game
life or football
the margin for error is so small.
I mean
one half step too late or to early
you don't quite make it.
One half second too slow or too fast
and you don't quite catch it.
The inches we need are everywhere around us.
They are in ever break of the game
every minute, every second.

Al Pacino Any Given Sunday

Every summer K and I get a bunch of interns to help us on the dailyfx desk. Typically these are very smart boys and girls from NYU, Columbia, Harvard and a slew of other top notch schools who come to us wide eyed and bushy tailed knowing nothing about the financial markets except the fantasy that they learned from the econ 101 text books. One of the great aspects about dailyfx is that unlike the big investment and money center banks we have a very informal, collegiate atmosphere that encourages these kids to experiment and ask us any question they like.

Many of them learn more in three months with us than they do in a year with larger investment houses who typically relegate them to do nothing but run thousands of what-if tests on Excel. In fact, several of my interns from prior years are now on the desks at Lehman, UBS and BoA. However, when they first come through the door it is always amusing to see their initial reactions to the market. Perhaps the most common question that we always hear is “How come the currency went down if the data was good? It doesn’t make any sense!”

No Virgnia, markets often don’t make any sense. No one understood that fact better then the greatest economist and trader of all time John Maynard Keynes. Yes, that’s right I said trader and economist. Some of you may not know that during the depths of Great Depression, in addition to writing his seminal work on economics, Keynes successfully ran his schools endowment fund. According to www.maynardkeynes.org. “Keynes spent half an hour each day on stock market research - in the morning, still in bed - studying company reports, reading the financial sections of the newspapers and speaking to his various brokers by telephone.

The Chest’s initial capital was £30,000. By the time Keynes died in 1946 the fund had grown to £380,000 - an annual compounding rate of just over 12 percent. This might not seem very remarkable but for the facts that:

This performance was achieved during a period that encompassed both the crash of 1929 and the build up to World War Two, both of which proved disastrous for British stocks.
In the same period of time, the British stock market fell 15 percent.
The growth in the value of the Chest Fund was entirely due to capital appreciation. There was no dividend reinvestment because Keynes spent all of the dividends on the college. He believed the fund was there to provide money for the college and was scornful of the way other Cambridge colleges managed their finances, referring to them as ‘savings banks’.”

So unlike many of his peers and colleagues, Keynes actually walked the walk and proved the value of his ideas not just in theory but in real life as well. And the cornerstone of those ideas is that markets are psychological not logical in nature. It other words Keynes well understood that prices move on investors feelings about the data, rather than the data itself. It does not matter how good or bad the news is, if the market does not want to respond to it, it won’t. This is something that our interns – at least the good ones – begin to appreciate the longer they sit on the desk.

Furthermore, trading like life is indeed a game of inches, even if you are right on the idea, you may not be always correct on your entry. Nowhere was this more evident than in the EURUSD trade at the end of the week. We were dead on in our assessment of the US Trade Balance figures, but unfortunately were taken out of the trade before the news even printed. This is part of the game and will almost certainly happen again. The important thing to keep in mind is that we controlled our risk and ended the week with 64 more points than we started. Just like any other professionals we measure our success one week, one day, one trade at a time and continue to inch forward with positive returns. We hope you find our approach of some value.

For those who would like to find out our latest take on the markets you can see my latest interview on ForexTV here. http://www.forextv.com/FT/Video.jsp?movieid=30883&channel=41

Next week will be extraordinarily busy with as many as ten trades between Monday and Thursday. Remember, you do not have to take them ALL! The trades will come during Asian, European and US hours so all of our subscribers across the world will be able to receive new ideas.

Have a great week-end

B&K

2007-06-02T08:19:00.000-04:00

I refuse to have cable TV, but being a trader my apartment is of course littered with flat panel TV screens and so about a year ago I gave in and started to download TV shows from iTunes and have now built a pretty decent library of all the Lost, 24 and House episodes. Aside from the standard entertainment fare I also love anything from the History and Discovery channels finding that the insights from ancient civilizations can offer very valuable lessons to my own life.

My most recent viewing involved the story of the ancient civilization of Atlantis and it was truly an eye opening experience. Most of us are least somewhat familiar with the myth of Atlantis – the magical and advanced civilization that existed thousands of years ago. Plato described its riches and sophistication in his writings, but until recently modern science and archeology have had little direct evidence that it existed. But with the discovery of ancient ruins on the Mediterranean islands of Crete and Santorini off the coast of Greece archeologists are now convinced that the great Minoan civilization may have been the actual foundation for the Atlantis myth,

The accomplishments of these people were astonishing. More than 3,500 years ago they were able to build multi-story buildings with indoor plumbing, hot and cold running water, earthquake-proof walls, indoor ventilation and lighting systems and a host of other innovations that would not be replicated for several more millennia. Looking at the remnants of the walls of the palace on the island Crete one cannot but be impressed by their modernity of it all. We can only shake our heads in awe at the appreciation of man’s instinct for engineering.

The Minoan civilization came to a sudden and tragic end when the greatest volcanic eruption in the history of mankind blew apart the island of Santorini and destroyed Crete as well by sending hundreds of tidal waves in the Mediterranean sea that literally drowned most of the inhabitants. The volcanic ash then sealed and protected the remains from the elements for thousands of years, which is how we now know so much about these incredible people. However, despite their inauspicious demise, the spirit of Atlantis lives on. The human desire to corral and control the untamed nature around us and shape it into a functional and predictable environment was never as well or as strongly expressed as by those ancient inhabitants of Crete and Santorini.

Unfortunately that same human instinct for engineering can often get us into trouble when we trade the markets. Unlike the physical world, the markets simply don’t lend themselves to reason and rationality, In the currency market the essence of what we trade is sentiment and sentiment can change on a dime. That’s why all efforts to create systematic, predictable, non-volatile returns fail miserably in the end. To prove that point we only need to go back to the demise of Long Term Capital – the hedge fund with multiple Nobel prize winners on its staff that incinerated years of profits in a matter of months. Or we can simply look at this week’s news to see that the venerable John Henry – the owner of Red Sox and the famed trend following systematic hedge fund manager -has managed to lose more than 35% of investors capital this year. Markets are not logical, they are psychological. You cannot engineer a profit and predictability. If you want to succeed as a trader you have to prepare for the unexpected every day of every week of every year and not get discouraged when it occurs.

Nowhere was the sense of unpredictability more evident than in our trading this week. Events that we handicapped correctly did not our way, events that we were wrong about sometimes did as data was often inconclusive and the market’s reaction even more so. Despite the lack of clarity we were able to bank 34 points for the week as we took advantage of the few trades that went our way and quickly terminated those trades that did not.

For example in the case of our Aussie Retail Sales and Trade Balance trades we blew out right away when the data did not meet our expectations and did the same with the UK PMI and German Retail Sales which printed completely opposite of what we forecast. Taking those small losses proved very wise as price continued unabated against us for the rest of the day and would have resulted in far greater losses if we stayed in those trades. On the other hand were able to catch the Canadian dollar both up and down and harvested 70 points of profit in the process.

So they key for everyone to remember is that markets will always be unpredictable. You will never be able to consistently engineer a profit, but you do have the power to take a disciplined loss and in the end that is the only control you have. This is the one lesson that we hope you learn from your journey with us on this reality based trading experience tour.

Have a great week-end. We’ll be back on Monday with new trade ideas.

B&K

2007-05-27T05:55:00.001-04:00

“Dear Kathy & Boris: You both are doing a really great job. I guess we both should have had more faith in our original trading plan and stuck with it 80 minutes longer and it would have been a spectacular trade. I had exited just before your email about exiting your position. Thanks again and I hope you're both getting wealthy. I'm just learning and have made a lot of mistakes.”

An email from a new sub this week after our short USDJPY trade which we closed out quickly for +30 point profit after Japanese inflation printed, worse then expected. The trade then continued our way for as much as 30 more points just as the subscriber pointed out.

So, did we make a mistake on that trade? Absolutely not. We were incorrect on our analysis and quickly abandoned the position once the news came out. The trade was wrong but it was mistake free. To understand this distinction is to see the difference between how professionals and novices trade, so let’s examine it in more detail.

We shorted the USDJPY on the assumption that Japanese inflation would be hotter than the month prior. We had good reason to think so because the inflation level in the Corporate Goods Sector was twice the level of the month before. However, the inflation numbers actually printed very weak providing no reason for us to maintain the position. USDJPY did go down after our exit, but that was for completely different reasons than our trade – the Shanghai stock market saw some selling. Since our plan was based first and foremost on the inflation data, not risk aversion, we stayed true to our plan and executed that trade perfectly.

It is very common for new traders to play the “couldda, woudda shoudda” game. Especially when they have the foresight of history at their back. Yes the USDJPY did drop, but that completely immaterial to the trade plan and only seemed obvious after the fact. Indeed it could have just easily gone the other way as it very much did by the end of the week ending at 121.75 well above our stop levels as the Shanghai quickly recovered its losses.

To understand this further let’s look at the next trade we put on - the short EURCHF position. The trade was predicated on the idea that the Swiss KOF index of leading economic indicators would print a very strong number assuring that the Swiss National Bank would raise rates 50bp at its next meeting in June. The number did come out rather strong at 1.95 vs. 1.90 the month prior, but failed to break the key 2.00 level that would have convinced the market of a 50bp hike. We instantly blew out of the trade for a tiny –6 point loss. In fact, those of you who were the chat room may remember that I actually wrote,:

May 25 5:31 AM [Boris] data flat we are out 1.6488 -6

May 25 5:31 AM [Boris] KOF did not hit 2.00

May 25 5:32 AM [Boris] may still go down but the reason for our trade is negated so we are out

Three hours later by 8:00 AM EST that day the pair was trading at 1.6507 and if we had stayed in it we would have taken an unnecessary –40 point loss.

Indeed out of all our trades this week only one the NZDUSD short played out just as we expected as far event risk was concerned. Nevertheless we managed to bank 155 points for the week by sticking to our trading plan and minimizing mistakes. So the moral of the story is that in trading it is perfectly okay to be wrong. In fact expect to be wrong far more that you will be right. Being right is not what makes you money in the long run. Minimizing your mistakes by sticking to your trading plan is what separates winning trades from losing ones.

As a very good FX trader by the name of Ashkan Balour says in our upcoming book, “But really, the best trades for me are when I just do everything right for the day. Whether I made 15 pips, 12 pips, 8 pips that day, 20 pips everything works the way it was supposed to. Even if I’m down one day, but I took my stops, I know that was a good day too. The best days are when everything goes well according to your plan.”

The data this week is again very back end loaded, so we will be in touch after the Memorial Day holiday with more trade ideas. There will be no trades on Monday and the outlook for the week ahead will be recorded by K on Tuesday.

Wishing everyone a great holiday week-end

B&K

2007-05-20T07:04:00.000-04:00

Friday afternoon I asked my dad, what’s the difference between loosing and winning in life? The ability to have a cold martini at the end of the day, he replied with a smile in his voice. My dad, who has seen more than his share of challenges over the past few years understands that true success does not depend on winning and losing but on how you handle each occasion.

Earlier that day the difference between winning and losing in the FX market was a 7 pips. That is what stood between our position and our stop as we were short GBPUSD going into UK Retail Sales. We turned out to be absolutely correct in our analysis, but pre-release the market had other ideas and rallied the pair to within a whisker of our stop. Once the news broke, the pair tumbled and we were able to bank 70 points in just a couple of hours – the best trade of the week.

Yet imagine if the trade was stopped out for –60. How many of you would have followed us into short USDCAD trade just a few hours later that netted another 47 points of profit? So a mere 7 points separated a 117 profit day from a –60 loss day as swing of 167 points.

In his acclaimed documentary “The Thin Blue Line” filmmaker Earl Morris examines the sometimes tenuous connection between crime and justice as he tells story of a wrongly convicted man and shows the often subjective and random events that can lead us to the wrong conclusions. The same phenomenon exists in trading where I call it the Thin Green Line. In trading, just as in life the difference between success and failure can literally be 7 measly pips. That is why good traders never allow their successes to go to their heads, nor allow their failures to destroy them.

Nothing illustrates the point of the Thin Green Line better than the story of Marty “Buzzy” Schwartz, told in his best selling auto-biography titled “Pit Bull”. After spending years on Wall Street as analyst, Marty Schwartz finally managed to put together a small grubstake, buy himself a seat on the American Stock exchange and become a floor trader, back in 1970’s. He had a total of $30,000 in trading capital to his name and he bet fully a third of it on an options position that he was certain would rise. Unfortunately the options declined. He bought more and they declined more. Within two days of starting his trading career, Marty Schwartz had sunk half his capital into a deteriorating asset and was in danger of blowing out after working for years to achieve his dream. Fortunately, the options regained value, then rallied and Marty Schawtz was on his way to becoming the greatest individual trader of the 1980’s making tens of millions of dollars in the S&P 500 futures pit. But who on that fateful day, as he sat on a bench at the cemetery near the American Stock Exchange contemplating his losing position would have predicted that Marty Schwartz would be come one of the greatest traders of all time?

It’s critical to be aware of the Thin Green Line in trading and to take both your wins and your loses in stride. In the long run taking losses well will serve you far better than taking profits. Profits are the gifts the market. They are easy and require little work. Losses on the other hand require tremendous amount of discipline and skill. That why at bkforexadvisor we don’t brag about our wins, but instead assiduously focus on improving our losses.

While loss taking is crucial, they key of course is to minimize their impact. That’s why you may have noticed that over the past few weeks we moved almost exclusively to a proactive model of trading. Why? Because when we trade proactively we often enjoy an asymmetrical risk to reward situation. When we are a correct in our analysis, the trade often goes to our T1 target and frequently moves to within a few pips of T2. When we are wrong (the news is different from what we expected), we instantly abandon the trade often saving ourselves further losses.

Take a look at this week. On the two trades where we were wrong (Long EURUSD and Short CADJPY) we busted out as soon as we heard the news and lost a mere –10 points on each position. On the other hand on the trades where we were correct (Long EURUSD, Short GBPUSD, Short GBPUSD, Short GBPUSD yet again and Short USDCAD) we made 25, 36, 44, 70 and 47 points respectively. In fact the only bad trade of the week was a reactive trade we took in USDJPY that cost us –70 and we will be very careful not to repeat that mistake again.

The proactive model also carries another advantage. It allows us to provide you a with game plan our trading ideas, so that you do not constantly have to sit by the computer awaiting the signals. This week K started emailing our daily “Trading Plan for the Next 15 Hours” and we hope you find this approach more useful and user friendly.

Next week, Monday and Tuesday the calendar is barren of event risk, but from Wednesday onward we expect to be very busy with trading so we hope you will join us then. We will send our Trading plans ahead of time as usual.

In the meantime, for those of you in New York we would like to let you know that we will be at the www.fxcmexpo.com at the Hilton all day today, so please come by if you can and say hello.

As always,

Wishing you all the best

B&K

2007-05-14T04:39:00.001-04:00

Lucky You

"I'd rather be lucky than good." Yogi Berra

In trading as in life luck can be such an ephemeral thing. This week it truly tested our patience first taking us out of the long AUDUSD trade at the absolute low tick of the night only to rally higher and hit both of our profit targets and if that wasn’t bad enough we covered our short NZDUSD trade for a minuscule –8 loss only to see the pair plummet nearly 100 points over the next 12 hours.

But despite those setbacks, I heartily disagree with the great Mr. Berra on the point of luck. Luck always changes, but skill stays. No doubt, luck plays a large part in everything we do, and we should certainly appreciate its occasional gifts, but to rely on it is a mistake. It abnegates you of the responsibility to honestly face your choices and do something positive to change them. Much as its tempting in trading to cry and complain about the turns of fate, it is a game for amateurs. Pros know that luck is a capricious mistress. It will be with you one week and gone the next. Putting your faith in luck is ultimately a sucker bet.

Last weekend I saw an altogether forgettable movie called “Lucky You”, mainly because since Munich I have become a big Eric Bana fan. Mr. Bana plays a professional poker player - man of consummate skill - but one that likes to push his luck to the limit. In poker parlance, he is known as “a blaster”, a guy who takes enormous chances with his money. The net result is that while highly talented player, Mr. Bana’s character is a perennial loser until the time he learns to respect risk and curb his gambling impulses. While this movie will never win an Oscar, it does offer a valuable lesson to traders – over the long haul skill is almost always wins out over luck.

How many us remember the thousands of baby faced day trading millionaires during the go-go stock market of the late 1990’s? How many of them kept their money? The guys who survived were the careful traders who grounded it out in the markets every day. These guys never let the market take control over their account. The never reached a point where the only thing they could rely on was luck.

Yet perhaps the most important lesson this week had less to do with luck then risk involving a trade we did not take. Watching the horrid same store sales data trickle in from US retailers all week long, K and I both agreed to get short dollars ahead of the US Retail Sales number on Friday, but at the last minute I called her and said that I was pulling the trade because I felt the sentiment had been so dollar bearish that a chance of a negative surprise had diminished considerably.

“You are letting price action dictate your thinking,” K told me sounding a bit exasperated. I disagreed, but couldn’t offer any truly viable objection to the trade. Nevertheless, K respected my wishes and we passed on the long EURUSD

Ironically enough we were both right for a few moments after the news came out. The number printed worse than expected just as we thought it would, but the initial price action was not euro bullish because much as I suspected, sentiment was skewed too much against the dollar. Nevertheless, the trade did ultimately move our way and using out standard T1/T2 methodology would have probably netted us a modest 20 points.

However, K was absolutely right to criticize me. I had no objective reason to negate the trade except for “feel” and as she properly reminded me, “You are never as rational about the trade as before you enter it. Once you are on the cusp of entry or in the trade already, you lose much of your objectivity and let feelings take over.”

More importantly, she made me realize perhaps the single most important insight into trading.

As traders we only get PAID WHEN WE ASSUME RISK. We can not avoid it. We can only minimize it through stops.

If you do not want to assume risk, don’t trade. By trying to precisely handicap the EURUSD trade, I did what so many traders often do, I tried to be perfect and to eliminate risk altogether and of course you cannot do that, because a no risk trade would have no reward. There is ALWAYS risk in trading and we should embrace it rather than run away from it. Don’t be afraid to take the trade, but don’t count on luck to make that trade profitable.

This is Mother’s day weekend, so both of us are busy with our families and therefore the newsletter will be a bit abbreviated today. Nevertheless, we have a slew of great trade ideas lined up next week and look forward to sharing them with you.

Buy all your moms chocolate and flowers and have a great week-end,

We’ll talk to you next week

B & K

2007-05-06T09:38:00.000-04:00

Visit us at www.bkforexadvisor.com

Thursday morning as we were nursing our EURUSD short trade after it hit our T1 target, K sat transfixed as prices on the pair kept falling pushing the trade further into profit for us. The key event risk – the US ISM services report - which we had been anticipating to be dollar bullish had not yet occurred, but the market seemed to have sensed that the numbers would be good and kept selling the EURUSD even before the news printed.

“ I know that this is not the right thing to do, “ K announced, finally pulling away from the screen, “ but I am moving the stop from breakeven to T1.” She was afraid that by tightening the stop from its current position at 1.3613 to the take profit level of our 1^st target as 1.3593 we would be vulnerable to a sudden spike in price that would take us out with small profits only to see the pair collapse once the news came out.

“There is no ‘right thing’ in this case, “ I said to her, “only the ‘proper thing’. Go ahead.” K nodded in agreement and sent out the alert to move the stops. As it turned out, prices did not retrace, the news printed our way and we closed the trade within a few pips of our T2 target for a nice tidy profit of 74 points. But even if the events occurred just as K had feared and we would have been stopped out with only a 40 point gain on the trade, her actions would have been correct.

Why? Because all profits are illusory until they are actually realized. During the dot com boom when I as a headhunter I was negotiating seven figure compensation deals for computer software salesmen at such high flying high tech companies as Vignette, I2 and Autonomy, I once calculated that the total value of the stock holdings of these deals exceeded $35 million. Yet how many of my former clients became millionaires as result of the boom? Only one. Only one was disciplined enough to sell out his position the moment it became vested. The rest held out, wanting more and more money only to ultimately end up with nothing.

Last year, I remember sitting at swanky street café in Delray Beach Florida across from a gentleman who regaled me with tales of his prowess in the housing market. As the afternoon sun warmed our backs and we sipped our overprices iced lattes, the man calmly explained to me how he was able to leverage gains from one house into a portfolio of 11 residential properties on which he was holding mortgages. I cautioned him that his net worth was dangerously tied up in a parabolic asset and that he was vulnerable to a sell off. He assured me that he was cashflow positive on all his houses and had nothing to worry about. We’ve lost touch, but I wonder how he is doing now, given the fact that all of those cheap ARM loans are about to reset on him and that those properties are now worth 20% less.

Mark Cook, one of the traders from Stock Market Wizards used to say that buying option contracts was like holding ice cubes in you hand. The longer you held them, the faster they melted. I always thought that was a great analogy for trading. Investors may “buy and hold” successfully (though those who bought Nasdaq 5000 or Nikkei 38,000 would vehemently disagree with that statement) but traders need to always protect themselves from risk. As traders we never ever, know what is in front of us. We only know what is behind us. Therefore minimizing risk is the only way we can stay alive in the game. Profits are always a function of luck, but losses are a matter of skill.

At the same time we must never forget that reward only comes if you are willing to take the risk. The short EURCHF trade that we put on Thursday night is a perfect illustration of this point. We made the trade after Swiss CPI data printed much hotter than expected reaching 15 year highs. The news spurred speculation that the SNB may raise rates 50bp rather 25bp in June. Therefore, EURCHF - which up to that point had been setting record highs on a daily basis as carry traders continued to mercilessly sell the Swissie - was due for a correction. Unfortunately after inching a few pips our way the trade stalled and bounced up and own for 24 hours as the market tried to assess the probability of the SNB hikes. Much as it pained us to watch the trade creep towards our stop level, we held tight. The fundamental factors for our trade did not change and until and unless the technical stop level was broken, there was no reason to abandon the trade. By Friday afternoon our patience was rewarded and the trade moved down to our T1 level generating 20 points of profit. Yet just as in the EURUSD example, even if the trade went against us and stopped us out, the decision to stay in was proper. As we wrote last week, the most important aspect of trading is to always know the reason for getting into the trade and the reason for getting out.

We’ve had a remarkable run over the past two weeks hitting 8 out of 10 winners while banking 248 points of profit. Yet we are not foolish or arrogant enough to claim some secret of success. We’ve simply stayed disciplined and tried to practice what we preach. We’ll continue to work very hard to generate high quality trading ideas for you and hope that you will benefit from our experiment in “reality based trading”.

Now a quick review of the other trades this week.

Short EURUSD –12

This was the first trade of the week, based on the assumption that German Retail Sales would be good. We were badly mistaken and bailed instantly before the stops eventually got hit. This is a perfect example of NOT waiting for your stops if the reason for your trade failed. In this case quick reaction saved us from additional unnecessary losses.

Short USDJPY +20

Another trade that tortured us for 12 hours, but we hung in there since the fundamental reason for the trade – the weakness in the US equity market - remained true. We hit T1 and were then taken out at breakeven on rest. This was a good example of our T1/T2 strategy. The strategy gave us profits and then protected our capital when US stocks firmed once again and USDJPY rallied.

Short EURUSD+ 35

Long GBPUSD +32

Both of these trades were the result of good defensive trading. In the short euro case we accurately caught the continuation of the move from the NY session, but then by constantly lowering our stops and locking in profits were able to collect decent profits. Had we not done so, we would have been taken out of the trade with minimal gains as the euro reversed course.

In the case of the pound, we traded the UK PMI construction data, which proved to be higher than forecast, but as we wrote in the aftermath of the release, ”UK Data did print better expected but mortgage approvals were a the lowest level this year so we are going to take T2 here at market 1.9947 (+17) for +32 on the whole trade.” Cable collapsed soon thereafter and this trade showed why trading is and will always be a matter of art rather science requiring nuance and constant flexibility.

We hope you have a great week-end.

As always watch for an email from K on Monday regarding our outlook for next week.

Wishing you best,

B & K

2007-04-30T01:40:00.000-04:00

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.

The event will surprise in the directions that we predict
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

2007-04-23T00:46:00.000-04:00

“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

2007-04-16T03:21:00.000-04:00

"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.

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 -
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:

Reactive trades can often provide you with better entries on the retrace of the move rather than immediately following it
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:

Don’t anticipate too early
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

2007-04-08T16:54:00.000-04:00

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.

Iran –UK conflict would be resolved peacefully
Price of oil would recede from its recent highs
Canadian Housing Activity would decelerate in March
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.

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 -
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

2007-04-02T03:21:00.000-04:00

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.

News event surprises varying widely from consensus
Price action reacts to the surprise moving in the direction of the news
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

2007-03-26T03:46:00.000-04:00

Where is the Exit?

My dad, used to always tell me – don’t let the perfect be the enemy of the good. As an unreconstructed perfectionist, I’ve always had a hard time following that advice, but this week really showed the price of ignoring those words.

Trading as we all know is hardly a precise discipline. As the ultimate barometer of human emotion it is inevitably messy, frequently frustrating and often an exasperating activity. The best that we can all hope for is to make three steps forward and only two steps backward, thus keeping us ahead of the game in the long run. This week, I passed on many good opportunities that could have resulted in profits. I could lay the blame for making so few trades on the fact that I am alone at the desk as K continues her trip of the Far East, but that would be an unadulterated lie. And as many you know, that while we cannot guarantee success, we try to be as honest The plain truth of the matter is that I simply chocked this week, passing on perfectly reasonable trades is search of the “sure thing”.

No more.

I know that you look at BK advisor as not only a source of good trades but a source of multiple trades ideas. So starting next week I promise to deliver them all to you, lose win or draw, and furthermore I will also try to point out the danger of each trade along with our usual entry, stop and target parameters.

Meanwhile let’s just look the following graphic to show you the themes I sketched out at the start of last week and some of the trade setups that we could have taken had I been less conservative in my approach.

http://docs.google.com/Doc?id=dn8z7zs_7754xbbw

I will have the our Google calendar for next week prepared by Sunday as always sketching out the main themes on the Sunday panel and the event risk on the rest of the calendar.

As many of you know my setups are primarily fundamental in nature while K’s are driven mostly by technical factors, I trade in the direction of the newsflow but I do use technicals to manage my exits. Several of you asked about the reasoning for our exits so I thought we could use this weeks trades to examine some of our exit strategies.

Short EURCHF +20

This trade was based on the idea that Swiss eco data continues to post blowout results while the EZ indicators are showing some danger of slowdown. However, as has been the case over the past few weeks, the market really only cares about two themes right now – carry trade and risk aversion. Therefore despite great numbers from Switzerland, as the week went by, EURCHF actually rose as risk appetite returned and stoked demand for the carry trade. We were fortunate to make money out of this trade by keeping a careful eye on the technicals. Note the first spike bottom on the chart at 1.6115. Once the pair failed to break that key level, we quickly covered for +20 which turned out to be the right decision as EURCHF eventually went on to rally above the 1.6200 level.

http://docs.google.com/Doc?id=dn8z7zs_79d85xz4

Short EURGBP –8

This trade was triggered by the very strong UK Retail numbers which we thought would push EURGBP lower still on interest rate hike expectations by the BoE. Typically the signature of my trades is that they resolve themselves within 3-6 hours of entry as the fundamental newsflow pushes the pair in the direction of the trade. However, in this case the pound had already rallied sharply throughout the week, so the impact of the positive news was considerably weaker. Instead of trading lower EURGBP stalled and tormented me for more than 24 hours flirting several times with the stop. Out of sheer frustration I exited trade at –8 and of course to add insult to injury the pair dropped almost instantaneously after my exit. In a follow up note I wrote, “No one can make you feel stupider than Mr. Market, no sooner did we get our of the EURGBP short the trade moved our way. For those fortunate enough to ignore our advice please feel free to take profits now. Most importantly place your stops at breakeven or tighten them to no more than -10 to protect your capital. ” The proper action in that trade would have been to lower the stop to 6790. Since I wasn’t as confident in the trade 24 hours later as when I first put it on, the lower stop would have curtailed some of the risk, but allowed us to stay in the trade in case it finally moved in our direction.

http://docs.google.com/Doc?id=dn8z7zs_81gcmf9s

Short USDJPY –22

Sometimes its is absolutely incredible at how stupid the markets can be. Iranians seized 15 UK sailors in Iraqi territorial waters in what was essentially an act of war and the markets simply shrugged it off as another day at the office. Sure enough news over the week-end is that Iranian President Mahmoud Ahmadinejad’s has cancelled his trip and planned speech at the United Nations Security Council in New York and Iranians now claim that the Brits have “confessed” to broaching their territorial borders. In short the crisis escalates and it would be interesting to see if this flare up will finally bring some risk aversion to the market. In the meantime we followed the long held dictum of Lord Maynard Keynes who stated that markets will remain irrational far longer than we can stay solvent, and quickly cut our losses once we saw the price refusing to cooperate with our point of view.

We wish you great trading next week and look forward to sharing many more trade ideas with you.

B & K

2007-03-19T01:46:00.001-04:00

In his seminal book on trading Market Wizards, Jack Schwager interviews one mysterious currency trader with penchant for meditation and Sanskirt who is uncannily successful in making profits for his employer. The start of the chapter contains the following exchange:

Schwager:

How do you recognize when (your trading power) goes away?

Trader:

When I am wrong three times in a row. I call time out. Then I paper trade for while.

Schwager:

For how long do you paper trade?

Trader

Until I think I’m in sync with the market again. Every market has a rhythm, and our job as traders is to get in sync with that rhythm.

The trader’s identity has never been revealed for certain, but I believe that it was Andy Krieger who said those words. He was so phenomenally successful in the heyday of interbank currency dealing that he managed to earn 300 Million dollars for Manufactures Hanover ( which has since merged with Chemical, which in turn became Chase, which is now JP Morgan Chase) in just one year.

This small snippet from 300+ page book is almost a throw away paragraph. Few people ever recall it. But ever since I’ve read it many years ago I’ve always thought those words held special meaning. Now, I am even more convinced that this little exchange is perhaps the wisest advice ever given to traders.

Losing streaks are universal in trading. Anyone who has day traded for longer than six months will recognize that fact. George Soros lost $1 Billion dollars in the Russian ruble fiasco, but everyone remembers him as the man who broke the bank of England. Michael Steinhardt was decimated in the emerging debt market meltdown of 1994, but he is revered as the one the greatest hedge fund managers of all time. The reason most novice investors and traders never appreciate the true risk of the game is because they rarely see it. Typically, most traders simply look at their end of the year statements and only see the end result. Rarely do they realize that their money may have suffered a 20% loss sometime during that year.

One of the great aspects the BKForexAdvisor is the fly on the wall view to trading that it affords the subscriber. Real trading, like real life, is a three steps forward, two steps backwards affair.

While I was away in Dubai, K was blazing hot for the first week hitting 6 winners in a row, but then she hit a wall in the second chalking up 4 losses. What happened? Markets got funky, her setups – the same setups she used the week prior – simply stopped working as she got out of “sync” with the market. One of the key differences in the currency market over the past two weeks has been the strong correlation with the equity market. In fact CNBC could not resist putting up side by side charts every half hour on the hour of the USDJPY and the Dow Jones industrial average showing the near tick by tick matching movement of the two instruments. This unusual sequence of events rendered many of the typical triggers of FX movement practically moot and introduced huge unpredictability into the market. Therefore, when I returned to the desk this week, as K left for her trip to the Far East I decided to tread cautiously and traded very little. Although this may have been frustrating to some of you, I remain convinced that this was the right course of action.

We are up 117 points or 11.7% on a 10:1 lever factor year to date – hardly a stellar performance – but a positive one nevertheless. The reason why we have been positive is because we remain vigilant about not giving our profits back. Every story of failure in trading is the same. It always revolves around the desire to “get the losses back quickly”. Instead of stepping back and “paper trading” when they hit a rough patch most novice traders press on and force the issue. The results of such stubbornness are predictably dismal. That’s why that little exchange in Jack Schwagers book has always stayed in my mind. It is remarkable how that simple piece of advice is ignored by most novices, who do not understand that the key to trading is the ability to manage your losses, not your wins.

Turning to our trades this week, we got clipped on the USDCAD short (-45) which again was the part of the setups that were simply not responding to the current market action, as the pair looked like it was ready to come down to 1. 1600 only to be caught up in the US equity market collapse . As we wrote at the time, “The breakdown in the US stock market seems to be hitting USDCAD as people fear that Canada will be particularly hurt by the downturn in the US economy”.

We did better with the second trade our EURUSD long (+17) but not before that trade tortured us by coming to within 5 points of the stop. Of course nn retrospect, we took our profits too early, but at the time it was impossible to predict the breakout in the pair, especially given the very weak price action that occurring at the moment.

With the markets now revolving around the key theme of US housing problems, we think next week will be a much better environment to trade and we expect to generate many more ideas for you. Furthermore, we received requests from some of you to trade specific setups from our e-book, so I have decided to modify the RSI Rollercoaster setup for the risk parameters of the newsletter and will add it to our arsenal next week as the opportunity affords.

The RSI Rollercoaster setup will be modified as follows.

1.We will trade 15 minute charts

2. Looking for Currency pair to leave the RSI overbought (+70) or oversold (+30) zone before initiating a trade.

3. We will use the swing high/low as our stop points, risking no more than 30 pips per trade and will target 20-50 points of profit.

4. We will trade this only on the currency crosses, to eliminate as much as possible the fakeouts due to event risk on the dollar denominated pairs.

This is a short term reversal setup that looks bank 20-50 pips with during intra-day pints of price exhaustion. It’s strictly technical in nature, but if we can we will also look for fundamental triggers to increase of our chances of success.

For more info on this setup please refer to our e-book.

Finally, tomorrow, before the start of the week I will post on our public google calendar the key themes and possible trades ideas that we are looking to exploit this week.

Wishing you the best of trading,

B & K

2007-03-09T18:05:00.000-05:00

Last week, we said that volatility was back, but this week, it seems to have gone into hiding once again. The only volatility that we saw was on intraday price action which was kind enough to spike us out on multiple occasions. Most of the currency pairs licked their wounds this week and recovered some of the past week’s major losses. The question on the forefront of everyone’s minds must be whether the carry trade liquidation is over.

To answer that question, we must look at what happened this past week:

1) Reserve Bank of New Zealand raised interest rates by 25bp to 7.50% and signaled that more rate hikes are in store
2) European Central Bank raised rates by 25bp to 3.75% but signaled that they will hold rates steady in April
3) Bank of England left interest rates unchanged > Lots of strong data
4) Stronger US Non-Farm Payrolls reduces chances for an August rate hike, but US Sub-Prime lending sector is really in trouble
5) Canada and Australia both reported solid economic data

And what we are expecting next week…

1) The Swiss National Bank to raise rates
2) And the US to report a number of key releases including retail sales, PPI, and CPI

Oil prices increased 15% in Feb, which indicates that both PPI and CPI could be strong.

Where does that leave us?

The high yielding currencies (New Zealand, Australia, Canada and US Dollar) have the data to put an end to the carry trade liquidation, at least for the time being. US retail sales are the only problem since Wal-Mart reported a drop in sales due to the wintry weather (remember, February was one of the coldest months on record). If we get a strong number on Tuesday, then we have the all clear to jump back into carry trades. However it is the Yen that will be sold rather than the Swiss Franc given the Swiss central bank’s plans to raise interest rates.

Even though a lot of high brow economists have compared the latest liquidation to 1998, where we saw a 20 percent collapse in USD/JPY, we think that conditions now are very different. In 1998, the sell-off and risk aversion was driven by Russia’s default on its international debt and the collapse of Long Term Capital. This time, the liquidation was driven by overvalued stock markets. What we have is more of an orderly correction, of which the average move has been 8.6 percent. To read more about this, see our special report, “Is the Carry Trade Liquidation Over?”

We also want to point out that the Dow / USD/JPY relationship that we talked about in our last report is still very much in place (“Dow Down 400 Points, Dollar Falls to 12M Low against Yen - Is This a Major Pivot Point into a Recession?”)

That is, the movements in USD/JPY have foreshadowed movements in the Dow.

Now onto our trading:

Last week, trading was easy. The trends were clear and the moves were big, giving us over 120 pips in gains. This week, the range trading environment and the intraday spikes have made trading far more difficult, leaving us down 83 pips.

Short USD/JPY +31

When the markets opened on Sunday night, the liquidation from the prior week continued. Strong capital expenditures data and nonchalant comments from the Japanese government sent USD/JPY tumbling from 116.60 to a low of 115.13 in a matter of hours. After the data, we caught a part of that move and banked 31 pips relatively quickly.

Short EUR/CAD -44

This trade was one of the most painful trades that we have had. On Monday, we went short EURCAD at 1.5441 with a stop at 1.5485. On 2 occasions there were quick spikes, once to 80 and once to 86. Some of our traders got stopped out on the first spike, we didn’t, but on the second spike, we were stopped out while others weren’t. What happened? EURCAD is a less traded currency pair which means that brokers have different spreads and vary on pricing. The tighter spread brokers kept the traders in, the wider spread ones, stopped them out. After hitting a high of 1.5486 (one pip above our stop), EURCAD sold off to 1.5368. If it wasn’t for the spike, we probably would have lowered our stop and banked some part of the 70 pip profit. In retrospect, EURCAD is indeed a hard pair to trade given the sharp divergence in spreads between brokers – next time, unless we a super attractive opportunity in the pair, we may just avoid it.

Short EUR/USD -29

We sold the Euro on the expectation that the ECB would tone their comments and move to neutral at their policy meeting. Although this was the case on Thursday, we were early to the trade by selling the Euro on Monday. The rebound in EUR/JPY was so strong that it sent Euro soaring, stopping us out for a loss of 29 pips.

Long USD/CHF + 5

We went long USD/CHF because Swiss GDP came out strongly while US unit labor costs was weak. Although we liked the trade, we ended up closing it out at breakeven.

Short USD/CAD -37 pips

On Wednesday we went short USD/CAD on the back of stronger Canadian data and weaker US data. Once again, the movements in the Japanese Yen sent CAD/JPY tumbling, dragging USD/CAD up with it. The fundamentals that we were looking for did not convince the market until Friday, when the break in USD/CAD finally happened. We were stopped out of the trade for 37 pips.

Short EUR/USD -9 pips

Our final trade of the week was short EUR/USD. We had difficulty getting into our trading station after the NFP number, causing us to get a much worse fill than we wanted. We went short EURUSD because the strong NFP would delay any plan for the Fed to cut rates while the comments from European Central Bank President Trichet signaled that they would not be raising rates again in April. We still like the EUR/USD short, but as per our general rules, we do not hold positions over the weekend, which is why we closed the trade for a minor loss of 9 pips and will revisit it on Sunday evening.

We have kept our losses relatively small, which is why we are still quite positive year to date. Limiting drawdowns will make it easier to recover from a series of losing trades. Looking ahead, after this past week’s rather boring economic data, next week we are expecting a ton of data that could bring back market volatility. Check out our Calendar for all of the potentially market moving events.

2007-03-02T19:47:00.000-05:00

Volatility is baaaack! And we have been particularly active with our trading recommendations because of it. We sent out 8 recommendations, every single one of which was right in direction, but we missed additional profits because we focused on trading defensively. We banked 123 pips this week, 6 out of 8 of our recommendations were winners, 1 broke even and 1 lost us 4 pips. Year to date, we are up 229 pips. Despite the fact that one of us is in Dubai giving presentations, it has been a good week. We focused on trading only our setup and we enjoyed decent profits with low risk because of that. There is certainly room for improvement - we focused too much on preserving our hard earned profits and because of that, we bailed out way too early on some of the trades. However, the famous J.P. Morgan himself once said, “No one ever went broke taking a profit.” Our motto has always been to preserve capital AND to generate return.

So what happened this week? Believe it or not, liquidation in the currency market triggered liquidation in many of the other financial markets around the world. Over the past few years, the participants in the market have become very speculative and highly leveraged. Not only did international speculators borrow the low yielding Japanese Yen to buy high yielding currencies like the New Zealand dollar, US dollar, British pound, and Australian dollars, in what is known as the “carry trade,” but they also borrowed against the Yen to buy stocks and commodities. In such leveraged environments, losses become exacerbated on a percentage basis, which will force many of these speculators to bail at the first sign of trouble. On Tuesday, we saw the consequences of this aggressive risk appetite . On an intraday basis, the Dow hit a low of 12,086 which represents a drop of over 500 pips. Even gold did not escape the liquidation. It still remains to be seen whether February 27, 2007 will either go down in history as a major turning point for the financial markets or an unparalleled buying opportunity. To read more about this, see our special report “Dow Down 400 Points, Dollar Falls to 12M Low against Yen - Is This a Major Pivot Point into a Recession?”

Before the big turn in the Yen this past week, we already wrote about the potential of 2007 being the breakout year for USD/JPY from a statistical standpoint. Not many people know that in 2006, the Japanese Yen had the tightest range against the US dollar in 35 years. Last year, volatility in the currency market contracted significantly, causing USD/JPY to remain restricted to a 10 big figure (each big figure is 100 pips) trading range. Over the past 35 years, the average high to low range of USD/JPY was approximately 30 big figures or 3000 pips. In 2006, the yearly range was one third of that. Sharp contraction in ranges tends to lead to sharp breakouts and 2007 could be the year in which we see just that. To read more, see our special report “US Dollar / Japanese Yen (USDJPY): Will 2007 Be the Breakout Year”

Finally, China has also been blamed to be the force behind the sell-off on Tuesday because when China sneezed, the world did too. Since then the ebb and tides of the US financial markets has been determined by the overnight fluctuations in the Chinese market, which is a dramatic shift away from the way things normally operate. When the Chinese government denied any plans to take the steam out of the stock market by increasing corporate taxes, the sell-off abruptly stopped. So is the Chinese government the puppet master behind these moves? Have they become the new linchpin for the global markets and can US traders now use the Chinese stock market as a leading indicator for what will happen to the Dow? To find out, read our article “Is China, the New Puppet Master of the Global Markets.”

Here is another interesting fact, as pointed out to us by our technical analyst Jamie Saettele at DailyFX. According to Elliott Wave International, every double digit stock market collapse that we have had in the past 10 decades has been in the sixth or seventh year. Remember 1997 was the Asian Financial Crisis. 1987 was Black Monday. Between 1976 and 1978, the stock market fell 28 percent and in 1966, the market fell 27 percent. Does this mean that 2007 will be a crash year? So far it seems that way.

Now onto this week’s trades:

Short USDJPY +15

On Monday, our technical setup gave us the signal to go short USD/JPY before the major collapse on Tuesday. We nursed the trade for a good few hours but it gave us little more than 15 pips. The CADJPY short signal was screaming at the time, so we switched out of the USDJPY short for the CADJPY short. Some of you asked us why we didn’t keep both. Of course everything looks great in hindsight, but USDJPY and CADJPY are very correlated, shorting both means that you are doubling the risk on basically the same trade. If it turned against us, both would have been stopped out.

Short CADJPY +71

Shortly after closing the USDJPY short, we switched into the CADJPY short. As our setup suggested, CADJPY had a far bigger move (530 pips) than USDJPY (440 pips) between Tuesday and Friday. We closed our trade a few pips shy of our target as we took part in the beginning of the major yen rally.

Short NZDUSD -4

NZDUSD was our only loser this week and we only closed out of it because we saw a better opportunity in USDCAD. In retrospect, we should have stuck with the NZDUSD trade. Our technical reason was the fact that NZDUSD broke the below 100-hour SMA on the hourly charts and had been holding below it for the past 4 hours. We felt that the pair would remain below the moving average, which was where we placed our stop. Since then, the pair has yet to break back above the 100-hour SMA and has instead fallen 163 pips in our direction. The SMA was golden.
Long USDCAD 0

We went long USDCAD on the break of February 22 high of 1.1639. We felt that this represented a very significant technical break to the upside and that there would be room for an extension. Unfortunately we hate it when news screws up our technical setups. Refinery outages triggered a reversal in oil prices, which would have been bearish for USDCAD and we opted to get out of the trade at breakeven.

Short AUDUSD +12

Throughout the week, we were very bearish on the high yielders with a particular emphasis on the commodity currencies. On a fundamental level, we felt that there would be more liquidation of carry trades. On a technical level, the AUDUSD provided a very good risk/reward opportunity. We went short the currency pair 0.7887. When the Australian markets opened, Australia reported the strongest level of manufacturing in 4 years. With such positive fundamentals, we did not want to be short the AUDUSD on the potential for a sharp rebound. Therefore we opted to bank 12 pips on the trade.

Short NZDUSD +6

On Thursday, we once again went back into the short commodity/high yielding currency trade (when you have something that works, stick with it!), but this time in the NZDUSD. The break of the past 2 day’s low signaled the potential for more losses in the NZDUSD, so we went short at 6936. The currency pair then proceeded to stay confined within a 20 pip trading range for the next 13 hours. Having watched this painstakingly for the entire time, the smallest rebound from +20 to +6 at 10:40pm EST tested our patience and we decide to close the trade and put an end to the pain. Four hours after that, the NZDUSD broke down, which means the pair consolidated for a total of 17 hours before actually moving in our direction. This was one of the trades that where we should not have questioned our technical setup and simply stuck with it.

Short EURUSD +12

On Thursday night, our technical signal triggered a short on the EURUSD. The risk was small enough that we were able to hold both a NZDUSD and EURUSD short at the same time. US data was strong and German retail sales were exceptionally weak. The pair came within 7 pips of our target, it was 4am in the morning EST and no one was around to catch the profits. So we moved our stop to breakeven but we banked 12 pips on a dip before it eventually rallied beyond our breakeven point.

Short AUDUSD +11

Our last trade of the week was the AUDUSD. Gold prices were selling off and our technical setup triggered a short trade with low risk. 0.7855 was also a clear resistance level from multiple time frames indicating its significance. If the pair broke that level, we knew that we were clearly wrong. Once again, we were right on the direction, but since we do not hold trades over the weekend, we opted to bank 11 pips before the market close.

Looking ahead, the economic calendar next week is lighter than the past week’s, but the upcoming reports are just as market moving. We are expecting service sector ISM, the Beige Book report, Factory orders, Non-farm Payrolls and the Trade balance. There should be more volatility in the currency market as expectations for stronger service sector activity and a smaller trade deficit is met with forecasts for weak factory orders and non-farm payrolls. The ECB is scheduled to raise interest rates, the press conference by Trichet will be particularly market moving. For more on our outlook for the week, read “US Dollar – More Volatility Ahead”

2007-02-20T15:29:00.000-05:00

What's a Good Trade?
Feb 11, 2007

This Friday over outcries of protest from K and the American shift crew, who were stuck in the office doing work, I took the European shift crew for a daytime outing to the Museum of Natural History. For those of you not familiar with this institution it is truly one of the great treasures of New York city – a museum so massive it occupies four very large city blocks on the Upper West Side of Manhattan and contains some of the most interesting exhibits on earth. To be frank, the trip was not my idea, but rather that of Jaime Saettele our technical analyst at dailyfx who like all great technicians has a highly inquisitive, scientific mind and wanted to see the new exhibit on the pre-historic roots of mankind.

So off we went enjoying the sunny but very cold and icy Friday afternoon in the city. Once in the museum we came across the meteorite exhibit which was fascinating in and of itself showing that the moon was the result of a colossal collision between the earth and a large meteor and contained many of the basic elements that we find on earth. This of course led to a conversation of what would it be like if the moon was fully colonized and perhaps even nationalized in the future. Would it issue its own currency? What would be its name? Jaimie instantly replied that it should be called “the lunar”. I of course unable to resist the notion, immediately speculated on the possibility of the lunar/loonie cross .as future currency traders would make markets on the economic potential and costs of mining commodities from the Moon versus that of Canada. Yes, you can take the boys away from the FX market but you can’t take FX market out of the boys.
Highly amused at our own construct we wandered aimlessly through the halls of the museum until we came across the main exhibit that Jamie wanted to see and here is where things became quite interesting. The Hall of Human Origins at the Museum is one of the greatest exhibits we’ve ever been to, and if you find yourself in New York we highly recommend that you make time to see it. Finding ourselves amidst the German tourists and the neighborhood mommies slowly pushing their strollers around the myriad of very interesting displays on paleontology, archeology, DNA analysis etc. we stumbled across the answer to a very fascinating question – what makes humans smarter that all other species on earth? Is it the size of our brains? No. In fact, whales, dolphins and several other species posses brains larger than our own. Is the size of our brains in relation to our bodies? No again. It turns out that bird’s brains are 8% of their body weight while ours are only about 4%. So what is it that makes us so unique as a species? Apparently, the part of our brain called the frontal cortex – the part is responsible for rational thought is what differentiates us from all the other mammals on the planet. We are not the only ones that have it – dogs for example have it as well - but we are the only species that have fully developed the frontal cortex.

So, how does any of this relate to trading? We think quite directly. We believe that traders who use their frontal cortex –that is the rational part of their faculties - are far more successful in the long run than those who rely on the more primitive, emotional and instinctive parts of our brains called the limbic and the reptilian systems that we happen to share with many other lower species.

Plan your trade and trade your plan may be a well worn adage in trading, but it encapsulates perfectly this very notion of the need for rational thought. The idea in trading is to use you reasoning abilities to analyze, assess and prepare your trades, so that at the moment of action you have a rational, logical game plan for managing both risk and reward. How many times have we reacted instinctively, much like caged animals, when trapped in bad trades only to have caused further damage to our trading positions and our accounts? The trip to museum clearly showed the key distinction that makes us human. It’s time that we as traders begin to use it to improve our performance

And now let’s review our trades for the week.

Short EURJPY +47

This was the best trade of the week. In last week’s update we talked about the theme of carry trade liquidation and therefore watched EURJPY like hawks to find the optimal time to express that idea in a trade. On Monday night at the start of Asia session we began to see this theme play out and jumped on the bandwagon. The trade went our way from the get go and we banked 47 points in less that 3 hours on a nearly flawless execution.

Long EURUSD +0

In many way this was the most interesting trade of the week because we did so many things right and wrong at the same time. The trade was triggered off Chairman Bernanke’s dovish testimony to Congress. Acting on a purely Pavlovian impulse we remembered that the last time Bernanke sent a dovish message to the market, the EURUSD veriticalized nearly 300 points higher for two days afterward. However, had we been more patient and thought the idea through we would have realized that this time a much better way to take advantage of this news would have been through a short USDJPY trade rather than long EURUSD. We were after all confident of the carry liquidation theme and JPY GDP which was expected to be strong was coming up that night. Alas we let our instincts rather than our reason rule and took the EURUSD long trade instead. However, at this point we did implement our trading plan and controlled the trade quite well. As you remember from our AUDJPY trade last week, we often enter on fundamentals but ALWAYS manage the trade on technicals once we are in position. In the case of EURUSD we were looking for continuation and indeed we got a little bit of follow through Thursday morning in early European trade. We immediately moved the stop to breakeven, reasoning that if price was unable to take out the prior high of 1.3152 we did not want to be in the trade beyond our entry point. Indeed prices failed and dropped after that and we were taken out at breakeven. No harm no foul. This was certainly not the best entry of the week, but it was one of the better exists because it adhered to our long held strategy of always protecting trading capital first and foremost.

Long EURGBP +20

On the surface this appeared to be a very good trade. It was after all profitable from the moment we entered it and it made 20 EURGBP pips which are equivalent to 40 pips in any other pair. In reality however, this was only the second best trade we could have made that night. The trade was triggered off absolutely horrid UK Retail numbers, but here again we were too monolithic in out thinking. The night prior to this trade EURGBP had collapsed on hawkish commentary from Mervyn King about the potential dangers of inflation still extant in UK economy. We thought the speech total BS and believed that the EURGBP reaction was completely wrong given the clear slowdown in UK economic data. So we were obsessed with the long EURGBP trade and pounced on it the moment economic news offered us an opportunity. However, the far more intelligent trade to have made at that time was short GBPJPY. Why? Because Japanese GDP which had just printed that night was much better than expected while UK retail sales as we’ve already noted were horrid. As an FX trader you always want to pair the best currency against the worst to give yourself the optimal chance at a profit. Thus, while EURGBP trade was winner, the GBPJPY short would have been a grand slam.
Short CADJPY +12 A good trade which again was triggered off the idea of yen strength coupled with the lackluster price action of CAD the along with a powerful technical break of 480 hourly SMA. This trade however was a perfect example of why trading will always remain an art rather than pure science. The pair dropped 30 points in the money only to retrace all of its gains. After it moved lower the second time we decided to cover for small profit. Should we have stayed in the trade longer and tried to milk it? Perhaps. But this was truly a judgment call as price action was far from definitive and so we banked a small gain and moved on.

Short AUDUSD –24

No doubt the worst trade of the week, based on spurious logic. The trade was triggered by the idea that dollar weakness was done. But this is nothing more than a top/bottom picking trade that so many traders get suckered into. In trading there is not such thing as overbought or oversold price action until we have concrete evidence of exhaustion. In the case of AUDUSD trade the evidence was so negligible as to be non-existent. It was based on the doji the day prior – but a doji is a neutral signal indicating indecision rather than an actual turn in the price action. The only saving grace to that trade was that we tightened the stop and contained the risk somewhat.

Since last Friday with the USD/CAD trade we’ve had had six trades with 4 winners for 115 point, one scratch and one loser for –24, so we’ve become more disciplined at trade selection, but we intend be better yet. Clearly, we cannot control profits or losses, but as trades we can control our selections and we will continue to refine that process.

Next week only two key event to keep you eye on - BOJ Rate hike and German IFO Key Event Risk BOJ Rate Decision Wednesday Feb 21 5:00 GMT The decision will not be easy as Japanese data continues t be lackluster at best. The Tertiary index, a measure if the country’s service sector, continued to disappoint printing at -0.4% vs. -0.1% expected. This was the second consecutive month of negative readings lead by a massive 13% drop in demand for postal services which include savings and insurance as Japanese retail investors favored deposits in high yield currencies such as the Australian and New Zealand dollars. In short as Governor Fukui described it, the economic news was “mixed”, making next Tuesday’s announcement a 50/50 proposition. Some analysts even suggested that the bank may opt for a Solomonic solution of raising rates by only 12bp thus reaffirming their commitment to price stability without affecting consumer demand too harshly. This may indeed be the case but whether will considered such a move good enough to spur further yen buying remains to be seen

Key Event Risk German IFO Friday Feb 23 9:00 GMT The German IFO survey is due to be released on Friday night and is likely to be the marquee event of the week, The market is looking for a small drop to 107.5 from 107.9 which should not dent the unit much, IFO has hovered near record reading for most of the past year and has been one of the primary foundation for euro’s strength. If it does not change much the unit is likely to remain well supported. However, if the survey registers a massive drop due to the concerns over VAT, the EURUSD could tumble hard given the pair relatively overbought status.

Have a Great Weekend B&K

2007-01-27T09:57:00.000-05:00

Welcome to our weekly review. We’ve had good and busy week and have many topics to cover, so let’s get started.

Trading Adjustments

We’ve modified our trading approach to better accommodate both - requests from you and the format of the newsletter. Instead of trading two units on each position with a very short term profit target on the first unit and a longer profit target on the second unit we are now trading just one unit with a more intermediate target. Why did we do this?

1. Using two units on every trade unnecessarily increased our risk. (a –35 point stop turned into a –70 point loss)
2. The short term target of 15-20 points was just too short term for many traders who weren’t glued to their computers as it often happened in a matter of a few minutes.

Clearly the change has produced much better results as it created trades with an average profit of 40 points or more that was achieved in much more relaxed fashion over three to twelve hours of trading. In fact for those of you looking to get an approximate idea of the types of trades that we do the above serves as a good description. Essentially we look to put on trades that will last anywhere between an hour and twelve hours ( with most probably lasting 6-8 hours ) targeting anywhere between 40 to 90 points of profit per trade.

If you missed any particular trade. DON”T WORRY. We run one the most intense advisory newsletters on Wall Street, generating more trade ideas in a month than most people do in a year. This month alone we traded more than 20 times and the month is not even over. Furthermore, we run a full 24 hour operation with Boris managing the book during late Asia and early Europe and Kathy taking over during North America and through the Asian open. You – our subscribers are dispersed from Sydney to London to New York and all points in between and we will generate ideas during all time zones, so everyone can participate during their waking hours. Furthermore on certain strategic trades we’ve introduced the use of the stop entry order this week which allows you pre-plan your entry into the market. (For more info on stop-entry please refer to our earlier emails)

One final critical point. As most of you know, but some of you may not – the FX market is a decentralized market. That means everyone may see a slightly different price and a slightly different bid-ask spread. For the purpose of the newsletter we trade an account at Oanda and use their price feed as the reference source for all of our trade calls. Some of you have asked why we do not execute our trades through FXCM since we are both strategists there. Several reasons. First, the BKForexAdvisor is a completely separate venture from our duties at FXCM and has absolutely no connection to it. Second and far more important reason is that we simply can not trade through our own firm due to conflicts of interest since FXCM is a market maker.

We by no means endorse Oanda or for that matter any market maker in FX. We suggest you find the one that suits your needs best. Our only recommendation is to trade with a NFA regulated market maker – but even that is certainly your own choice. For the purposes of the newsletter however you should understand that we use Oanda as reference point for our trades and your own trades may at times be done at somewhat better or slightly worse prices depending on when and with whom you trade. So please understand that ahead of time and make adjustments accordingly.

Trade Delivery Channels
The Internet is a wonderful place, but sometimes it can be unreliable. We understand that issue quite well. That is why we are in the process of setting five separate channels for delivery of trade signals, so that if one source fails you can still get timely information from another source. In the next week we plan to do the following:

1. Delivery of text messages to North American cell phones.
We will be able to send a text message directly to your cell phone number. You will not need to provide us with any other information expect the phone number itself. This will make the process much easier for everyone.

2. Global access to one way chat room with audible as well as text alerts.

This week we will create a java based chat area on the bkadvisor website that will require absolutely no additional software from you except a web browser. This chat room will deliver the full text of trade alerts along with an audible alert ( for those who choose to have their computer alert them) This will by far be the fastest and easiest way to get the latest alerts since it will post to the chat room the instant we hit the submit button.

3. Delivery of text messages to Global cell phones

We are working on this capability and will hopefully have it implemented within the next 10 business days. We’ll keep you apprised.

In addition we also have plans to deliver alerts by Instant messenger and cell phone accessible web pages – and will keep you informed on the status of those projects.

Now let’s finally get to the trade review

USDCAD +15

This was a very fast trade based on an rebound in oil theme. The move started to go our way but quickly reversed as CAD remained very spiky due to the volatility in the oil market. We went to breakeven right away after reaching T1. For those of you who did not get the exact print the important thing to remember is that when we send out an alert that we are going top break even you should move your stops there regardless of whether you’ve been executed or not. Given the fact that we will not be trading two units anymore this problem should not arise going forward.

NZDUSD + 40

This was a good trade based on the idea that carry trade demand would push the kiwi higher and we exited it quite properly just as upward momentum was beginning to tire.

EURGBP + 11

A great trade and we only wished we could have gotten more, but it illustrates quite well the real time decisions you have to make when trading. The entry was just right since we had a bullish hammer formation on the daily and very dovish remarks from Mervyn King suggesting that for now BoE was done. The trade went our way and we went to breakeven when its was 11 point in the money. After the release of Bow minutes the price action spike to +25 in our favor but retraced so quickly we had no chance to take advantage of it. At this point we had a very difficult decision to make. Do we risk losing all our built in profit or do we try to lock some in? The logical move of the stop was to 6575 See chart here. http://docs.google.com/View?docid=dn8z7zs_53drpmgb

However, that would mean our profit would be miniscule, so we opted for a Solomonic compromise of moving the stop to 6580 for +11 and alas were take out before price returned to 6695.

AUDJPY +40 AUDJPY +35

Both of these trades were terrific uses of the major story of the week which was the shockingly low AUD inflation numbers that essentially put a halt to any speculation that RBA would raise rates further and caused massive carry trade liquidations in AUDJPY. Many of you complemented our time exit on the second trade but we simply used the spike low as the reference point. See chart here. http://docs.google.com/View?docid=dn8z7zs_57fpdncs

GBPCHF +5

This was a trade that really didn’t work, based it was on the assumption of further carry trade unwinding. When Japanese CPI came in very flat we were smart enough to recognize we were wrong and high tailed it out of there before it moved against us. This trade serves as a good example of the motto we live by, first spoken by the greatest trader/economist the world has ever seen – John Maynard Keynes. Keynes remarked, “When facts change, I change. What do you do sir?” We try practice that approach as much as we can.

Have a great week-end. Look for the Sunday Night Huddle in your email boxes and we will talk to all of you next week

B & K

2007-01-20T09:06:00.000-05:00

First as usual we want to welcome all the new members especially all those that joined us on Friday. This week we are moving to a new format where we will try to offer two trade calls during the global trading day – one during late Asia early Europe session (5:00GMT-10:GMT) and one during late Europe early North America (13:00 GMT – 18:GMT) in order to better accommodate our subscribers across the world. Of course not every day will present a setup but generally you should see more trade ideas from us as well continued educational content on new trading strategies and important news developments in FX.

This week was a good example of low volatility range bound environment with few good ideas and we only traded twice. The only real play this week was in the USDJPY where we thought the BOJ would raise rates but the Japanese central bankers bowed to political pressure and decided to stay pat keeping rates at 25bp. For now the market has reluctantly accepted the BoJ decision, but with ever growing divergence between the yen and the other major currencies as well as yen and the Chinese yuan, this passivity on the part of the Japanese monetary authorities is clearly unsustainable and could lead to serious political protests if yen weakness continues much further.

Read our special report here http://www.dailyfx.com/story/special_report/special_reports/Yuan_and_Hong_Kong_Dollar_1168630109448.html

In any event we tried to play the yen story by shorting EURJPY and although we never got the trade off – it turned out to be the best decision of the week. Why? Because trading is the art of BOTH picking winners and avoiding losers. By using our stop entry method we avoided the unnecessary risk as news flow clearly ran counter to our expectations

Here is a recap of the explanation for those of you who missed our Thursday update.

“Next on the agenda is an in-depth discussion of the stop entry order and why we intend to use it with much greater frequency from now on. What is a stop entry order? It is actually a limit order that directs the trader to enter the trade at a WORSE price than the current market price. For example let’s say EURUSD is trading at 1.2920-1.2923 and you want to get short on a stop entry order at 1.2895. That means you will enter the trade only if EURUSD trades down to 1.2895 and will get short the pair at that point.

At first this tactic seems counter intuitive. Why would you want to sell something for less that what you can sell it for now? The answer lies in the fact that you do not know ahead of time if the pair will in fact will trade down. Every trade is simply nothing more than an educated guess. A stop entry order helps to confirm your initial trade analysis because if it is triggered that means that price is moving in the direction you predicted.

Does that mean the stop entry order always works? Of course not. Prices often break in your direction and then reverse. That’s part of trading and that why professionals always use stops to control and mitigate the unexpected. Nevertheless, the stop entry order is a good strategy because it creates a rigorous, logical approach to trade management by providing unambiguous entry and exit points”

Let’s now turn to the analysis of our two trades this week.

Short USDCAD 1.1682 + 20

We’ve been hunting this setup endlessly over the past two weeks and will likely return to it next week as well. The central theme in that trade is that Canadian dollar is oversold, Canadian economic data has been remarkably robust (note the stellar labor data two weeks ago and massive inflow of foregn capital this week) and the only factor that has held back the loonie has been the ever sinking oil prices caused by unseasonably warm temperatures in the Continental United States ( thank you global warming!) . Yet as we sit here in our local Starbucks in New York the weather this Saturday morning is far January like with temperatures dropping into the teens. As oil begins to bottom out and demand firms prices, the loonie should rally in turn. The only question has been to find the entries into the pair. Right now we are watching the 1.1710 barrier as key support level. If that zone breaks the pair could easily make its way back to mid 1.6000’s by early next week.

Short EURUSD 1.2914 –42

This was a mediocre trade – we were trading the good US news/lackluster EZ news idea – but should have waited until the pair confirmed our thesis and broke the 1.2890 support before coming into the trade. Furthermore, with dollar rally already long in the tooth, good news was having less and less impact as the pair was coming into the zone of support on the daily chart. Indeed what verticalized the euro, wasn’t any particular positive sentiment towards EZ economy, but sovereign demand from global central banks, who tend to be buyers and sellers strictly on price ignoring near term factors. Because of their massive size however, they can move markets irrespective of the news and that is exactly what happened in this case

EURCAD Box Trade

This week we also showed you the EURCAD box trade and wanted to share with you some of the reactions from your fellows subs.

Several key points to keep in mind about EURCAD pair.

1. Not all brokers offer it

2. Some brokers have very wide spreads on the pair which make the setup much more impractical to trade

This simply the facts of life in the FX business and the easiest way to overcome this problem is to do what most seasoned retail traders do – open accounts with several dealers.

As you know for own trades we use FXCM No dealing desk option and Oanda. While we never want to recommend any specific broker we do suggest you do your own research – a good place to start is www.fxstreet.com which lists most of the major dealers in the world. Our one final caveat is that we strongly urge you to trade with an NFA regulated dealer, but as always this is strictly individual decision and we simply offer our thoughts as point or reference for your own research.

Here, then are some of the EURCAD comments

Great insight, It will be interesting to see how you define your box. Your examples show a variation of time spans. Rob's box generally is defined from midnight to 7 am eastern. I really like the breakout box on all the major pairs as well. A ranging market is tough to manage consistently, with the amount of consolidation being the key to a good breakout trade. Thanks for all you do!

Gary

Hi guys, just wanted to let you know that this idea worked last night very nice. First lot was filled long at 1.5238 at 02:00GMT and an hour later and with 20 pips profit it was closed. Unfortuantely I wasn't awake to trail the stop in the second lot so i got out of it this morning with a loss but it doesn't really matter. I think that i might be putting a tighter stop in the second lot, maybe at breakeven point, so that i don't take a loss in case i don't hit the second profit target..

Cheers,
Alex

Hi!

I have been experimenting with an idea that seems to work, but you have to be a nite owl.

I put a vertical line on midnight. Then, I look at the 30 min ROI on the CFG SmartCharts. I drill down to the 5 minute ROI for agreement & enter. My entries are positive. However, I haven't developed the art of targeting & usually get nervous & take profits before the full extent of the move.

The EURCAD was great this morning.

Can you provide help for the targeting & perhaps find suggested calls for this time frame? You could call it the "Wee Hours Trade" or the "Insomniac Trade". :)

Best regards,

Charla
Long EURGBP on watch

Finally, we also want to leave with what we are watching for trade at the start of this week. We like the EURGBP pair for a bounce to the upside, strictly on a statistical basis.

Since the launch of the euro in 1999, there have only been 4 instances where moves in EURGBP have extended 9 trading days (having reversed on the 10th) and only 1 instance where it has extended beyond 9 trading days which was back in august of 2005. This move exhausted on the 11th trading day. With pair having made a double bottom on Friday we want to see it opens on Sunday and may send you an alert then.

Have a great week-end

Boris and Kathy

2007-01-13T10:34:00.000-05:00

Week in Review:

Some wise man once said don’t ever watch sausage or politics being made. He may as well have been talking about trading because behind every gleaming hedge find return lie many dumb trades hidden from investors eyes. All of this in no way serves as an excuse for some of the boneheaded calls we’ve made this week and we will deconstruct every one of our trades to separate the good, the bad and the ugly later on. But before we begin we wanted to step back, welcome many of you new to the service and also take a few moments to familiarize you with our goals, our style and our future intentions for the BKForexAdvisor.

Our two primary goals with this newsletter are

1. Trade ideas
2. Trading education

We aim to harvest between 150-200 total points of profit per month seeking to generate a return between 18%-24% per year without leverage or 180%-240% if you areusing 10:1 leverage. No doubt these are ambitious goals and of course there is absolutely no guarantee that we will meet them or not lose money. We try to achieve these goals by taking 3-5 trades per week using small amount of risk. The irony of course is that by taking more frequent trades with tight stops we will likely have more misses. Sometimes the process can be painful when we miss several trades in a row. We know and deeply appreciate that fact and will work very hard on trying to minimize these drawdowns going forward. But please know this - we always try to control risk and since our misses are limited they are easily recoverable and therefore we generally stand a reasonable chance of making our target of 100-200 points every month. Some of you have asked us to offer longer trade ideas that require less intensive watching of the markets and we will introduce those recommendations in the near future. So to summarize:

1. Our goal is to make 150-200 points per month
2. We take 3-5 trades per week (Closer to 3 rather 5)
3. We will soon introduce 1 longer term trade idea per week
4. On the days when we issue no recommendations we will present interesting research or new trading strategy so that you will get a benefit from BKFoprexAdvisor every working day of the week.

To start your free trial, visit bkforexadvisor.com

Now let’s review our trading style. There are three types of trading techniques we utilize.

1. Two lot Scale out.

This is our most common technique where we enter a trade at market with 2 lots. We set a relatively tight stop usually no more than 30-40 points and then set two targets. Our first target that we call T1 is very conservative as we are trying to essentially make sure that our trade thesis is correct, book a little profit and reduce our risk. Our T2 target is much more aggressive usually at least three times our risk. When our T1 is hit we move the stop on the rest of the position and target our T2 limit. Typically we hit our T2 target 1/3 of the time and although they are relatively rare, it is those trades that produce the bulk of the profits.

2. The One and One

In this method we enter only with one lot and one take profit target and then put out a limit order to see if we can get a second lot at a better price than the current market and put a much bigger take profit on the second lot. We put the same stop on both orders. This technique is used with selling key technical breaks. Sometimes when price breaks support and resistance it continues straight in the direction of the break. Sometimes however it retraces somewhat before creating enough momentum to follow the initial impulse. Because mo one ever knows ahead of time when one or the other scenario will happen, we use this technique to provide us with a higher probability of success by allowing us to get a blended price with less risk.

Figure one illustrates the 1 in 1 on the NZD/USD

Figure 1

3. The One and One with Limits

While the one and one strategy is good it has a drawback. By waiting for support or resistance to be broken and then entering at market, the trader is often late to the trade and gets a bad entry price on the first lot typically near the low of the move. The one and one with limits is designed to combat that problem.

Following are the rules for a break of support – the rules for a break of resistance are simply reversed.

1. Set a limit order to sell a few points below resistance for one lot only

2. Set a limit order above the breakdown level in case price retraces

3. Set the same stop for both lots

4. Use the standard T1 and T2 scale out method to book gains.

Notice how the limit one and one improves the execution on the prior NZDUSD example.

NZDUSD example

Now that we had the chance to see our methodologies lets discuss this week’s trades.

First of all let’s note that we had seven trades this week which was way to much as we seriously overtraded. Each week there are no more than 3-5 good ideas and we will be far more selective in choosing trades going forward.

1/08/07

Short GBPUSD –52

Short EURJPY –58

Both of these were poorly thought out trades as we sold on what was short term overbought hourlies but managed to neglect the fact that we were selling right into daily support. Furthermore our fundamental reasons were very weak. In the case of EURJPY carry trade liquidation has been going on for several days and was essentially finished, while the dollar had no positive news behind it and in fact was coming off a false gas terror alarm in New York.

See EURJPY Chart

1/9/07

Short NZDUSD 0

This was perhaps the most boneheaded play of the week and I (Boris) take full responsibility for it. We were right on the theme of the day which was commodity dollar weakness due to the overall weakness in the commodity markets. Our entry execution could have been better (we should have used the limit one and one rather than just plowing in all at once) and the trade went to nearly our stop price before coming back down. When it started to head back up I decided to take the trade off not liking the risk at that moment. Of course soon thereafter the trade proceeded to drop in our original direction easily hitting T1. The lesson here is to leave your stops alone. They are there for a reason. Price did not violate them and I should have let the setup run its course.

1/10/07

Short USDCAD +20

This was a well conceived trade that was executed perfectly with a one and one entry but unfortunately could have been closed much better. We achieved T1 on the trade but should have lowered our stop once price moved near T2 territory to capture more profit. Our thought was that this was the really big turn in USDCAD and we really wanted to milk the second lot for as much profit as possible and therefore decided to give the trade room. Unfortunately oil prices dropped through the floor in overnight electronic trade, sending USDCAD sharply higher in a matter of minutes

1/11/07

Long GBPUSD -30

Good idea because BoE raised rates and in fact GBPUSD has rallied higher since, but we rushed the trade ahead of the ECB press conference and got caught in the downdraft after Trichet’s dovish stance. We speculated that there was a chance that this might happen and our only saving grace was to take a 1 lot position only instead of our usual two

1/11/07

Short EURGBP +14

Best trade idea of the week as the BoE was hawkish and the ECB was dovish and this trade worked like a charm from the get go. It was very well thought out fundamentally and properly entered technically.

1/11/07

Short EURCHF –50

This was just one of those frustrating trades where the stop gets clipped and then it turns your way but this type of scenario will happen hundreds of times in your trading career and you just have to accept that this is part of the game and move on.

Well this is a missive worth of Tolstoy and we hope we did not bore you too much, but we felt it was important to discuss all these issues in detail so that we may start next week with a clean slate and more selective approach to better trades..

To start your free trial, visit bkforexadvisor.com

Wishing you all a great week-end,

Boris and Kathy

2007-01-05T18:12:00.000-05:00

Dear Raheem,

On January 2, 2007, we launched our Premium Subscription Service, BKForexAdvisor. Since our start, we have scored 3 out of 3 winning trades and sent out an analysis on what is happening in EUR/JPY as well as AUD/CAD using some of the setups in our e-book. Market volatility has picked up significantly since the beginning of the year and we look forward to sharing more great trading ideas and tips with our subscribers! To start your free trial, visit bkforexadvisor.com

It has been a shortened trading week, but not shortage of volatility in FX! Here's a recap of our past week's emails.

1/2/07 Welcome to BKForexAdvisor!

We want to welcome everyone to our BKForexAdvisor trading community! The markets have broken out today and we already have a few potential trades that we are watching. No one wants to be long dollars on the first day of trading with the US markets closed for the mourning of former President Gerald Ford and the Euro rallying thanks to hawkish comments by ECB member Liikanen and more talk of reserve diversification. Here's some information on updating your SMS so that you can receive your alerts as quickly as possible:

1/2/07 What is happening in EUR/JPY

EUR/JPY is shooting to the moon and scoring fresh all time highs on a near daily basis in the process. Having already broken through the 50% Fibonacci retracement of the 211.37-88.69 decade long sell-off (See Chart), there is no major resistance until 165. Fundamentally, with the European Central Bank sticking to their plans of continuing to raise interest rates while the Bank of Japan only warns of gradual rate changes, the trend has both fundamental and technical support. However we want to take a slightly different perspective in explaining EUR/JPY's move.

Take a look at the chart of EUR/JPY and the Dow - you will see that the charts going back the last 4 years are near mirror images of each other and this is because EUR/JPY is exceptionally sensitive to global growth. Therefore EUR/JPY has been benefiting from the rally in the Dow and if the Dow begins to top out, we could expect the currency pair to do the same . In fact, a close examination of the chart below reveals that frequently, the Dow can be a leading indicator for the movements in EUR/JPY.

See Chart
Source: Bloomberg

The Dow - EUR/JPY analysis and chart is made exclusively for our BK Forex Advisor traders.

Feel free to shoot us questions at bktrader@gmail.com. We continue to be watching some exciting trade setups and will be shooting you an email as soon as we see a good entry level!

Good luck and good trading - talk to you tomorrow!

1/3/07 EUR/USD Long

We have waited patiently to buy the Euro on a retrace and we are finally getting that opportunity. US ISM runs the risk of coming out weak this morning while the change in German unemployment printed at the strongest level in 15 years. The combination of technicals with fundamentals makes long EURUSD an attractive trade.

Therefore we are buying here at market (1.3230) with a stop at 1.3207. Our first target is 1.3249. Once that level is reached, move your stop on the second lot to breakeven and target 1.3282 for the second lot.

T1 Hit on EUR/USD

At the speed of light on the back of the horrid ADP number (-40k vs. 120k expected), we hit our first target on the EUR/USD at 1.3249 (+19). We have now moved our stop to breakeven on the second lot and are targeting 1.3282. The markets are moving quickly this morning so we hope you were able to get in.

1/4/07 Sell NZD/JPY

We are seeing massive carry trade liquidation today to the point where major uptrends are being broken in the commodity currencies. The moves have become very extended and we think that with the Bank of Japan interest rate hike just slightly more than a week away, we could see further liquidation. The New Zealand dollar has benefitted the most on the back of the rally and as a result, it could correct even further. There is also a massive head and shoulders formation in the NZDUSD that stretches back to 2004. We are going into this trade with half of our usual position (1 lot) because there may be an opportunity to sell at a higher price.

Therefore we are shorting NZD/JPY at market (currently 83.30) with a stop at 83.80. Our first target is 83.07. Our second target if we get to lay the second lot on at a higher price will be 81.65. Look out for a follow up email on that.

Taking T1 on NZDJPY

We never got a chance to sell higher in NZDJPY and the currency pair has now come within 3 pips of our initial target and is potentially bottoming out here. Both the hourly charts of the "legs" which are the NZDUSD and USDJPY look like they are finding support as well. Therefore we want to take profit on our 1 NZDJPY lot at 83.10 for a +20 pips gain on the trade.

As you know, we never want to let a winner turn into a loser and no one ever went broke taking profits!

1/4/07 AUD/CAD - Extension Fade Strategy in the Works

We were upgrading our email servers last night, so we were unable to send out this trade alert (and we did not take it ourselves), but we do want take this opportunity to show you yet another example of how to use the strategies in our E-book since the BKForex trading community is not just about trading signals, but also about education.

Take a look the following chart of AUD/CAD See Chart

We have pointed out that up until yesterday, AUD/CAD had rallied for 8 straight days which means that it was ripe for an Extension Fade (page 68 in the e-book). Now the strategy in the e-book is called the Seven day extension fade and it tells you to focus on seven days. 7 days is on average as long as a continuous move can last. However, this strategy is about statistical significance and to effectively use this strategy, what you should do is each time the setup forms, go back in the charts and look to see how many candles a move has extended for that SPECIFIC currency pair. Each currency is a different animal. For some, the move will indeed stop at 7 days, but for others it can last for as long as 10,11 or 12 days.

For AUD/CAD specifically, the sweet spot is 8 days. After reviewing our charts, we have seen that in the past 10 years, there have only been 6 periods where the AUD/CAD has strengthened for 8 straight trading days with only 1 out of those 6 extending beyond 8 days. Therefore there was a very strong statistical likelihood for the AUD/CAD's rally to top out yesterday, which was at the end of 8 days. If you followed this strategy you would have been able to forecast the reversal move before it happened.

We hope that we have shed more light into how to use one of our favorite strategies in our E-book!

1/5/07 Short USD/CAD

Even though US payrolls came out very strongly in the month of December, Canadian payrolls were even better with the unemployment rate sinking to a 30 year low this morning. And although IVEY PMI printed below the 50 boom/bust level for the second month in a row, the market may be looking past the number as traders begin to appreciate the positive impact of the lower loonie on the Canadian economy, which is why we think that the Canadian dollar could bounce even further. Technically, USD/CAD also currently offers an attractive risk / reward profile as it tries to form an exhaustion top.

Therefore we are going short USD/CAD at market (currently 1.1760), with at stop at 1.1792. Our first target (T1) is 1.1742. Once that price level is reached, move your stop on the second lot to breakeven. Our second target (T2) is 1.1685.

T1 Hit on USD/CAD

Our first target has already been hit in USD/CAD, earning us another easy 18 pips. We are now moving our stop to breakeven on the second lot (1.1762) and aiming for our second target (T2) at 1.1685. For those of you who do not wish to hold the trade over the weekend, you can close the trade here at 1.1728, for a 34 pip gain on the second lot. We're choosing to stay in the trade.

To start your free trial, visit bkforexadvisor.com

2006-12-31T15:46:00.000-05:00

Introduction of Premium Service

We wanted to remind you that starting January 2nd, we will be emailing our trading alerts exclusively through our new service BKForexadvisor.com End of week updates will be posted on BKTraderFX.com

In conjunction with our partner Investopedia, the premier financial education portal in the world we would like to invite you to join our exclusive trading community.

Through this new advisory service we will communicate with you everyday. So not only will you receive the same high quality high probability trading recommendations that you have seen over the past 2 months, but we will also provide you with our latest trading strategies, tips on psychology and money management and other useful commentary about foreign exchange - a market that offers great trades nearly every day of the year.

We want you to be completely satisfied with the product. Therefore we are offering a 100% money back guarantee, no questions asked. If you are not thrilled with the service just let us know within the first 30 days and we won't bill your credit card. That means you get to continue to sample our service until the end of January with full, un-restricted access absolutely risk free. A credit card is required to activate your free trial but you will never be charged during your free trial period, and you can cancel at any time.
All you need to do is register at: http://www.bkforexadvisor.com/

If you sign-up for a 30-day free trial right now you can lock-in the introductory rate of only $995 annually or $295 quarterly which equates to a little over $82 per month.

Feel free to email us if you have any questions. Starting January 2nd, 2007 we will be sending out emails and trade recommendations exclusively to those who have registered for the free trial on www.bkforexadvisor.com.

2006-12-28T17:17:00.000-05:00

Today's Email Alert:

To our frustration, USD/JPY moved 6 pips above our stop, reversed and is now heading lower. Unfortunately in thin market conditions, it is tough to get exact levels right. However, we only risked a small 25 pips on this trade and will be looking for the next best opportunity

2006-12-27T14:42:00.000-05:00

Today's Email Alerts:

Alert # 1 Getting Short USD/JPY

Welcome back to Carry Trade Unwinding! Overnight the JiJi news agency reported that the Bank of Japan will be weighing the possibility of a 25bp or 50bp rate hike in January. Although this is pure speculation, the market is already pricing in a 70 percent chance for a January hike. It is unlikely traders will want to be short Yen going into the meeting. Furthermore, the UAE central bank announced this morning that they plan on diversifying out of US dollars into Euros. There is widespread belief that many other Middle East central banks are increasing their holdings of Euros, British Pounds and Japanese Yen.

Therefore So we want to go short USD/JPY at market (Currently 118.65 ) Stop 118.90 T1 is 118.40 T2 is 117.87. As usual, once our first target (T1) is reached, move your stop to breakeven on the second lot.

2006-12-22T17:40:00.000-05:00

Today's Email Alerts:

Alert # 2 Sidelined after EUR/CHF spike

The spike in EUR/CHF after release of 8:30 US data took us out at brekeven at 1.6033 on the second half of our position. We remain sidelined after banking +15 on the trade.

Alert #1 Taking T1 Short EUR/CHF at Market

EUR/CHF has finally started to move our way so we are going to take T1 at market (currently 1.6018) to bank +15 and will move to breakeven on the rest targeting 1.5987 on T2

2006-12-21T18:12:00.000-05:00

Today's Email Alerts:

Alert # 1 Getting Short EUR/CHF

EUR/CHF has made 9 consecutive green candles on the daily chart more than fulfilling our 7 day extension fade setup. We have been very patient to wait for a sign of exhaustion before getting in because EUR/CHF has previously seen exhaustion moves that have lasted for nine days. Such exuberance in the pair naturally leads to a retracement and thats what we want to trade on.

So we want to go short EUR/CHF (Currently 1.6033 ) Stop 1.6060 T1 is 1.6013. Once the first target is reached, move your stop to breakeven, T2 is 1.5987

2006-12-20T20:23:00.000-05:00

Today's Email Alerts:

Alert #2 Short USD/CAD T1 Banked

AHHHHHHHH!!!! Do you sometimes want to just scream in frustration? Welcome to trading. We banked our T1 in short USD/CAD at 1.1503 early this morning for +20 and moved the stop to breakeven only to be tagged out by 1 pip and then see the pair collapse another 60 points lower. Alas that's trading. There will be hundreds probably thousands more trades in our lifetime but if we abandon our discipline of never letting a winner turn into a loser we may not be around to enjoy them. In any case for those of you still in the trade take T2 at market (currently 1.1463) for a nice +80 on this trade. As for us we are taking our +20 and moving on.

Alert #1 Taking T1 on Short USD/CAD

USD/CAD finally collapsed to our T1 target in very thin markets in a matter of seconds ( hey sometimes its good to be on the right side of liquidity :) We took T1 at 1.1503 banking (+20) and now go to breakeven targeting T2 at 1.1435. Stay Tuned.

2006-12-19T18:45:00.000-05:00

Today's Email Alerts:

Alert # 1 Selling USD/CAD

We are looking to short USD/CAD today, as it looks good from multiple time frames. Oil prices have reversed this morning's drop as weather here in NY begins to fall from the 50s down to the low 40s. Technically, we are seeing a turn on the daily charts below our favored first standard deviation bollinger band. On the hourly charts, we have confirmation of a short term trend reversal with prices below the 200-hour SMA.

Therefore we are looking to short USD/CAD at market (it is currently trading at 1.1523), with a stop at 1.1553. Our first target is 1.1503, second target is 1.1435.

2006-12-05T19:19:00.000-05:00

Today's Email Alert:

High Probability Setup

We are off to Vegas and hope to see some of you there this week-end. As you can imagine we’ve been very busy and haven’t had much chance to trade. We’ll be back at our desks next week and hope to start sending you trade ideas again.

In the meantime lets take a look at something we were watching today – which is one of our favorite setups because it is such a high probability trade. The funda retrace setup.

See Chart

Overnight we had very positive news on the yen as a slew of Japanese officials commented on the possibility of December rather than January hike. This was big news. In fact one of the key to understanding the yen is that the currency trades much more on official commentary rather than economic data. That’s why so many traders – both technical and fundamental have such a hard time handicapping the unit. It doesn’t follow logic – it follows rhetoric.

In any event the overnight news caused a major move down. But how to trade it? Especially if you only came into the market during the US session and were afraid of bottom ticking the pair. Enter one of our favorite setups – the funda retrace. With fundamental news at our back we waited patiently for the pair to bounce. It did, after the better than expected ISM Services. At this point however, we let the technicals do the talking. We had a buy bias on the yen – but weren’t about to guess the turn. Instead we waited for counter trend move to exhaust itself on the hourlies. At 1 PM EST (18:00 GMT) the pair finally printed a red candle. Going short on the close would have gotten you into the trade at 115.00. Risk was to 115.40 because if the pair had rallied that far up chances were that the market turned pro-dollar once again speculating that US data would be positive rest of the week. Looking at the chart you can see that we would have made our T1 at 114.80. Whether the trade makes it to T2 near the day’s lows remains to be seen. But as a high probability low risk setup – the funda retrace is one of our favorite trades. The key however is to let the price action govern your entry rather than blindly following your directional bias.

2006-12-04T18:55:00.000-05:00

Today's Email Alerts

Alert # 2

The Move in the US dollar is Not Over

The two main events this week are Thursday’s ECB rate decision and US non-farm payrolls. The markets could tread water before that, but the possibility would depend upon how service sector ISM fares tomorrow. We know that manufacturing ISM was very bad, but the US economy is dependent on services. Therefore should we get anything other than an in line print in the service sector ISM report, we could see another day of wild price action.

Either way, the move lower in the US dollar could still have more room to run. For those of you who caught our article on DailyFX.com, we pointed out that December tends to be a bearish month for the US dollar. In 15 out of the past 20 years, the US dollar has fallen against the Euro in the month of December (we used the Deutschemark to represent pre Euro). If you zoom into the last 10 years, the statistical significance is even stronger, with the EUR/USD rallying 8 of the past 10 years.

In addition, we performed a study on breakouts after low volatility environments. The last one in 2002 led to a rally in the EUR/USD that was approximately 1250 pips in magnitude over the course of 3 months (see first chart below). The breakout in 2004 was approximately 1100 pips, and that happened over the course of 2.5 months (see second chart below). The breakout that we have seen thus far has only been 500 pips in magnitude which indicates that there is plenty of room to run.

Alert # 1

What will Happen this Week in FX?

Many of you have wondered what’s happened to BKTraderFX signals. Rest assured the signals will be back but have been inordinately busy preparing for FXCM expo next Friday, Saturday and Sunday in Vegas. Since we’ll be on the road this week, our ability to follow markets intensely will be curtailed significantly so we may only be able to send out 1 or 2 signals this week.

Everyone wants to know if this anti-dollar rally continues or not. The greenback is grossly oversold and due for at least a small bounce as evidenced by the bounce tonight. However, only a strong positive surprise in ISM Services or US NFP could turn the sentiment in dollars favor and while NFP are notoriously difficult to handicap the preponderance of evidence suggests that US job growth will be tepid. One other factor could help the dollar this week – surprise “no-hike” announcement from the ECB. How probable is that? Not very. But if the EZ Central bank decided to hold off on tightening until January, the EUR/USD – already doped up like junkie on amphetamine – would fall hard given the market’s near universal anticipation of a hike.

Meanwhile here is an interesting to technically gauge the true strength of the trend.

1. Use hourly charts
2. Lay a long term Simple Moving Average (200 periods)
3. Put on two sets of Bollinger Bands (2 Standard Deviation and 3 Standard Deviation) on the chart.

The currency is in a strong uptrend if the BB bands levitate above the 200 SMA. That’s because the retracements in the currency are so shallow that they never even come close to touching the long term 200 SMA. Furthermore a bounce out of the lower BB band represents a good risk/reward trade to go with the trend.

But beware! If the BB bands and 200 SMA begin to intersect, no matter what anyone says, the trend is weakening and is quite likely no longer your friend. To see just how fast things can unravel we are attaching the same setup in EUR/USD from January of 2005. Either way, we hope this is some food for thought as the week starts.

2006-11-30T19:37:00.000-05:00

Today's Email Alerts

Alert # 3

GBP/USD Chart

Well the question of the day seems to be – will the GBP/USD go to 2.000? If the US data continues to deteriorate like it has been it’s certainly a strong possibility. Today’s 49 print on Chicago PMI was shocking – the first contractionary reading since 2003 and if tomorrow’s ISM follows suit the FX market will only have one thing on its mind – the coming of the US recession. Of course manufacturing is only a small part of US economy and services so far, have held their own – but no one is going to wait for a confirmation. Everyone will assume that manufacturing leads to the downside and services will follow. That why tomorrow’s ISM may be the dollar bulls last chance.

The strength of the pound therefore is really not inherent to the unit but rather a function of US weakness. In fact today’s UK retail data indicates that UK consumer may be very tired going into the Xmas season setting up the possibility of the worst UK Xmas in 25 years. But for now waiting for a turn in the pair is like waiting for Godot.

EUR/JPY Chart

Meanwhile, tonight blizzard of JPY data may be critical to setting the tone for the yen. This week’s blowout IP number put talk of a December BOJ rate hike right back on the table. The only reason for BOJ reticence is the weak state of consumption in Japan. Therefore any upside surprise to today’s labor, CPI and Household spending reports could really seal the deal and turn market sentiment squarely in yen’s favor. See the dailyfx calendar for all the details of the upcoming releases. We’ll be watching too.

Over and out.

Alert # 2 Stopped out of Short CHF/JPY

We got stopped out of CHF/JPY at 96.65 for -37 pips on each lot. It seems that the market does not want to give up on its trend.

Alert #1 Short CHF/JPY

Divergent data from Japan and Switzerland makes us want to go short CHF/JPY. Japanese Industrial Production created a whopping surprise to the upside printing 1.6% vs. -0.4% expected and put talk of BoJ rate hike in December right back on the plate. Meanwhile Switzerland most important economic statistic - the Kof index of leading economic indicators fell for the 5th month in a row suggesting that Swiss growth has peaked and the SNB may only raise once and halt.

So we want to go short CHF/JPY (Currently 96.28) Stop 96.65 T1 is 96.07 T2 is 9547

2006-11-29T18:08:00.000-05:00

Today's Email Alerts:

Alert # 3 Locking in more profits on the GBP/USD

The GBP/USD has melted down. The Beige book was neither dollar bearish or dollar bullish. We were banking on that for a bigger move to deliver a further break lower that didnt really ensue. Therefore, we want to move our stop on the second short GBP/USD lot to 1.9475, locking in a minimum of 40 points on the trade.

Alert # 2 T1 in the GBP/USD

The markets are moving fast and we hit the first target on the GBP/USD trade, 15 minutes after the release went out (+20 pips). We have moved our stop to breakeven on the second lot and we are targeting 1.9365.

Alert # 1 Reversal in the GBP/USD

US GDP numbers were very strong this moring and the US dollar is turning. Given yesterday's comments from Fed officials including Bernanke, Plosser and Poole, the Beige Book report is likely to reflect hawkish sentiment, which should extend the US dollar's reversal. The British pound has seen one of the biggest extensions which puts it at a greater risk of a reversal.

Therefore we want to short the GBP/USD at 1.9495 with a stop at 1.9525. First target is 1.9475, move the stop to breakeven once that level is reached. The second target is 1.9365.

2006-11-28T18:01:00.000-05:00

Today's Email Alerts:

Alert # 2 Stopped out of USD/CHF

We got stopped out of the USD/CHF long trade for 30 pips. It came 4 pips shy of our T1 but unfortunately did not have the momentum to extend much further. We've hit 3 losers, but thankfully our losses have been controlled and we are still up 120 pips since the beginning of the month and 327 pips for the past 2 months.

Alert # 1 Long USD/CHF

Existing Home Sales have printed better than expected suggesting that Us housing may be stabilizing. After days getting pounded the US dollar is due for a bounce. We think the market may use this positive news to rally the greenback so we are going long USD/CHF (Currently 1.2070) Stop 1.2040 T 1 1.2098 T2 is 1.2147

We are using USD/CHF because its conforms to our 7 day ( in this case 8 day) fade strategy from our book.

2006-11-27T17:03:00.000-05:00

Today's Email Alerts:

Alert # 2 Holding Over the Weekend

We heard from many of you and apparently most FX dealers did not honor the stops. As we've noted earlier gap openings are very rare in FX but nevertheless a fact of life. Oanda is one of the few market makers that quotes on week-ends - and they stopped us out at 1.9340 at 1:13 PM on Sunday. One of the attributes of the FX is that it is a decentralized market and every market maker has a different dealing policy.

Although these moves are rare- in the future we will try to remain flat over the week-end in order to minimize the chances of these liquidity vacuums but as traders we know that you can never fully avoid all sharp adverse moves. That's part of risk. However, rule #1 is to never let any trade become your last. Like any professional risk managers such as insurance companies, good traders cap their losses and move on to the next idea.

Alert # 1 Stopped on the Short GBP/USD

We were stopped on our short GBP/USD (-20) earlier in the day (1:13 PM EST). For those of you wondering how that's possible our dealer makes markets on the weekends - but even those dealers that do not will generally honor your stops even on gap opening such as we are having tonight. Generally, gap openings over the weekend are very rare in FX - they happen no more that 4 times a year, but tonight's price action underscores the importance of always trading with stops in order to control risk.

As for the price action, momentum rules the day as option players who sold volatility scrambled to cover their exposure and triggered yet more and more stops in the spot market Note that dollar weakness against the commodity currencies has been far more modest than its losses against the majors. That's why we think when the turn in the dollar comes we may want to take advantage of it through another USD/CAD long. For now we are sidelined

2006-11-24T14:01:00.000-05:00

Today's Email Alerts:

Alert # 6 Back to Short GBP/USD

We are going to try the GBP/USD short one more time, now that US traders are in. We think the combo of weak GDP and severely overbought conditions is worth one more try.

We are shorting GBP/USD (currently (1.9320) Stop 1.9340 T1 is 1.9301 T2 is 1.9272

Alert # 5 Stopped on Short GBP/USD

Momentum has just proven too strong in the GBP/USD and we are stopped at 1.9330 (-18). We are sidelined for now.

Alert # 4 Short GBP/USD on Weak GDP

Wild and crazy night in FX tonight as both euro and pound make new yearly highs, but latest UK GDP data suggests that BoE may hold off on further rate hikes as private consumption moderated markedly from 0.6% expected to 0.4%. We are going to get short here looking for some of the euphoria to wear off.

We are going short GBP/USD Currently (1.9312) stop is 1.9330. T1 is 1.9287 T2 is 1.9245

Alert # 3 Long USD/CAD Out at Breakeven

Very spiky action in thin markets tonight as traders try to gun for EUR/USD 1.3000 and USD/JPY 116.00 creating dollar weakness throughout. As a result we were taken out of rest of of our long USD/CAD at breakeven, so we are (+16) on the trade and sidelined for now.

Alert # 2 T1 Reached on Long USD/CAD

T1 was hit at 1.1418 (+16) we go breakeven on rest of trade targeting T2 1.1454

Alert #1 Long USD/CAD on Reversal

Yesterday CAD PM Harper made a speech about making Quebec a "nation" albeit a cultural one. While the political reaction was positive, traders may not be kind as it can bring back the whole notion of separatism and upheaval that has plagued Quebec-Canadian relations for the past 30 years. Combine that with oil bearish oil inventory on Wednesday and we think shorting the loonie is worth a try.

We going long USD/CAD (currently 1.1402) stop is 1.1380 T1 is 1.1418 T2 is 1.1454.

2006-11-22T16:25:00.000-05:00

Today's Email Alerts:

Alert # 2 Taking T2 on USD/CAD

USD/CAD has collapsed after CAD CPI data and we are going to bank T2 ( currently at 1.1403) +50 on the second lot of the trade. That's a total of 68 points (+18 T1 and +50 T2) on this trade.

Happy Turkey day to Americans. We'll see you next week.

Alert # 1 Taking T1 on USD/CAD

USD/CAD has finally dropped and we are going to lock in T1 at 1.1435 (+18) and go to breakeven on the trade

2006-11-21T23:44:00.000-05:00

Today's Email Alerts:

Alert # 4 Short USD/CAD

Oil prices are flirting with the $60 a barrel mark. Bad weather has disrupted oil production in Alaska while a couple of US refineries have reported outages. The weather is also getting cooler here in the Northeast, which is providing the perfect backdrop for more gains in oil prices. The US dollar - Canadian dollar currency pair is only beginning to react, but we think that more losses could be in store.

Therefore we are shorting here at 1.1453 with a stop at 1.1483. First target is 1.1433. Once that is reached, move your stop to breakeven and target 1.1375 for the second lot.

Alert # 3 Out of EUR/JPY at Breakeven

EUR/JPY has rallied above our break even stop of 151.35 so are now completely out of the trade (+13). Markets are clearly slowing ahead of the holidays and price action is very choppy, so are sidelined for now.

Alert # 2 Taking T1 on Short EUR/JPY

EUR/JPY is within 1 point of T1 at 151.22 so we are taking it here (+13) and going to breakeven on rest of trade.

Alert #1 Short EUR/JPY

Euro-zone news has been lackluster all night long with French GDP showing no growth this quarter and Italian Industrial Orders and Sales missing expectations. With all the bad news on yen already baked in we think the euro will slide more against the dollar than the yen.

We are going short EUR/JPY ( Currently 151.35) stop is a tight 151.50 T1 is 151.21 T2 is 150.88.

2006-11-17T17:36:00.000-05:00

Today's Email Alerts:

Alert # 3 T2 Hit on GBP/USD

We have already hit T2 on the Long GBP/USD trade banking a total of 91 pips (22 points on the first lot and 69 points on the second lot). This is a nice end to the week, have a great weekend.

Alert # 2 T1 Hit on Long GBP/USD

We got filled on T1 at 1,8882 (+22 points) . We are now at breakeven on rest targeting T2 1.8929

Alert # 1 Long GBP/USD off Weak Housing

We are correcting our time stamp on this - it should be 8:56am and not 3:20am! We got a bit too excited about sending the info out. Also, below is the spelled checked edition =)

US Housing Starts printed at their worst level this decade yet the dollar has not weakend much. We want to take this opportunity to get long GBP/USD (Currently 1.8860) Stop 1.8827 T1 1.8882 T2 is 1.8929

2006-11-17T10:59:00.000-05:00

We have done well since we started in October - banking a total of 366 pips!

Here are our results

2006-11-16T18:04:00.000-05:00

Today's Email Alerts:

Alert #2- T1 on GBP/USD long hit

The Philly fed printed a lame 5.1 reading much in line with expectations but after yesterday much better than expected Empire it was ultimately a dissapointment to the market. We made our T1 target on GBP/USD at 1.8908 (+23) and now move stop breakeven on rest targeting T2 at 1.8975.

Alert # 1 Go Long GBP/USD off Weak CPI

US CPI numbers printed way below estimates at -0.5% versus -0.3% expected suggesting that pricing pressure in US remains non-existent and the Fed will remain on the sidelines for the foreseeable future. UK retail sales also printed stronger this morning.

Right now the US dollar is rallying a bit after the TIC data which is counterintuitive and we want to take this opportunity to go long the GBP/USD
We are buying the GBP/USD at market (currently 1.8885) with a 1.8850 stop. First target 1.8908, second target 1.8975.

2006-11-14T17:41:00.000-05:00

Today's Email Alerts:

Alert # 3 Take T2 on USD/JPY Now

US numbers this morning were very weak and point to the possibility of an early 2007 rate cut. As we expected, USD/JPY has collapsed on the number. The knee jerk reaction is currently finding support above our second target. Given no more meaningful data left today (business inventories are not very market moving), we could see a bounce from here.

Therefore we are not going to be greedy and we will be taking profit on our second lot here at 117.32, for a gain of 50 pips on the second lot, totaling a profit of 67 pips on the entire trade.

Alert # 2 Take T1 Now

We are off to CNBC and cant monitor the trade through the event risk to take T1 now ar market (117.65) for +17 and move stop to break even.

Alert # 1 Short USD/JPY

Japanese GDP printed much stronger than expected at 2.0% vs. 1.0% putting the possibility of a December rate hike by the BoJ back on the table. Meanwhile US data (retail sales and PPI) is predicted to be weak tomorrow. We think USD/JPY may see further weakness as the day progresses, so we are looking to short USD/JPY here (117.82) Stop is 118.15

First target is 117.62, once that is reached, move your stop to breakeven on the second lot. Target 117.23 for the second lot.

2006-11-10T05:25:00.000-05:00

Wrong Sucker!

“I assume that markets are always wrong.”
George Soros

“The market can stay irrational longer than you can stay solvent”
John Maynard Keynes

So what brings me to this topic? Well the US midterm elections of course.

As late as the evening of Tuesday November 7th the GOP win Senate contract was trading at 70 bid showing that FX traders are not the only idiots around. The magic power of market predictions was not so magic after all. As one of my favorite bloggers, Atrios, so succinctly noted in a jibe at all the pundits who hold market sentiment so dear, “Markets provide a cute distillation of conventional wisdom, that’s all.” For a prime example just look at the Dow. Global economic growth is contracting. Housing-as-ATM is done. US economy is tipping into a recession – put a fork in it we are done. Yet equity traders are partying like its 1999. Morons? You bet.

But making money out of assuming that markets are always wrong is a lot tougher than it sounds. As Lord Keynes noted irrationality can persist a lot longer than your bank account. Fading the market requires two contradictory qualities – total confidence in your long term view and innate humbleness to take quick losses if prices don’t confirm your outlook. More importantly to truly capitalize on the market turn you need to plow into a position with everything you have. Soros’s other famous quote was, “You can’t be enough of a pig when you are right.”

Think how difficult this is to achieve in real life. You have be constantly defensive when markets don’t go your way and super aggressive when they do. Most people can be one or the other, but rarely both. The game is complicated further by the fact that sometimes the markets go your way for a bit only to pivot and reverse stopping you out in frustration.

Yet this is what makes trading so wonderful. If it was in any way truly forecastable banks would simply set up computer boxes and capture all the profits in all the markets. They’ve tried and failed many times. Thank goodness. Here is to the wild unpredictable, irrational nature of the game. Ultimately it’s what allows all us to trade and survive by that oldest of human tools – our wits..

Oh yea - and are the markets always wrong? No. But don’t fall into the mindless assumption that they are always right either.

2006-11-10T02:24:00.000-05:00

Email Alerts for November 9th

Stopped on Short EUR/JPY
November 9, 2006 EMAIL TIME: 3:05am EST
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Greetings!

We were taken out of the short EUR/JPY at 150.60 (-25) after Japanese eco Watchers printed a bit softer than last month's reading. We are sidelined for now but may revisit this trade if a new and better catalyst presents itself.

2006-11-08T17:33:00.000-05:00

Today's Email Alerts

Alert # 3 EUR/JPY Ready to Roll Over

Short EUR/JPY
Bank of Japan Governor Fukui turned things around yesterday night when he said that the central bank would not hesitate to raise interest rates if needed. Every time we break above the 150 level in EUR/JPY a politician either domestically or internationally steps in and makes a pro Yen comment. It is no different this time around as we mark a potential quadruple top in the Japanese Yen.

Short Yen positions have already been cut significantly on the futures market which suggests that we could see another turn at the key level here. Risk is very favorable so we want to take this short at market (150.35) Our stop is 150.60 T1 is 150.12 T2 is 149.64. As usual go to break even if T1 is hit.

Alert # 2 Stopped on Long USD/CAD

Well hardly an hour into the trade we got stopped on USD/CAD at 1290 (-30). What an ugly trade as we ran into CAD bullish oil inventory numbers that changed the whole tone of the price action. Fortunately our risk was well contained, so we escape with just a nick and scratch. We remain sidelined for now, although we are eyeing several possible setups for later in the day.

Alert # 1 Long USD/CAD

USD/CAD has found nice support after yesterday's massive reversal. We have Canadian trade balance and house prices scheduled for tomorrow. With the persistently low prices of oil and the strong Canadian dollar over the past few months, trade flows are likely to contract which would be negative for the CAD.

Therefore we are going long here at 1.1320 with a 1.1290 stop. First target is 1.1347, second target is 1.1396. As usual when the first target is reached, move your stop on the second lot to breakeven.

2006-11-07T19:17:00.000-05:00

Today's Email Alerts:

Alert # 1 Getting Out of AUD/NZD

AUD/NZD has been the most painstaking trade that we have been in this past month. Fundamentals played out just like we expected but the currency pair has not budged. Earlier this evening, the Australian central bank raised rates by 25bp to 6.25 percent and was very bullish on both the economy and monetary policy. Prime Minister Howard was on the wires shortly thereafter commenting on the strength of the economy and the confidence of consumers. Yet the Australian dollar has been unable to rally.

We have sat through this trade for 2 days now and no longer want to be in it. The rest of the Australian data this week runs a stronger risk of coming out weaker than stronger while the inability of the AUD/NZD to rally, especially above the 1.1550 level (our entry) is extremely worrisome.

Therefore we are moving on and closing the 1 lot position that are short at 1.1535, taking a modest 15 point loss on the position.

There will always be more trades, this one is just not behaving well enough to be worth waiting for.

2006-11-06T18:29:00.000-05:00

Today's Email Alerts:

Alert # 2 AUD/NZD Another Push to the Upside

After breaking out of a massive triangle formation, AUD/NZD has already retraced to the top of the triangle and is bouncing from there. In fact, if you look closely, the AUD/NZD "retracement" lasted for basically 7 trading days.

The Reserve Bank of Australia is set to raise interest rates this week, which should be positive for the Australian dollar. New Zealand only has the unemployment rate due for release this week and the market is forecasting a weaker print. As such, we think that AUD/NZD may have more room to extend.

However the risk is larger and the spread greater in AUD/NZD, so in this case, we are only going in with one lot. More specifically, we are buying AUD/NZD here at 1.1550 with a 1.1500 stop and a target of 1.1626.

Alert # 1 The Week Ahead

The key event risk this week in FX may not be economic but political in nature. Tomorrow's mid-term elections may well determine the direction of trade for the rest of the week and we may prefer to stand aside until we get better visibility as to how the results come in.

Conventional wisdom states that Democrats may win both the House and the Senate in which case the dollar is likely to weaken as FX markets generally dislike any change in the political climate. Yet if Republicans manage to retain the Senate – and latest polling suggests momentum may be going their way – the resulting gridlock in Washington would in fact be seen as dollar bullish. Furthermore, a full Republican win of Congress – a long shot to be sure – would be just the kind of surprise that could propel the dollar higher as continuity would be assured. In either case, order flows are likely to be muted as pairs meander back and forth until the 2006 election results begin to trickle in late tomorrow night. Stay tuned. We certainly will be.

2006-11-06T18:26:00.000-05:00

Frequently Asked Questions

What Is Your Trading Philosophy?

We practice what we call “High Probability Trading.” Even though we are resident analysts at DailyFX.com, we are traders first and analysts second. In order to achieve this, every single one of our trades are a fusion of both fundamental and technical analysis. We also believe that money management is just as important as the entry, which is why we practice defensive trading. This means that we try to bank profits as often as possible regardless of the size and reduce our risk in the market as early as possible. In order to achieve this, we usually trade lot sizes in multiples of 2. There is always a first target (known as T1) and a second target (known as T2). It is our rule of thumb that whenever T1 is reached, we move our stop on the remaining position to breakeven (the entry price) so that there is no longer any real risk and we have banked a portion of the profits. This allows us to NEVER TURN A WINNER INTO A LOSER.

When Did You Start This Service?

We started this site on September 20th, 2006 and gave our first free trading signal on October 1, 2006.

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This service is independent of FXCM and DailyFX.

What Type of Account Should I Trade? What Leverage?

Your account size is dependent upon how much funds you have available for trading. Smaller account holders should use mini lots while larger accounts should trade regular lots. We typically recommend no more than 10 to 1 leverage.

How Often Do You Send Out Alerts? What Times?

We send out alerts at least once a day. Depending upon how busy the trading day is, you can expect to receive 1 to 2 trade alerts with possibly 2 to 4 follow-up emails on those alerts. We are your eyes and ears into the market and there are two of us so we are watching for trades 24 hours a day. This means that these ideas may come at any time during the day, which include both the European and US trading sessions. The easiest way is to sign up your cell phone numbers as well.

Do You Take Into Account the Spread on Your Stop or Targets?

Yes, we actually do account for the spread already when setting our stop or targets, so you do not need to add any additional “buffer” (unless you want to of course). However, each broker has different spreads so for your guide, our spreads and price feeds are based upon FXCM and Oanda.

Do you place the orders in the market yourself and if yes how fast after you place your orders do you forward the positions to subscribers?

We place the orders after we receive the email alert in our own email boxes to be on par with subs. Sometimes we get better execution sometimes worse.

What Happens if My Broker Does not offer the Currency Pair that you trade?

There are many brokers that offer a very diverse set of currency pairs including FXCM and Oanda. Should your broker not offer the currency pair that we are recommending, you can always do a “synthetic trade” using the legs of the currencies. For example, if we recommended long AUD/CAD, a synthetic trade would be going long AUD/USD and long USD/CAD. They amounts are slightly different because the AUD/USD has a higher pip value than USD/CAD but that is just a simple mathematical calculation. You can also pass this trade up, there will be many others but if you choose to take it, you would need to watch carefully and manually because you would not be able to put in proper stops and limits if you did a synthetic trade.

Where Can I Find How Economic Releases Were Released Quickly and Free?

For US news, CNBC is the fastest source of information. Most brokers offer real-time news feeds including FXCM, which has the IFR News plugin for both demo and live account holders.

Can You Tell Me What You Think About My Trade?

We do not give personalized trading advice.

I am Getting Your Emails Late! What Can I do About This?

Email delays are usually a function of your email provider. Yahoo seems to have the biggest problems, we recommend Gmail. We are also doing our best to find ways to reduce this problem as well and to increase efficiency, but we have found that most issues are resolved once subscribers add our email to their address book. What you can do is make sure that you add bktrader@gmail.com into your known or safe list. If we send mail to someone who has not put us on these "known" lists, our mail is still being delivered but can be subject to many additional filters. If it does not get bounced but does not land in the inbox, it is most likely in the bulk folder or grossly delayed. This can change with every mailing that we send due to the ISPs dynamic content filtering. For certain email providers, you may also need to reduce your filtering level and add our address to your safe list.

Why Are You Guys Giving All These Great Trades for Free? Will You Guys Eventually Charge for this Service?

We will move to subscription model in a month or two, but will always keep part of the service for free. We want to be upfront with this – the price range will probably be between $85-100 US dollars a month.

2006-11-05T09:52:00.000-05:00

Email delays.

We have been getting some emails about some subs getting our trade alerts 3 to 4 days late. This is a function of your ISP which may be delaying the processing of the emails from us. You can take a look at the following instructions to see if this would help. BUT THE BEST SOLUTION IS TO SIMPLY GET A GMAIL ACCOUNT. GMAIL APPEARS TO BE WORKING PERFECTLY AND THAT IS WHAT WE RECOMMEND TO ANYONE EXPERIENCING PROBLEMS.

For Yahoo and Hotmail Subscribers, who arent receiving the emails, please read the following:

With many of today's email services like Yahoo mail and Hotmail, customers can configure their email accounts to process their incoming mail more efficiently. Typically, a person is able to create a list of "known senders," or a "friends list," and email that comes from the people on the list goes straight through to their inbox.

If you are sending mail to someone who has not put you on these "known" lists, your mail is still being delivered but can be subject to many additional filters. If your mail does not get bounced but does not land in the inbox, it is most likely in the bulk folder. This can change with every mailing you send due to the ISPs dynamic content filtering.

At Constant Contact we are working with these ISPs to improve mail delivery for your permission-based email and decrease the number of "false positives" (good mail which is filtered as bad), but we are not able to give an estimated time frame. Although there is not much you can do about landing in the bulk folder at this time, there are some steps you can take to minimize it.

- Turn on the permission reminder to encourage people to add you to their safe list.
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2006-11-03T18:05:00.000-05:00

Today's Email Alerts

Alert # 2 Take Second Profit on AUD/USD

Even though the headline NFP number was weaker than expected, the upward revision to payrolls in September completely offset that. The dollar has rallied and has taken the AUD/USD a mere 3 or 4 pips from our T2 (.7687). Right now it is trading at .7690 and has been doing so for the past 15 minutes. There is no point being greedy about 3 pips and risk the remaining profit. so we are taking profit on our second lot here at .7692, which would bank us a total of 58 pips on this trade (15 on T1 and 43 on T2).

For those who took the Extension Fade on AUD/CAD, the move was even more monstrous. However, the spread was wider and the risk larger, which is why we picked the AUD/USD over AUD/CAD to short. Either way, you have just seen one of the strategies in our new e-book in action on 2 pairs profitably. For those who do not have it yet, you can get it here

Alert #1 Take Profit market (7720) on short AUD/USD Move to B/E

Lets take our T1 here at 7720 (+15) and move stop to b/e ahead of NFP

2006-11-02T18:56:00.000-05:00

Today's Email Alerts

Alert #1 Short AUD Going Into Payrolls

We are still short the AUD/USD going into payrolls (we got in at .7735, its pretty much there). This is now a pure NFP play, given the strength of the prior move and the low risk, we are still hanging onto it. There could be big revisions to September's awful 51k print. We also believe that given the recent jobless claims, ADP and Hudson Employment reports, we run a good chance of seeing triple digits.

You can read our full NFP outlook on DailyFX
US Non-Farm Payrolls - What to Expect for the Dollar

2006-11-01T23:06:00.000-05:00

Today's Email Alerts:

Alert #5 Aussie and USD/CAD

Indeed, sometimes technicals does foreshadow fundamentals and in the case of the Aussie, both retail sales AND the trade balance disappointed. As we mentioned earlier, we were at engagement and just returned to the office to check the quotes. We hope you jumped on the weak data when it came out at 7:30pm and sold either the Aussie or AUD/CAD as we recommended.

We still like the AUD/USD short but want to sell at a .7735 limit with a .7765 stop. Should that order to reached, our first target will be .7712. Second target will be .7687

We were stopped out of our second USD/CAD lot for a +20 profit, but are happy about it since we banked a total of 45 pips on the entire trade.

Alert # 4 Statistical Significance - Australian Dollar

For those who are reading our new e-book, we have a strategy called the Extension Fade which is based upon statistical significance. The Australian dollar is setting up perfectly for our Extension Fade strategy. This is a pure technical, low risk play.

The clearest Extension Fade is in AUD/CAD. The currency pair has printed a positive candle for 8 trading days now - over the past 10 years, we have only seen 5 periods where the AUD/CAD has strengthened for 8 trading days with only 1 out of those 5 extending beyond 8 days.

The AUD/USD is also doing a similar thing. The currency pair has rallied for seven straight days. In the past 10 years, there were only 14 times that the move has extended for 7 days, with only 3 of those 14 lasting for longer than 7 days. We credit our technical analyst Jamie Saettele for looking that far back for us.
Therefore we are looking to short one of these pairs with the day's high as the stop. AUD/USD is our preferred play because of the lower spread, smaller risk and possibilit of a firm payrolls on Friday. However we do want to point out that AUD/CAD does have a greater statistical significance.

Due to a prior engagement, we will NOT be in the office to watch Australian data come out at 7:30pm EST (Retail sales and trade balance). Should the data come out weak, we recommend a short with the today's high as the stop. As soon as we get back to the offices later that evening (probably by 10pm EST), we will send out an update on what we think.
These statistically rare events are hard to pass up.

Alert #3 Moving Stop on USD/CAD

EMAIL TIME STAMP: 12:30pm The heads up may have come a bit too quickly, but USD/CAD is now trading at 1.1330, and we want to make sure we lock in profits on the second lot as well.

Move your stop on the second lot to +20 at 1.1310, should the currency continue to rally to 1.1350, we will be bumping up the stop once again to 1.1325 (+35). There will not be an email alert on this, so watch the markets. There will however be an alert if it goes far above 1.1350 (and probably a take profit =) ) or a confirmation that we are fully out of the trade.

Alert #2 T1 on USD/CAD

We hit T1 (1.1315) on USD/CAD for +25 pips. Move your stop to breakeven on the second half of the position at 1.1290. Our second target is 1.1380.

Heads up, should USD/CAD continue to rally, we plan on moving up our stop.

Alert #1 Long USD/CAD

The Canadian dollar first shot higher on the announcement that the country will begin to tax Canadian income trusts. The USD/CAD is retracing on weaker US data, but this should be very negative for the Canadian dollar over the next few days.

We are therefore recommending a long position here at 1.1290, with a stop at 1.1250. First target is 1.1315, second target is 1.1380.

2006-10-31T18:20:00.000-05:00

Today's Email Alerts:

Alert #2

Stopped out of AUD/NZD

The market didnt even give us a chance to wait for Australian data. Comments from NZ Finance Minister about the stubbornly strong Kiwi sent the currency lower and AUD/NZD higher, but only for minutes before it reversed - the spike lasted too short for us to react.

Indeed, the kiwi is stubbornly strong and it has little reason to be. The flush lower down to 1.1500 and the corresponding pop could have been related to pre-Sydney open flows. Seems like the big boys are playing against us. It happens. We'll be sidelined until we find a better opportunity.

Alert #1 Long AUD/NZD

We are very bullish on the Australian dollar given the recent slew of positive data including PPI, CPI, and leading indicators. The economy is doing very well and the RBA is on track to raise interest rates by another 25bp to 6.25 percent. Retail sales and trade balance are due for release tonight and we expect another solid print.

On the flip side, New Zealand's economy has not been performing so well. The RBNZ made it very obvious recently that they have no plans to raise interest rates. This makes AUD/NZD a very attractive buy. Technically we had a breakout of a massive ascending triangle and are buying a retracement of the move.

We are going long AUD/NZD here at 1.1558 with a stop at 1.1520. The first target is 1.1590, move stop to breakeven on the second half of the position when that level is reached. Second target is 1.1660.

2006-10-30T19:03:00.000-05:00

Today's Email Alerts:

Alert # 2 - Taking Profit on EUR/JPY

We like the way EUR/JPY has traded, but there is some decent support at current levels. Therefore we are going to bank the trade for a 40 pip profit (we are short from 149.65), closing out at 149.25.

Our website is back up. For all those who wanted to sign up or refer your friends - please begin sending them to http://www.bktraderfx.com/general/newsletter.php

Alert # 1 - Moving Stop to +10 on EUR/JPY

Since early Asia trade the EUR/JPY trade ( we are short one lot at 149.65 ) has moved into profit for us so we are going to move out stop to 149.55 (+10) while we continue to target 148.87.

2006-10-27T23:30:00.000-04:00

Today's Email Alerts

Alert # 2 Update

Over the past 48 hours our hosting provider experienced a major crash destroying our site. As you can imagine it has been a monumental struggle to get it reconstituted. On top of that our email service has been running delays so by the time we get the trade ideas out to you they have approached and sometimes even hit T1.

As we are still in beta stage we ask you to bear with us as we seek better technologies and avenues to get the information to you in a more timely manner. In the meantime as per EUR/JPY trade. Here is what we did for our own account. We took 1/2 the position and if we have continuation we will target T2 with 1/2 the position. We hope to have everything working by Monday but it may take a few days longer - so we ask for your patience as we work out the technical problems.

Alert #1 EUR/JPY - Time for the Turn

Although Japanese CPI came in soft today, most analysts from Japan believe that tonights' number was a one off affair and the underlying action in both price levels and wages is to the upside. Furthermore, Jaoan's “Mr. FX” vice finance minister for international affairs Hiroshi Watanabe noted that he did not expect further yen weakness given the economy's healthy fundamentals.

We believe that given the latest Japanese economic performance the case of higher short term rates is simply a matter of action delayed rather than action denied. Meanwhile euro is having some short term resistance at the 1.2700 level despite today's weak US GDP, so we think time is ripe for a turn in EUR/JPY. So we are going short EUR/JPY( Current price 149.85 ) Our Stop is 150.25 T1 is 149.63 T2 is 148.87

2006-10-26T18:37:00.000-04:00

Today's Email Alerts

Alert # 5 CAD/JPY Profit at the Speed of Light

Sometimes the markets move so fast they take your breath away. Such was the case with today's CAD/JPY call whihc collapsed almost the moment that we made it. If you followed us in to the trade ( it was trading at approximately 105.40 when it hit all the mailboxes ) then T1 was hit only 10 minutes later and T2 was just hit a few minutes ago. All in all the trade banked +17 and + 47 points in less than 2 hours.

For those waiting to reshort the CAD/JPY at 105.50 we recommend you cancel your orders. Now that T2 has been reached the trade has matured and if it were to race back up to those levels we would need to revaluate its viability at that time. So for those of you who took the ride - congrats. For those of you who missed it - worry not - there are 250 days in a year and a thousand more opportunities in a lifetime. Our job is to try to pick the best one to succeed. So for now cancel any outstanding orders and wait until the next time. In FX there is no shortage of trades.

Alert # 4 CAD/JPY Fast Moving Markets

As soon as we sent out the CAD/JPY email, the pair collapsed. You must be wondering what to do next. Here's what we recommend if you didnt catch it.

Wait for a bounce up to 105.45-105.50, sell there, with the same stop 105.80 and the same targets (T1 105.27, T2 104.93.

Alert # 3 CAD/JPY Suddenly Vulnerable

Canadian Business Condition Orders deteriorated markedly in October dropping to -13.0 from -2.0 expected as the expensive loonie is killing the Canadian exporters. Yesterday the CAD received a boost from higher oil prices but after jumping 2 bucks yesterday oil is likely to taper off for teh rest of the week as no new event risk lies on the horizon. In the meantime the reality of slowdown in Canadian growth is likely to weigh on the market.

Japan has CPI data out tonight and there is chance it may print hotter then expected especially after solid pricing gain in the services sector from tonight's release. So we like this CAD/JPY short here at and 105.50 with a stop at 105.80 our T1 is 105.27 and T2 is 104.93. As usual move stop to break even if T1 is hit

Alert # 2 Closing Out the NZD/JPY Short

NZD/JPY just hit our T2 target of 77.85 (+85 points). For those of you who weren't taken out of the trade on small spike overnight off our trailing stop at 78.22(+48 points) go ahead and make sure you take profits here. Either way you should have banked either 75 or 112 points on both lots of the trade. Not bad for day's work.

We'll be back with more ideas as price action warrants. In the meantime know that our website is down and we are transferring to a new host by next Monday when the site will be up and running again. Good luck and good trading!

Alert # 1 Managing the EUR/GBP Long

We are getting some queries about the EUR/GBP long rec. from yesterday. As noted earlier for those of you not taken taken out of the trade at 6695 - go ahead and take T1 at 6716 for +10 move the stop to breakeven and target 6732 as T2.

2006-10-25T19:08:00.000-04:00

ITS BEEN ANOTHER BUSY DAY!

Today's Email Alerts:

Alert # 7 Tighten Stop on T2 for NZD/JPY

We are up approximately 65 pips on our second lot of NZD/JPY and although we have already made sure that this winner will never turn into a loser, we want to lock in some profits as well.

Therefore, we are moving our stop on the second lot of NZD/JPY to 78.22, which would ensure that we have banked 48 pips on the second lot. Tack on the 27 pips from the first lot and we have earned a minimum of 75 pips on this entire trade!

Our second target is still at 77.85.

Alert # 6 T1 Hit in NZD/JPY

Just as we expected, the RBNZ Kept interest rates unchanged at 7.25 percent and gave us an extra bonus when they said that Q4 inflation would be unusually low.

Our first target on NZD/JPY was hit easily, banking us 27 pips. Our stop on the second lot of the position is now at breakeven. Our T2 target is 77.85.

Alert # 5 FOMC Instant Comments

For the third meeting in a row, the Federal Reserve left interest rates unchanged at 5.25 percent. This decision was fully priced into the market and not what traders were sitting on the edges of their seat waiting for. Instead, everyone was focused on the FOMC statement and wanted to see the Fed put their concerns about core price inflation on paper. The statement was virtually unchanged expect for two things. The Fed added the line "Going forward the economy seems likely to expand at a moderate pace." and deleted the reference to commodity prices contributing to the high level of resource utilization. Aside from that, they did not change their stance on inflation. The lack of more hawkish comments has disappointed traders as they send the US dollar and yields lower, resurrecting the possibility of a rate cut early next year. However, even though the comments on inflation did not change much, we want to point out that the statement is still slightly more positive than the last, thanks to the more optimistic take on growth. The take away is - Do not expect the Fed to change rates again any time soon and the knee jerk reaction is more a reflection of reversals on trades by speculators who were looking for more from the Fed. For the time being, 1.25 and 120 will still hold in the EUR/USD and USD/JPY and we expect more dollar bulls to begin to move to the sidelines.

Alert # 4 Looking for Weakness in NZD/JPY

New Zealand had crappy CPI numbers last night. The market was banking on a strong CPI release to justify a rate hike by the RBNZ tonight - and judging from last night's softer data, its not likely that we will see one. Japan on the other hand had stronger trade data out last night and should print hotter CPI numbers tomorrow night.

We are selling NZD/JPY here at 78.70, stop at 79.15. First target is 78.43, second target is 77.85. As usual, if the first target is reached, move your stop to breakeven on the second lot.

Alert # 3 For all those still in EUR/GBP

We took a stop at 6695 today, but many of you may still be in the trade since our original stop was 6690 and we moved it up in the middle of the night. IF you are still holding this trade move your stop to 6695 and place T1 target to 6715.

The bullish IFO numbers may have turned sentiment around in this pair and for those of you stil in the trade its definitely worth to hang in there. Let's see if it can rally to our T1 target.

Alert # 2 Stopped on Long EUR/GBP

We are stopped out on EUR/GBP at 6695 (-11 points) on the trade. Comments by BOE's Bean that inflation remains a worry put the bid back into the pound and scuttled the trade. One of our key rules when trading these short term moves is - we are right or we are out.

We are sidelined for the time being, but tons of event risk later in the day should offer some opportunities. Stay tuned.

Alert #1 Update on Long EUR/GBP

EUR/GBP hasn't moved since yesterday with the market clearly ignoring the weak UK CBI data. We are going to move our stop from 6690 to 6695 risking only 10 points on this trade. German IFO comes out at 4AM EST (8AM GMT) and if it is an upward surprise the pair should move our way if not we are going to take a very small loss an look for better idea later on in the day.

Note also that we going to set T1 target at 6715 for the first 1/2 of the position if it goes our way. If the T1 is hit be sure as always to move stop to breakeven.

2006-10-24T18:19:00.000-04:00

Today's Email Alerts:

Alert #1 - Getting Long EUR/GBP

We are going long EUR/GBP here at market at 6706 risking to 6690 as UK Industrial Trends printed far worse than expected at -20. This leaves the BOE rate hike in November very much in doubt and should pressure the pound for the rest of the day. Meantime EZ Industrial Orders continued to power on rising 14% on y/y basis and essentially cementing 3.5% money from ECB at the next meet. This is a soft rec without hard profit targets. we'll monitor the trade and adjust accordingly .

2006-10-24T08:47:00.000-04:00

For Yahoo and Hotmail Subscribers, who arent receiving the emails, please read the following:

With many of today's email services like Yahoo mail and Hotmail, customers can configure their email accounts to process their incoming mail more efficiently. Typically, a person is able to create a list of "known senders," or a "friends list," and email that comes from the people on the list goes straight through to their inbox.

If you are sending mail to someone who has not put you on these "known" lists, your mail is still being delivered but can be subject to many additional filters. If your mail does not get bounced but does not land in the inbox, it is most likely in the bulk folder. This can change with every mailing you send due to the ISPs dynamic content filtering.

At Constant Contact we are working with these ISPs to improve mail delivery for your permission-based email and decrease the number of "false positives" (good mail which is filtered as bad), but we are not able to give an estimated time frame. Although there is not much you can do about landing in the bulk folder at this time, there are some steps you can take to minimize it.

- Turn on the permission reminder to encourage people to add you to their safe list.
- Turn on Constant Contact Authentication and improve email delivery rates to the ISPs and corporate domains that use email authentication to filter incoming mail.
- Use the Anti-Spam Checker to improve email delivery rates to receivers that use content filtering on incoming mail.
- Put a note on your visitor signup page asking potential subscribers to add your sending address to their safe list when they sign up.

2006-10-23T19:03:00.000-04:00

Today's Email Alerts:

Alert # 3 Stopped on GBP/JPY

We got stpped on GBP/JPY (-50) at 223.65 after unexpected comments by Japan's "Mr. FX" Hiroshimo Watanabe that Japan remains in deflation weighed on the yen all afternoon long.

As we noted in our initial commentary GBP/JPY tends to be a "monster" pair to trade and in retrospect on a day when the G-3 calendar is empty and trade flows are very vulnerable to idle commentary we would have been wiser to stay out of teh market altogether. Fortunately, the economic calendar picks up speed tonight with IFO and then later on FOMC announcement so we may see more promising trades in the near future. For the time being we are sidelined

Alert # 2 GBP/JPY Near Top

After yesterday's explosive rally, GBP/JPY is topping out right around its end of August highs, which is also the highest level its been since August 1998 which makes it a pretty significant level and tough resistance. GBP/JPY is a monster to trade because of the wide daily range. However, there is scope for a move down to 222.75 (First target). Catching a short entry around 223.15 would be best (current levels). This is one of our soft recommendations.

The stop would need to be around 223.65. Second target would be somewhere between 222.45-55

Alert # 1 Ouch! Kiwee goes but we are not on board

NZD/USD declined sharply in the last hour as a general wave of dollar strength ahead of the FOMC meeting tomorrow has pushed the pair to .6635. We are unfortunately out of the trade having covered for a small loss before the week-end. However, those of you still in the trade should cover 1/2 the position at market (.6642) for a 33 point gain and move your stops to breakeven targeting T2 at .6612.

With nothing on the G-3 calendar for the rest of the day we are likely to sidelined ahead of the FOMC tomorrow but stay tuned for further updates.

2006-10-20T18:13:00.000-04:00

HAVE A GOOD WEEKEND!!!!

Today's Email Alerts:

**It seems many people did not receive the NZD/USD email until after the market closed, just square the trade at the market open on Sunday 4pm EST.

Alert # 3: Close NZD/USD Before the Weekend

We are going to close out the NZD/USD short and get flat for the week-end at market (6685) taking a small -10 point loss here. We like this trade but really want to wait until next weeks CPI data to get a better handle on the entry. Meanwhile, everyone enjoy the week-end and we'll see next week.

Alert #2: Kiweeee

Four days of strength is starting to weigh on the Kiwi. This looks like a possible double top. It was also a former resistance zone from Feb. The dollar is firming, there is no Kiwi data until mid next week. We are shorting here at .6673 with today's high as the stop.

25-30 pips seems very doable. First target is 0.6648. Second target is 0.6612 It's a low risk trade that is certainly worth a try.

Alert #1: AUD/CAD T2 Here

Depending upon how wide your broker spreads you in AUD/CAD, some of you may still be in, especially those who did it via the "legs" > short AUD/USD and short USD/CAD. It's time to get out. USD/CAD had a massive move and is finding support near the 100 day SMA.

AUD/CAD is trading at 0.8517, which another 58 pips for you in the bank.

2006-10-19T18:50:00.000-04:00

** It's been a busy day, we banked 3 winning trades for a total of 128 pips!

Today's Email Alerts

Alert # 6 AUD/CAD Taking Profits Here

We're taking profits on our first lot of AUD/CAD here at 0.8555 (+20 pips), moving stop to breakeven on second lot. The breakout in AUD/USD is encouraging us to be a bit more conservative on this trade.

And no one ever went poor taking profits!

Alert # 5 Trade Updates and T2 on USD/CAD

Apologies for the bombardment of emails today, but we have waited long for for a busy trading day!

We're taking profits on our second lot of USD/CAD here. The sell-off stopped exactly at the 200-day SMA and unfortunately our BE stop of 1.1347 is not at a critical technical level, it is below it which means it can still bounce, take us out and then continue lower. We refuse to up our stop to a key technical level and risk giving back some of our profits. We have banked 37 pips on the first low and are now cashing in on 32 pips on the second lot (USD/CAD currently at 1.1315).

Trade Updates We have gotten a slew of questions on USD/JPY. We got taken out of our T2 at breakeven. Lots of you are still in. Congrats. You should manage the trade as you see fit since we are not in it with you.
We are also completely out of the EUR/GBP trade for 15 pip profit on the first lot and 25 pip on the second.
We only have an open AUD/CAD short. Its at breakeven right now and starting to trade lower. We still like it.

Alert # 4 Take Profits on USD/CAD

Awful Philly Fed has sent USD/CAD to 1.1310. Take profits on first lot here for +37 pip profit, move stop on second lot to breakeven

Alert # 3 OPEC to Crush USD/CAD

Saudi Arabia announced that they back OPEC's plans to cut production by 1 million barrels a day. THe cuts are to take in effect Nov 1 and more could be announced at their December. Clearly OPEC is having a big problem with the current price of oil and we expect more aggressive cuts from them if prices do not budge.

Here's another soft recommendation > Short USD/CAD, today's high as stop. It's current trading at 1.1347

Alert # 2 EUR/GBP Banking Profits on Rest +25

Euro has rallied off the news that German eco institutes have upgraded GDP growth to 2.3% from 1.9%. We are going to close out the second half of our EUR/GBP long at market (currently .6725) for a gain of +25 point on this part of the position. In total we we took out 40 (+15 and +25) points out of this trade.

Alert # 1 EUR/GBP Taking Profits

For those of you who took our soft recommendation ( a rec where we make a trade suggestion but do not set hard profit targets) on going long EUR/GBP this morning we are going to close out half the trade at 6714 (+14 points) and move the stop to breakeven (6700) in our case.

2006-10-18T18:11:00.000-04:00

Today's Email Alerts:

Alert # 2 Looking for AUD/CAD Weakness

After a long stretch of strength, we are looking for a near term top in AUD/CAD. Whenever we trade AUD/CAD, it all boils down to Gold vs. Oil or what we call the G-O Spread. Gold prices are having a tough time breaking $600 while oil is showing signs of bottoming out above $58 We expect more weakness in gold and more strength in oil, which should pressure AUD/CAD lower. CAD is also beginning to come in stronger, with leading indicators printing higher this morning. The rally is getting exhausted technically and fundamentally, we have good reason to believe that the pair is due for a correction.

So we are shorting AUD/CAD here at market (0.8575) with a stop at today' high of 0.8615. Our usually conservative first target will be at 0.8547. Second target is 0.8485. Once the first target is reached, dont forget to move your stop to breakeven.

**We got a Q about a technical setup in the AUD/CAD trade that may be counter to our view > perhaps this is true, but with OPEC's emergency cut, oil looks poised for a bounce which should help the CAD. However, we never want people to follow us blindly. If you dont like the trade for your own reasons or disagree with us, feel free to pass on this one.

Alert #1 BOE Minutes Offer Few Clues

Minutes from the MPC meeting in October revealed 7-2 vote suggesting that the BOE clearly has a hawkish bent at the moment. However, the overall feeing from members was that the risks were finely balanced between growth and slowdown. Given that fact the Central Bank may assume a wait and see posture in November rather than hike outright. All of which leads us to consider EUR/GBP to the long side today risking no more than .6685 as the stop.

**For those who asked us about why we didnt take this trade, it is a soft recommendation, meaning we were certain in the view, but for whatever reasons such as risk/reward, pip opportunity, technicals etc, it may not have been attractive enough for us to make it a full recommendation although we may be in the trade ourselves

2006-10-18T09:07:00.000-04:00

Make your argument

Before Tom Cruise became a Scientology freak show he actually made a few very good movies including A Few Good Men where he plays a young, cocky military lawyer pitted against Jack Nicholson's whose mesmerizing performance as Colonel Jessep drives the film. There is a scene at the beginning of the movie where Kevin Pollak tries to persuade Cruise to take on a very politically sensitive defense case. In a great screen play written by Aaron Sorkin of West Wing and Studio 60 fame, Pollak tells Cruise :"I just want you to make an argument" to which Cruise wistfully replies, " I bet you father is proud of you. I'll bet he is. I'll bet he bores the shit outta the neighbors and the relatives. "Sam, made Law Review. He's got a big case he's making--He's arguing making an argument."

The characters in the movie use the term "argument" in its most positive sense - as a way to prove the merit of your case. Although we are traders not lawyers we make arguments all the time. Each trade is in an argument between the bulls and the bears. We may not utilize elegant presentation skills or posses powerful oratory abilities of our colleagues in jurisprudence but the battle in the markets is no less fierce than it is in the courts.

Arguing is one of the most valuable activities a trader can do. K and I argue all the time . That's our primary methodology of trade selection and it works well. Why? Because a well constructed argument will either fortify the logic of your position or it destroy it by properly questioning some important underlying point that you may have overlooked. In fact I noticed recently that our best trades occur when K and I are generally in agreement - when our arguments are sound. Times when one or the other one of us is doubtful about the setup - the trades are usually losers.

So go ahead make your argument - it will make you a better trader.

2006-10-17T18:50:00.000-04:00

Today's Email Alert:

Yen Trade Reaches T1 Move stop to Break Even

USD/JPY tagged our 1st target of 118.72 banking us +46 points since yesterday. We have now moved the stop to break even (119.18) on the rest of the position looking to press our T2 target of 117.85

2006-10-16T18:34:00.000-04:00

Today's Email Alerts:

Russia Loves the Yen and So Do We

Over night news that the Russian central bank is diversifying a portion of its reserves into the Japanese yen and we think its wise to follow their lead. Over the past two weeks yen news has become decidedly bullish for several reasons

1. Last Friday’s surprising statement by BOJ Governor Fukui that the central bank will consider raising rates by 25bp before the year end.
2. Record yen short positioning readings in the latest IMM data from CME which suggest that the carry may have become too much of a one way trade, setting up the Johnny-come-lately speculative accounts for a possible nasty turn in the pair.
3. Upbeat readings from the latest Eco Watchers survey which over the past two years tended to be an excellent forecaster of near term yen direction.

Therefore we recommend shorting USD/JPY at market currently 119.18 with a stop at 119.80 Our T1 profit target is 118.72 at which point we move the stop to breakeven. Our T2 target is 117.85

2006-10-13T18:16:00.000-04:00

HAVE A GOOD WEEKEND!!

Today's Email Alerts:

Alert # 3 Stopped at Breakeven on rest of USD/JPY

We were stopped at breakeven (119.40) on a retrace in USD/JPY. We are going to stand aside until event risk for US Retail Sales passes. Specs may try to take out the 120.00 option barriers so we prefer to watch for now, but may come back into the trade when time warrants. Overall we were able to bank 23 points and those that managed to get T1 limit hit took out 28 points.

Alert # 2 Update on Taking Profit T1 in USD/JPY

For those who set T1 target at 119.12 its just been hit so you are ahead of us by 5 points (119.17) congrats! In either case everyone go to breakeven and let try to squeeze the rest of the position to 118.25 off this yen bullish news. (BOJ may raise before year end)

Alert # 1 Taking Profit T1 in USD/JPY

Fukui on the wires saying he may raise rates this year and yen is rallying. We are are going to lock in T1 at market 119.17 currently (+23) and go to breakeven stop Still targeting 118.25 for rest of position.

2006-10-12T19:00:00.000-04:00

Today's Email Alerts:

Alert #2 The Time Has Come For USD/JPY

As we said in our morning email, USD/JPY is turning! This is a low risk play for a real turn. Tonight's BoJ Monthly Report and comments from Fukui could help drive further weakness in the currency pair. We expect the central bank to acknowledge the benefits that the slide in yen will bring to the export sector and the economy in general. Also, we have not forgotten that the Eco Watchers "man on the street," udon noodle selling vendor is more optimistic than the previous month - a good sign that the economy is indeed turning.

We are selling USD/JPY here at 119.42 with a stop at 119.80. First target is 119.12, if that is reached, move your stop to breakeven on the second lot. Second target is 118.25.

*** Also, we are looking for successful traders for our new book. It's a Market Wizards for the little guy. You need to have a 2 year profitable track record and a minimum of a six figure account. We are interested in human stories, all correspondence will be confidential. This is not just for FX traders, all markets (Futures, Options, Equities). If you are interested or know someone who qualifies, please email us at bktrader@gmail.com

Alert #1 Trade Deficit and USD/JPY

Pretty bad trade deficit number today. We'll need to see if next week's TIC number matches up. Market thinks that the stock rally could have drawn an increase in net foreign purchases - we'll have to see.

We have a few pairs that are turning with low risk (swing high), worth a look. Shorts EUR/CHF, USD/JPY, EUR/JPY Long AUD/NZD

2006-10-11T18:10:00.000-04:00

Random Bloggering:

The potential of the EUR/USD hitting a bottom is growing by the day. The currency has now sold off for seven consecutive days, which is the longest stretch of weakness since June when it also faced seven days of continuous losses. Aside from that time, there has only been one instance over the past seven years that the EUR/USD has sold off for more than seven days, which was back in August of 2003.

Today's Email Alerts:

Alert #2:

The Fed's tougher inflation tone has sent the dollar rallying. The FOMC minutes from the September Fed meeting indicated that even though the extent of the housing downturn is uncertain, they do believe that the recent pickup in retail sales should lead to quicker and stronger growth next year. Given the moderately more optimistic outlook and the tough leash they want to keep on inflation, the Fed is not likely to cut interest rates soon.

We banked 17 pips on the first lot of our Euro long trade and got stopped out on the second lot at breakeven. The short term turn trade turned, but just not as much as we would have liked to seen. Nevertheless, we kept this winner a winner and followed our #1 Rule of Never Letting a Winner Turn Into a Loser.

Alert #1:

Market finally broke through the 1.2550 level. Our initial T1 target was 1.2560 but we are going to take it here at market (currently 1.2552) for +17 points and will move to breakeven on rest. Our T2 target remains 1.2625

2006-10-10T22:35:00.000-04:00

Today's Email Alerts:

Alert #2: Euro Turn Short Term Trade

We are updating the Target on our EUR/USD long trade The first target should be 1.2560 Long EUR/USD at 1.2535, stop at 1.2510. First target is 1.2560, second target is 1.2625. If the first target is reached, move your stop to breakeven.

The dollar has been very strong today leading the Euro to fresh two month lows. We are seeing signs of exhaustion that may give us an opportunity for a small risk turn to the upside. We are going long here at 1.2535.

Alert #1: Watch the Yen

For the second consecutive month The Eco Watchers survey printed above the 50 boom/bust level coming in at 51.0. The man in the street survey of barbers waiters and taxi drivers is our single most favorite indicator of true state of economic conditions in Japan and right now it is signaling all systems go.

The Eco Watchers tends to be an early forcaster of the turn in USD/JPY so for now we just want to watch the price action. In EUR/JPY - where 150 appears to be a cement ceiling for the pair - there may be a tempting trade. For those who want to take a shot at a short keep the stops no wider than 150.60.

2006-10-09T18:42:00.000-04:00

Today's Email Alerts:

FX Volumes to Double in 2007

http://www.ft.com/cms/s/b26bccf4-57b9-11db-be9f-0000779e2340.html

We are adding to the bigger numbers!

" He said the rise in foreign exchange volumes was being helped by the increase of retail trading activity feeding into the institutional markets, as aggregation of individual investors became a force to be reckoned with. Structured retail FX products will be instrumental in driving volume growth,” said Mr Price, who added that he expected 44 per cent of trading to be conducted electronically in 2007, compared with 40 per cent in 2006."

Alert #1 Stopped on GBP/USD Long

UK PPI data printed way below expectations as drop in commodities caused sharp drops in both inputs and output values and quelled expectations of further UK rate hikes. Cable traded weak as result and took out our stop at 1.8660. We still like the anti-dollar trade but in retrospect the euro would have been a better choice. We are sidelined for now.