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inter vie w
tr a i n i n g
G A N G E ’ S
OPTIONS Brett Steenbarger
SPECULATIVE traders coach
Elegante Ultrasottile Antiallergico A partire da 195 euro

L O C M A N S . P. A . - M A R I N A D I C A M P O - I S O L A D ’ E L B A


Analysis of the dynamics of the
Traders Performance
currency markets in the last months
Coach, Brett explains
of 2009 and possible future crisis
how he works with
for the majors.
professional traders,

helping them build
on their patterns of

Learn about
the benefits
of whole-
mind trading,

06 instinct

05 EDITOR’S NOTE Trading System – Part 4 – TECHNICAL ANALYSIS:

Exploiting the volume profile 42 Currency Report:
32 Ganges’ gold: the antagonist rally INTERVIEW: EUR/JPY, EUR/GBP
36 Christopher Brandon, FX 46 Norway Krone
manager, explains why it is 48 Technical Outlook:
14 2010 – Expect high volatility: the
fundamental to focus on the absolute Majors, Emerging Markets,
private banker’s analysis
risk and be always aware of the worst EUR/NOK, EUR(USD, USD/PLN
TRADING STRATEGY: case scenario
28 A simple plan to trading: a step 52 FX Spot Monitor
by step approach to the elaboration of OPTIONS:
53 Central Bank Rates
a trading model. 40 Speculative Trading with
Options: the importance of 54 Economica Data - FX Poll
volatility in speculative option 55 Markets View
10 Building a Robust FX trading 56 ECONOMIC CALENDAR
FX TRADER MAGAZINE January - March 2010 

Jeremy Ascher is a technical analyst and screen JW Partners is an independent FX solution

trader with 15 years of experience on the floor provider, based in Milan, with a strong
of NYMEX. In the year 2000, he realized FX specific know-how. JW supports
the critical role technical analysis would play institutional investors and HNWI in building
as trading evolved from the pits into the quality FX multimanager portfolios, and FX
electronic era. In 2001,, Inc. underlying structures.
was born. He later joined forces with another Steve Jarvis, from TraderMade International
analyst and today they provide a full-service has over 20 years’ experience of providing
technical research package for the energy and technical analysis to FX professionals. Editor :
metal futures markets at Formerly Chief Technical Analyst at MCM Emmanuelle Girodet
to clients spanning from the professional floor Currencywatch and Informa Global
trader and retail trader to industry trading desks Markets, Steve now heads the technical
and hedge funds. analysis at InterpreTA, Tradermade’s Advertising manager:
Alessandro Balsotti, is head of FX trading in newly launched technical analysis service. Isabella Lamera
Abax Bank and covered the same role previously
in Banca Caboto. For several years he has been Caspar Marney, started his trading career, as a
the FX market-maker of Italian Lira, Greek spot currency trader and technical analyst with Webmaster:
Dracma and Czech Crown in JP Morgan. HSBC in London. He then moved to SBC Hristo Katzarski
Curtis Faith is a best known for getting his Warburg (later UBS) as a proprietary trader
start as a member of the elite Chicago trading and global head of technical analysis for FX
group, the Turtles. In his early 20s, Faith and precious metals, where he became one of
Graphic design:
earned more than $30 million dollars as a the bank’s most successful traders and a regular
commentator on financial television. Preslav Dobrev
member of the renowned group that started
as a bet between it founders,. Faith reveals Giorgio Martini has been a forex trader Editorial support:
the inside story of his days as a member of since 2000 and has worked for leading Italian
Lorenzo Lorenzi
this secretive trading group in his bestselling banking groups. His articles are regularly
book Way of the Turtle, which has sold over published on the Italian financial portal www.
Luca Di Bari
70,000 copies and has been translated into 9 He also collaborates with Age Valeriano Lisanti
languages. His newest book, Trading From Italia, an independent financial consultancy Simon Holmes
Your Gut (FT Press), combines insights on firm.
trading psychology, managing risk, and trading Maurizio Milano, began his career as forex
methods, dealer in 1995. He started the technical analysis Trading carries a high level of risk, and may not be
Alessandro Fugnoli, worked for 9 years as department at Banca Sella Group. He teaches suitable for all investors. The objective of FX Trader
head of macroeconomic and strategic research technical analysis at the University of Turin, Magazine is to give readers the tools, training and
information which will help them be better prepared
in AbaxBank and recently joined Kairos Italy. His contributions can be found in the to trade on the foreign exchange. However, any analysis,
Partners. He is a well-known Italian financial most renowned Italian financial newspapers news, research, strategy, or other information contained
analyst and previously worked as Director of and televisions. He is member of SIAT (the on this magazine is provided as general market
information and does not constitute investment advice.
Research for Caboto group. He also covered association of the Italian technical analysts)
the roles of Investment Director in Gestnord and IFTA (the International Federation of FX Trader Magazine, will not accept liability for any
loss or damage, including without limitation to, any loss
broker and account executive in Merrill Lynch. Technical Analysis). of profit, which may arise directly or indirectly from use
Steffen Gregersen has played a leading role in Nicolò Nunziata is Equity Portfolio Manager of or reliance on such information.

Saxo Bank’s Quantitative Analysis and Advance at JC&Associati SIM ( He

Research Department in its development of the worked for Banca Profilo, Euromobiliare, Akros,
bank’s option pricing models. He holds a degree in CreditSuisseFirstBostonandUBS,asresponsible
Mathematics and Economics from the University for trading and arbitrage on Government Subscriptions:
of Copenhagen where his thesis was on the effects bonds and derivatives. He is also an appreciated
of jumps in underlying prices on option prices. lecturer in the fields of finance fundamentals.

 FX TRADER MAGAZINE January - March 2010

EDITOR’s note FX

Train, Train, Train

Welcome to the first 2010 edition the public real models. This is due learn from successful traders’ live
of FX Trader Magazine. This issue to both the fragmentation of the trading is the best method to train
is an important milestone of our various championships held by the private traders.
initiative, which found considerable brokers, and the bad faith of those During 2010, in addition to our
success in 2009. We received who pretend to be what they’re usual fundamental analysis and
many positive comments from the not, or who sell robots that do not technical analysis articles, written
industry and encouragement to produce -of course - the results they by the most renowned financial
continue. Many also requested a publicize. research strategists, and our series
paper version of the magazine. This of educational articles, we will
year, we plan to launch a survey to interview and present both trainers
find out whether or not to launch and professional traders to offer our
a paid printed version, if we were readers the models they might find
to reach the number of required useful to improve their trading.
subscriptions. If you are interested,
in any case, send an email to We begin in this issue with the interview of Brett Steenbarger,
professional traders coach and
I was struck recently by a major professor of psychology and
marketing campaign launched by psychiatry, who we believe is one
Texas Hold’em through newspapers of the most important writers on
that published a set of DVDs to traders’ development today. Brett
learn the discipline and practice, brought an innovative, rational and
conducted by the best players. systematic approach to professional
There are many similarities between traders training, insisting, among
a professional poker player and other things, on the use of
a professional trader. They both professional trading simulators.
learn to play the odds and both Finally we launch an idea,
occasionally use their “instinct” to In the world of forex, brokers borrowing it from poker: the
make a bet. But what immediately increasingly adopt the STP model organization of an international
jumps to the eye is that, in poker, it (straight through processing) and trading contest, recognized and
is much easier to uniquely identify a therefore it is in their interest to sponsored by several brokers (with
good player. Just see how much he have profitable traders, whereas certified results from independent
won in major tournaments. others, who take a stand against entities). This would bring
their customers, make money when transparency and professionalism
The difficulty of the forex, their customers lose money. and could only help retail Forex to
compared to poker, is that it is grow.
difficult to identify the real trading We firmly believe that education,
champions and therefore offer training and the opportunity to Emmanuelle Girodet
FX TRADER MAGAZINE January - March 2010 
FX Trading Psychology

G o with Your Gut ? Or Not ?

A long-running debate. Is it better to trade using a discretionary
approach or a systematic approach?

As one of Chicago’s famed Turtle were successful at discretionar y Traders needed to react ver y
Traders, starting at age 19 in the trading. In fact, most of the quickly to the ebb and flow of the
1980s, I was initially in the camp traders on the floor of the prices. A lot of the information
of the systems traders. As Turtles Chicago exchanges (which were used for trading decisions came
we were taught specific trading the center of currency futures from a trader’s intuitive sense of
systems as the emotional
well as a a n d
systematic psychological
approach. I state of the
believed that other traders
discretionar y around them.
trading left It made sense
too much that most pit
opportunit y traders traded
for emotion. using their
In my early g ut intuition,
experience, t h e i r
t h o s e discretion.
traders who
used their So while my
judgment in early trading
trading all was almost
too often e n t i r e l y
ended up systematic, I
letting their have always
emotions felt that there
affect their was validity
trading in a negative way. trading for the United States) to the discretionar y approach
At the same time, some of the were discretionar y traders. when used with discipline. I have
world’s best traders, like George always considered right-brain
Soros, trade from their g ut. I There wasn’t time for complicated intuition to be an under valued
personally knew traders who trading system rules in the pits. ability.

 FX TRADER MAGAZINE January - March 2010


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FX Trading Psychology

When I wrote my first book, top - down manner, and the forex market. It can be too hard
Way of the Turtle, I naturally rig ht-bra in, wh ich pro c esses to overcome the losses due to
focused on the systematic information by a ssemb l ing spreads using ver y short-term
trading approach since that was sma l l p ie c es into a who le strategies.
the approach that I learned as a p icture, a b ottom-up manner. Long-term strategies involve
Turtle, and it was the one that has too much risk and can make it
been so successful over the long- It do esn’t ma ke sense to ver y likely that the smaller forex
term for trend-following traders. ne g le ct the ama z ing pro c essing trader will end up losing too
In the last several years, however, p ower of ha lf your bra in just much trading capital because of
I have noticed that many systems b e caus e it may not b e ea s y to the required distances between
traders and many readers of understand how it arrives at entr y prices and stop prices.
my first book have come to the its “de cisions .” O ur intu itive
conclusion that there is no role bra in can b e a ver y effe ctive A swing trading approach is better
for right-brain thinking in their to o l for trad ing . because it offers enough profit
trading. I to overcome
believe these the cost of the
traders are trade due to
missing out spreads while
by neglecting allowing a
an important reasonable risk
part of human level for each
intelligence. trader. This
will keep the
The best risk that you
traders have lose too much
learned to of your account
combine the on each trade
benefits of lower.
analysis and One of the
logic with problems with
right-brain a swing-trading
big-picture intuition; it is an Ideal for Forex approach as compared with a
approach I call whole-mind longer-term approach is that it is
trading. This is especially relevant to more difficult to build and test
the retail forex trader who is an automated trading strateg y.
Gut Intuition versus Emotions tr ying to build a small account It’s harder to get the data in a
Trading with g ut intuition is not into a large one. For this type reliable format; it is also harder
making decisions emotionally, or of trading , a swing-trading to execute an automated strateg y
from a position of fear or greed. approach can offer the best risk- because of limitations with
It is simply taking advantage of reward ratio. The wins are large the typical retail forex-trading
both hemispheres of the brain, enough to compensate for the platform. Likewise, there are
the left-brain, which processes relatively high cost of trades many trading ideas that are
information in a linear, ordered, due to the spreads in the retail difficult or impossible for the
 FX TRADER MAGAZINE January - March 2010
Trading Psychology FX

typical trader to implement as a

concrete set of rules using today’s
software trading tools.

Fortunately, when you use a

whole-mind trading approach,
you can supplement the rules of
your strateg y with decisions that
rely on intuition and the right-
brain’s big-picture approach
to information processing. For
example, you might decide to buy
a particular pair, say the USD/
SGD pair, if the SGD is displaying
greater strength against the USD
than the other major currencies,
the GBP, EUR and JPY. The
rationale for this approach is that
you want to filter out moves that
are due mainly to fluctuations in cause prospective sellers to hold bra in hemispheres working in
the USD rather than the SGP. out for a higher price. In turn, concert are more powerf ul than
prospective buyers will be willing one hemisphere a lone.
While it might be possible to to pay this higher price. So the
build a specific set of rules to price will go up. The best systems traders have
determine the relative market learne d how to draw upon
strength using left-brain analysis, A visual chart-based impression the intuition and pattern
this is a task that is better suited can be a valuable addition to your re cog nition abilities of their
to the pattern recognition and trading strategies for this reason. rig ht bra ins in the de velopment
big-picture capabilities. A quick Most traders use charts in their of new trading ideas and
look at four charts will help you decision-making. This means that to build strateg ies that are
determine which of the pairs is charts represent information in the impossible without the use
the strongest. A visual approach is same form that the other market of human intuition . And the
both the quickest and the easiest participants use as the basis for best discretionar y traders have
to implement. their psychological impressions learne d how to use lef t-bra in
of the market. A chart is a very ana lysis and log ic to build a
Visual Psycholog y compact description of the state better framework for their
of the aggregate psycholog y of the ma inly rig ht-bra ine d trading
A visual approach has other other traders in a given market. methods.
Price is determined by the Whole-Brain Trading We have t wo bra in hemispheres.
psycholog y of the market Use them both for better
participants; i.e. the other Both discretionary traders and trading .
traders. If everyone believes that systems traders can benefit from
a particular price is low, this will whole-brain trading. The two Curtis Faith
FX TRADER MAGAZINE January - March 2010 

Building Robust FX Trading Systems –

Exploiting the Volume Profile

In the last article in the series, we discussed robust Volume and Time of Day
trading ideas, comparing moving averages with a channel
breakout strategy, showing how the latter is of much Monroe Trout, who famously made billions out of systematic
greater value and how using a moving average system trading, made some interesting observations about the futures
may show great results in back testing but can be fatally markets when asked about the most liquid times of day, in his
flawed in actual trading. interview in ‘The New Market Wizard’ by Jack Schwager.

The channel breakout strategy, while having less “The most liquid period is the opening. Liquidity starts
impressive performance statistics during ‘in sample’ falling off pretty quickly after the opening. The second most
testing, showed robust performance over time, with the liquid time of day is the close. Trading volume typically forms
same parameters providing a robust edge, over time. a U-shaped curve throughout the day… Generally speaking
those patterns hold in
The reason that channel almost every market. It’s
breakout systems have actually pretty amazing.”
stood the test of time is
likely because markets While the foreign
trend in the long term and exchange markets have
a new multi-month high no fixed open, nor
is always going to have close, being fragmented
much more psychological between banks, brokers,
significance than the electronic trading
crossing of two arbitrary platforms and time zones,
moving averages. The they too still display very
findings strongly predictable behaviour.
support the argument
that any system based I have never seen similar
on predictable market analysis done on the
behaviour, is likely to be much more robust than one foreign exchange markets before, nor seen a strategy
based on arbitrary mathematical algorithms. published before to exploit the phenomenon.

Therefore, in this article we are going to explore another This is probably because it is impossible to get accurate,
exploitable aspect of predictable behaviour in the historic, or real-time volume data for foreign exchange.
markets, which is much shorter term in nature; namely However, it is possible to sample the market and compare
when traders start and end their trading day. This has the findings with other known volume information, to
been exploited in the futures markets with strategies determine the volume profile for foreign exchange:
such as the opening range breakout.

10 FX TRADER MAGAZINE January - March 2010


The EBS (Electronic Broking Service) trading distinct, ascending peaks of volume as first Asia and
platform is the largest liquidity provider and we then Continental Europe, London and then the US
can compare this to data also kindly provided by trading sessions start. Many surveys have been done
Barclays, from their BARX trading platform. The to determine the major turnover for foreign exchange
first two graphs below show the percentage of daily by trading centre, most notably the Triennial Survey
volume traded for each hour of the day, for the major from the Bank of International Settlements, last
currency pairs. published in 2007.

In both cases, we can see a very similar pattern Therefore, we know that the three largest trading
emerging. Aggregating the results shows the centres are London, Continental Europe and then
distribution much more clearly: the US. It’s therefore not surprising to see that the
largest volume of the day is during those few hours
between 1pm and 4pm, during the London afternoon
when the three trading centres are active. This even
holds true for major Asian currencies such as the
Japanese Yen that are not natively active during that

Exploitation of Volume

It is a very well proven and accepted principle of

trading that volume confirms a trend. If one was
locked in room, without access to any news and was
only able to see price and volume, any major event
Just as Monroe Trout observed for the futures would be reflected in that information. If there was
markets, although the foreign exchange markets a sudden move but little volume then it’s unlikely
have no fixed open, nor close and are traded twenty- that move was genuine. If however, an event such
four hours a day, they too follow a very predictable as 9/11 occurred, one would have seen both a large
pattern every day. range in the price as well as a significant increase in
trading volume. This type of volume confirmation
When the aggregated volume across all currency pairs allows a trader to know whether a move is of genuine
is plotted as a single graph, we can clearly see three significance.
FX TRADER MAGAZINE January - March 2010 11

This is one of the edges I enjoyed as a trader, while sitting Buy if the market makes a new high or sell if it makes a new
on the foreign exchange desk at a major investment bank. low, between 1pm and 4pm.
We could physically see the customer flow going through
and literally felt it, with the increase in noise. Whether This simple strategy, without any money management,
consciously or not, a trader at a major investment bank or stops, produces the following returns, based on a
cannot help but be aware of an increase in trading £100,000 account, with the portfolio being an average
volume, just as a trader on the floor of an exchange is of the three equity curves.
similarly aware.

It is actually almost impossible not to be aware of the

interest building in a certain currency pair and this is
something that almost certainly contributes to what
traders often refer to as their feel, or gut instinct. It’s also
likely the reason why so many traders find the transition
from a bank’s dealing room to trading successfully
outside it, to be so difficult.

One of the major challenges for an FX trader, outside

a bank’s dealing room, is that actual traded volume
is not available in real-time across such a fragmented
market, so it is very difficult to know when the volume
is increasing. However, what the FX trader does know, is Slippage, costs and interest have not been included, as
that any move occurring between 1pm and 4pm is very these will vary from account to account, though these
likely taking place on increasing volume, at the highest factors are more than offset by the addition of some
volume time of day. Therefore going with a move during basic money and risk management principles.
those few hours is likely to provide a significant edge,
over time. We can see that the trading rule doesn’t make money
in all currency pairs in all years and has significant
Trading Strategy drawdowns, as well as extended periods to new equity
highs. However, going with a move during the London
There are many ways to define a move, such as a change afternoon clearly provides a robust trading edge, whether
in momentum, expansion of the range, the divergence of used in isolation, or as a filter to be used in combination
two moving averages, the RSI crossing through the 50% with other trading strategies.
level, or even standard deviations. However, let us take
the simplest definition of a trend, being that of a new Again, as with the other behaviour discussed in this
high or low. series of articles, we can see that while there are countless
trading strategies that may work for short periods of
We know that the lowest volume time of day is the New time, based on arbitrary mathematical algorithms, there
York close, or 10pm in London and highest volume is are some trading strategies that are genuinely robust,
between 1pm and 4pm. Therefore, if we consider the based on sound, predictable market behaviour.
New York close to be the end of one trading day and the
beginning of the next, we can apply a simple trading rule
to test our theory: Caspar Marney

12 FX TRADER MAGAZINE January - March 2010

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 
 

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The Volatile Stability of late 2009

and Dangers for 2010
“To err is human. For a central banker,
it is practically a professional requirement.” (Anonymous)

The year 2009 was marked by these moves (especially against the yellow metal is not so far away now
significant trends. The main plot Jpy) have not been without violence (1115) from the levels seen in early
evolved from the attempt (for the and drama (certainly accentuated by October, when it was slowly trying
markets largely successful) to exit the poor liquidity of the holidays). to break through the psychologically
from the Big Recession that has At the time of writing however important resistance area of 1000.
shaken the entire world economy those levels have been rejected with But its acceleration and volatility
and financial system in the two considerable decision (1.46, 89). on the upside have attracted a lot of
quarters following the bankruptcy of An important exception in this attention in the financial community
Lehman Brothers in September 2008. context of broad stability was (an all-time high at 1226 Dollars per
In the last quarter of 2009, however, the behaviour of Gold. Also the ounce was hit on December 3rd).
the trends seem to have lost the
intensity and momentum shown
in the middle months of the year. If
we compare the current prices (mid-
December) with those of October
1st, we can detect only marginal
changes. The S&P 500 is higher by
less than 5% (essentially ‘flat’ given
2009 volatility). Major currencies
(but also the emerging currencies,
allowing for their higher standard
volatility) are all at most 1% away
from their level three months ago (the
Australian dollar as a small exception
has gained 3% against the Dollar).
Still volatility was not absent during
this quarter. The Dollar has set new
lows during Thanksgiving, 1.5145
against Euro, 84.82 against Yen. And Chart 1. The volatile stability of Usd/Jpy.

14 FX TRADER MAGAZINE January - March 2010


generated by the Dubai and Greece

episodes have only made the path of
financial markets more interesting
and ‘theatrical’ to some extent,
slowing but not reversing the trend.
Strangely enough it seems that the
greatest risk in the short term for
the markets is posed by positive
surprises on U.S. growth. A risk that
we began to glimpse in the past few
weeks when significantly better
than expected data was supplied
on employment (December 4th)
and retail sales (December 11th).
A world that is better off
economically with central banks
doubtful on durability of such
Chart 2. Gold accelerates before a pull-back.
a situation and continuing
therefore to provide unlimited
For an analysis of the dynamics of likely to prove the thesis of this old liquidity cannot last long. From
supply and demand in an asset that (and short) work of his which we this point of view, the markets
for history, affinity and operators would like to encourage reading in 2010 are facing a path littered
involved has always been very h t t p : / / w w w. 3 2 1 g o l d . c o m / with potential hazards, be they
tied to the currency markets, we fed/greenspan/1966.html . negative surprises on expected
refer to the interesting article by In recent weeks the general theme growth, an anticipated timing
Alessandro Fugnoli in this same has remained a favourable one of exit strategies from central
edition of FX Trader Magazine. for risky assets: overall positive banks as a result of renewed
Here we simply want to point surprises on the economic growth stability in economic growth
out that gold, commonly judged front accompanied by continuous and negative surprises (upward)
an instrument of protection from assurances by the major central in actual or expected inflation.
inflation, is in our opinion at this banks (primarily the Fed) on the In the same vein, we believe that
stage in history mainly used to will to keep rates ‘exceptionally the most important variable
react to the danger that the Dollar low for an extended period of to monitor in the coming
(and other major currencies) time’. In this light, the recent weeks is short-term US rates.
could lose value under the weight rises in interest rates (Australia
of unorthodox monetary policy and Norway) and an improved
(a more subtle danger than assessment on growth / inflation
ongoing inflation even though (New Zealand, Canada, Korea)
of the same kind). In 1966 Alan by policy-makers in open, smaller
Greenspan published an essay economies, have been interpreted
about the risks entailed from by the market as positive signs
the abandonment of the Gold of stability and recovery for the
Standard: one could cynically global economy. Consequently,
argue that his own actions are for the moment, some panic Exit Signals from central banks?

FX TRADER MAGAZINE January - March 2010 15


Risks for everybody As a consequence, major currencies welfare obligations already contracted
seem at risk, in a not so distant future, (the bulk will start to weight from
In recent months quite an unusual of a possible crisis of confidence. We are 2015 with the baby boomer generation
situation for the history of our talking about tail risks, future courses retiring). Much therefore will depend
markets has shown up. The four major quite unlikely but that could be dramatic on the attitude of politics (including
currencies (Dollar, Euro, Yen, Pound) and unexpected in their scope. Congress-Fed dynamics) and the
seem to share a destiny of struggles There are specific and different events ability to take unpopular decisions
and difficulties as opposed to minor that must be monitored for individual instead of resorting to inflationary
currencies (emerging currencies, cases. and destabilizing monetary policy
commodity currencies, scandies, etc.). The most serious risk to Britain comes (this also applies to the UK). In such
The Big Swap between private and from the May (maybe earlier) 2010 a situation, the boundary between an
public debt has been the prime elections. An unclear victory of the orderly depreciation of the Dollar (the
response authorities have put in Conservatives, a minority government kind we have seen in recent months)
place in the face of the 2008 credit or even worse a hung parliament could and a real currency crisis could end up
bust. It has been mainly a trait of make actions to reduce the public deficit being very thin.
major developed economies to tackle from the current unsustainable levels For Europe, which seems to have an
unsustainable leverage built in the ineffective, and trigger the vicious cycle institution with a stronger prospective
private sector (mainly households and of downgrades from rating agencies. independence and a clearer anti-
banks) in the US, UK, part of Europe The US debt appears as well on inflation mandate like the ECB (with
(Spain, Ireland, CE4). As far as Japan a dangerous slippery slope. The all the different issues that this may
is concerned such a phenomenon projections (which nevertheless show a cause) the problem is of a different
began nearly two decades ago but it strong rise in the debt/GDP ratio over nature. The recent crisis is bringing into
is still today a somehow unfinished the next decade) from government light that a monetary union, when faced
experiment. forecasts which set the path needed with highly volatile business cycles and
in order to in the absence of an advanced model of
maintain the fiscal federalism that allows the transfer
dynamics of resources from richer areas to those
sustainable most in need, must deal with disruptive
a s s u m e pressure. The situation in Greece is just
more than a sign of potential problems to come
satisfactor y for the entire periphery of Europe
growth rates (Ireland and Spain are the next most
in coming likely candidates to come under
years (thus pressure). We believe that when faced
excluding at all with serious problems the European
the possibility institutions (including the ECB) will
of a double-dip use all the flexibility they have proved
recession). In capable of in the past in most difficult
addition, the times.
US will face This would by itself guarantee a good
the problem of chance of reaching a solution but,
huge deficits much will also depend on the state
for future of the global economy and in any
retirement case will make the Euro vulnerable to
Markets in danger in 2010? benefits and bouts of mistrust.
16 FX TRADER MAGAZINE January - March 2010

In Japan’s case the dynamics of of the be more interesting to keep a periphery thereafter a revaluation path controlled
domestic saving and investment cycle vs centre approach, favouring the former by the central bank of China (PBoC).
should be monitored: public debt has over the latter. With two major ‘caveat’. The strengthening gathers momentum
been for long the largest among the Minor currencies are generally perceived in subsequent years (3% in 2006, 6.5%
developed economies (more than 200% as high ‘beta’ (with the complicity of in 2007, 12% annualized in the first half
debt / GDP ratio). With one important the carry-trade strategies) and they are of 2008) only to stop abruptly at the
difference: less than 10% is held by foreign likely to fall short term victims in the outbreak of the disruptive global crisis
counterparts (against more than 50% in wake of the instability triggered by the after the summer 2008. In the following
US and UK). This domestic propensity dynamics mentioned above. Secondly, frantic months the market begins even to
to save and re-invest in government debt these currencies have already experienced discount (in the NDF forward rates) a
in the private sector has always been a significant recovery in recent months: weakening of the Renminbi in the wake
the key to making the ‘short JGB’ (the it is likely that the awareness that ‘small / of what was happening dramatically
expectation of increased long-term rates peripheral / emerging’ might be less risky in all the emerging markets’ currencies
often generated from foreseeing fiscal in the next few years of ‘big / central / against the greenback. Actually, the spot
dynamics getting unsustainable) a ‘traders mature’ could be already partially in the exchange remains nailed around 6.82-
graveyard’ in the last two decades. To price. Timing will then turn out to be of 6.83, close to the weakest (Dollar) levels
hypothesize an untenable fiscal situation utmost importance in such a trade. attained, and does not move anymore
for the country of the Rising Sun turned since then.
out to be quite a risky sport (even on the Renminbi (or Yuan): the financial
FX side these days). Population dynamics, market earworm In 2009, together with the improving
however, could change this equilibrium in economic and financial situation, the
the coming years. The aging population The recent history of the Chinese currency Dollar gradually returns under pressure
trend, typical of mature economies, is is well known. In July 2005 the peg to the and the currencies of major emerging
particularly pronounced in Japan, due Dollar (8.28) is terminated. Authorities countries go back to experience major
also to the limited immigrant flows. The proceed with an immediate revaluation revaluation tensions often countered
transition from active working life to of the Yuan by about 2.5% and following by local monetary authorities. In this
retirement generates a lower propensity
to save: later in your life you generally
tend to consume the life savings. These
dynamics are slow but quite inexorable
and need to be counted for.
After all we could say that the recent
crisis, ultimately due to the bursting of
a giant credit bubble, was coming from
and affected more the major developed
economies compared to peripheral
or developing world countries. The
situations and the risks outlined in this
section seem to suggest that it makes little
sense to have long-term positions on the
relative strength of these major currencies
among themselves, but it would be
preferable to remain flexible waiting for
events that could accelerate or avert the
risks we have outlined above. It might Chart 3. Eur/Aud during the post-crises recovery. Euro may be strong but…..

FX TRADER MAGAZINE January - March 2010 17


context, the forward market shifts authorities have demonstrated their weakening). We have no clue on how
back to point to a future appreciation willingness to give up the complete much it would be needed (25%, 30%,
of the Yuan, a premium which in opening of their financial system and maybe more?) to achieve a similar
recent weeks has fluctuated between a complete independent monetary result. In any case it seems impossible
2.5% and 3.5% a year. Analysis and policy (from the Fed). Such renounces that the Chinese authorities, famous
arguments from (Western) financial are considered lesser evils to attaining for their gradualist approach in any
observers and columnists on need the necessary growth (and social field, would be willing to take such a
and imminence of a new revaluation stability) strongly dependent on the risk which could potentially put many
path are back in vogue. It is often export sector. After all, even when Chinese exporters out of business
said that only allowing the Dollar to the Cny has been left (partially) free overnight.
weaken against the Renminbi may to appreciate by about 20% in three The structural forces (growth
relieve the Euro (and other freely years it cannot be said that the PBoC differential, current account balance,
floating currencies) from the weight of has enjoyed a genuine independence potential for productivity growth)
being the only outlet to the necessary in monetary policy. Indeed the are undoubtedly present and will be
weakening of the US currency. progressively growing revaluation felt over the years but cyclical trends
In reality we must accept that the expectations have generated increasing still show a trade balance much less
Yuan is and will remain an economic hot-money flows into the Yuan, with unbalanced (i.e. with a smaller surplus)
and monetary policy tool much more higher accumulation of foreign than the excesses of 2006 and 2007
than it could be a variable determined reserves and augmented problems in and domestic price dynamics not far
by the eventually unstoppable market the execution of monetary policy. from deflation (a few days ago, the first
forces. While it is impossible for These dynamics have often generated positive CPI read after nine negative
policy-makers to target exchange the logic arguing for a massive one-off months). The authorities do not seem
rates, interest rates and allow free revaluation able to bring the Renminbi willing to take risks: the integration
capital flows at the same time, it is to a level where finally the perceived risk of China in the Asian supply chain, a
also true that, due their almost genetic by speculative traders would be two- powerful manufacturing machine for
‘mercantilist’ approach, the Chinese way (also in the direction of a potential developed economies, is still seen as
the safest way to generate growth and
prosperity. International pressure is
still sporadic, uncoordinated and the
growth in importance of the G20 at
the expense of the G7 as a forum for
the coordination of economic policies
seems to be a development that will
allow China to enjoy some extra time.
“Exchange rates should not play a
primary role in efforts to rebalance
the global economy” said Zhu Min,
deputy governor of Bank of China,
on December 9th. A clear enough
message. If in 2010 a resumption of
the Yuan appreciation process is seen,
in our opinion it will be slow, gradual
and in the second half of the year.

Chart 4. Usd/Cny. Not an example of free-floating exchange rate. Alessandro Balsotti

18 FX TRADER MAGAZINE January - March 2010


expect high volatilit y

On the whole, the global economy the stability of the single currency/ between different countries.
seems on the road to recovery, Euro. In such a scenario - in which
although differences between consumer sales are also struggling Analysing the general economic
different economic areas are to pick up - a rise in interest situation and the trend of the
becoming more distinct. Economic rates appears rather unlikely. main investment asset classes,
growth appears a real phenomenon Despite a higher-than-expected investors can be rather satisfied
in most Asian countries, thanks to Thanksgiving spending, the with the year-to-date performance.
the contribution of China (the first optimism on the short-term We may fear that Dubai’s debt
country to implement measures outlook for the US economy is is higher than estimated or that
to stimulate the economy) and limited, given that consumers seem Greece’s sovereign debt will
that of those countries need to be profoundly
related to commodities. restructured. However,
such local crises appear
The Reserve Bank of rather natural after a
Australia has repeatedly major financial collapse.
raised interest rates If well managed by
by 25 bps and other policy makers, these
countries like Israel crises should be
and Norway have overshadowed by the
also started to reverse sustained economic
their monetary policy. growth of the Asian
Yet, markets worldwide countries and by the
are perhaps more positive estimates
concerned about on global growth.
when the US and
EU will follow suit. On the whole, the
The Euro area has to outlook continues
deal with the issues related to still reluctant to increase their to be slightly optimistic.
Greece which, in turn, might trigger consumption. All things being Short-to-medium term interest
speculative moves on other EU equal, the monetary policy reversals rates (up to 24 months) will be kept
countries, such as Ireland, Portugal, which are expected to occur in under the historical average in the
Spain and Italy. This would represent 2010 will be more selective than main geographic areas, triggering an
the very first event undermining ever, with significant differences increase in investors’ risk appetite.
FX TRADER MAGAZINE January - March 2010 19

Most importantly, investors’

confidence keeps improving. The
pessimists will continue to emphasize
the weak consumer spending in
industrialized countries, but in
reality the expected transition of
some emerging countries into semi-
industrialized countries is simply
occurring earlier than anticipated.
As a result, the income-per-capita
differentials - still too large - will
necessarily shrink in the coming
years. What matters the most to
equity and commodity investors is
global growth.
in the next few quarters, whilst waiting in the case of sugar and cocoa. Rice,
Determining which geographical areas for clearer signs of future economic soybeans, corn and coffee should also
will experience the strongest growth is developments to emerge. be monitored closely.
a subsequent and somewhat secondary
issue. Should the economic recovery of Crucially, the EPS for the last quarter The case of gold is somehow different.
emerging markets be solid and sustained, of 2009 and the first two of 2010 In the light of India’s recent 200 ton
then we can expect the economic are likely to dwarf the figures for the purchase of IMF gold, it appears
conditions worldwide to show signs corresponding periods last year. Yet, on rather evident that bullion has become
of improvement. Let’s now analyse the the other hand it should be noted that yet again a way for central banks to
main investment asset classes. the better the estimates the more likely diversify their monetary reserves
is a pullback. Presently, we don’t foresee - as further confirmed by the small
With regards to interest rates, a any imminent major correction and purchases recently made by the central
flattening of the yield curves in prefer to focus on a sideways trading banks of Sri-Lanka and Mauritius. The
the US and EU appears a possible range scenario for 2010, with a possible gains posted by gold - aided by the
development. Inflationary pressures rise during the final months of the year. simultaneous weakness of the Euro
- potentially fuelled by the rise in We see strong and sustained growth in and Dollar and by the uncertainty
commodities - should be restrained emerging markets - currently the actual surrounding the future macroeconomic
by weak consumer spending. In such a engine of economic recovery - as the scenario - might be slowed in the
scenario investors could progressively essential condition for this to happen. coming quarters only through the sale
increase the duration of their portfolio of part of the large reserves held by
in order to take advantage of the Commodity markets show similar industrialized countries.
performance on the 7-10 year segment. issues. Emerging markets’ demand
On the corporate debt market, we shall continues to replace that of In conclusion, in 2010 the major
expect a more selective approach, firstly industrialized countries. Supply is investment asset classes will be
with regards to individual industries still rather inelastic due to the lack characterized by high volatility - a
and then individual companies. In of investments and production cuts scenario which undoubtedly favours
fact, many investors will tend to prefer occurred during the recent financial investors who are able to trade.
government debt issues to limit the crisis. In this scenario, the risk of a
risk. Equity markets could consolidate supply-demand mismatch is high, as Nicolò Nunziata
20 FX TRADER MAGAZINE January - March 2010
TraDING Performance FX

Brett Steenbarger
Traders Performance Coach
“Only practice, learning and experience
can build the skills to make someone a
good trader.”

A financial trader for over 30 years, Professor of He also tells us about the various tools he created and uses
Psychiatry and Behavioral Sciences at a medical to help traders improve results. Some are technical tools
university for 19 years and a coach for professional such as indicators of market sentiment, market strength
traders in trading firms, investment banks and hedge and momentum. Others are psychological tools including
funds, Brett Steenbarger has a lot to share about different techniques to help traders build strength and
trading psychology, techniques and performance. correct some of their problems, such as cognitive techniques
to change traders’ patterns of thinking, behavioral
His books, The Psychology of Trading : Tools and techniques to stay more focused and more in control, and
Techniques for Minding the Markets and Enhancing solution-focused techniques to identify each trader’s positive
Trader Performance: Proven patterns.
Strategies from the Cutting
Edge of Trading Psychology, In his experience, the most
are touchstones for traders important set of skills a professional
seeking concrete methods to trader should have and build in
improve trading results in order to become successful are:
markets. His blog TraderFeed market pattern recognition, trade
has been acclaimed one of idea generation, trade execution,
the top financial blogs by trade management and self
BusinessWeek. management. To private traders he
recommends mentorship, learning
Brett Steenbarger explains to and practicing through trading
FX Trader Magazine how he works with professional simulation.
traders to improve their trading performance, helping
them build on their patterns of success, and he insists He shares his view and experience on currency trading,
that, just like any performance or sport discipline, advising forex traders to build a deep understanding of
traders should build their skills by learning and what makes currency markets move and talks about some
practicing with trading simulators. of the specific patterns of successful forex traders.

FX TRADER MAGAZINE January - March 2010 21

FX TraDING Performance

FXTM: You are both an expert in B.S. IIn very late 1990, I was reading firm, which traded very actively, and I
psychology and a trader. Did you first an online column written by Victor learned a lot about the futures market,
start as a psychologist or as a trader? Niederhoffer and Laurel Kenner, in about market timing, about trading
B.S: Really both. I started trading which they were running a contest to see with very short timeframe, trading order
while I went to graduate school for who could come up with the best market flow, and I learned a lot about working
my PHD in psychology. My interest indicator. I entered their contest and with traders while they were trading. It
in trading developed at the same time came up with the idea of an indicator. was a fantastic experience. After that, I
that I was training to be a psychologist. The basic idea of the indicator was that continued with the company on a part
But my main career to start out was as there was a positive correlation between time basis, and began working with other
a psychologist and for 19 years I taught the level of the Dow Jones industrial trading firms, including investment
psychology and psychiatry full time at a average and the average beats per minute banks and hedge funds.
medical school. of popular music at the time. They liked
that idea and announced that I was FXTM: How do you train traders?
FXTM: How did your trading the winner of the contest and Victor What is your approach?
evolve over time? graciously invited me to his home, where B.S.: I work with them as a psychologist
B.S.: I began by trading individual he also had his trading business. So I spent and as a coach. So I don’t teach them how
stocks in 1977, learning about companies some time with Victor Niederhoffer and to trade. There are specific programs for
and their fundamentals. I was making learned about his approach to markets that. I work with them as a performance
money and in August 1982, we began a and his philosophy of trading. That coach to help them perform as well as
large bull market. I was short the market influenced me very much. He was taking they can. So I learn about how they trade,
at that time and as a result I lost a good a scientific approach to markets, studying about what they do well, and about the
amount of my profits in 1982. That’s how historical patterns and trading based mistakes they make. I figure out with
I realized that I needed to learn more on those patterns. It was a tremendous them what are their patterns of success
about timing, so I developed research to learning experience, which inspired me and of failure, and I help them build on
study the timing of market moves. That to write my first book “The psychology their patterns of success. I help them avoid
very much changed the way I traded. I of trading”. When it came out it became some of the problems that lead them to
started trading shorter term with a focus quite popular and a trading firm in loose money. For example, a trader may
on timing as well as fundamentals. Chicago, Kingstree Trading, invited me have a lot of skills and experience but
to work with their traders as a coach. It may get frustrated after losing trades, and
FXTM: You started working with went well and they made me an offer out of that frustration they might start
financial firms as Director of Trader to join their firm. So I left the medical making some bad trades. I would teach
Development, which was something school and came to Chicago with my them very specific skills for dealing with
quite new in the industry. How did you family and began working with traders their frustration in a positive way so that it
become a trainer of professional traders? full time. It was a proprietary trading doesn’t affect their trading.

FXTM: You’ve been the first to write

about training traders using trading
simulators as a main performance
tool. And in your second book you
also promote the idea that traders
should find their niche to be successful.
Do you still teach in this way?
B.S.: Yes. When I was at Kingstree
Brett won a Trading contest for his innovative ideas: the correlation between the
Trading, we began a training program.
DJIA level and the average bits per minute of a popular music
We used simulators with real market

22 FX TRADER MAGAZINE January - March 2010

FX TraDING Performance

data using order platforms where traders B.S.: Skills that make a professional order book, from the longer term trend
could place their trades but, they weren’t trader very successful begin with or fundamentals of an instrument, and
risking real money. But the platform recognizing market patterns. The markets they might be looking at the bigger
would compute when they would make have different patterns at different picture, or the fundamentals of the
or lose money based on simulated trading. timeframes. The patterns that happen in economy. But in all cases the successful
We worked with the new traders using minutes and seconds are different than trader generates trade ideas. Another
the simulation to help them figure skill is execution: being able to
out which markets they were good translate the trading idea into a
at and which kinds of trading they position in the market that has
were good at, so that they could a favorable risk/reward profile.
find their niche. That was very In other words the trader enters
helpful for traders. Ever since then the market at a time when their
I’ve been a big believer in using risk is considerably less than their
simulation and helping traders reward. So at the time they execute
figure out what their strengths are. a trade they have an idea of how
far the market would go against
FXTM: : What is your advice them to tell them that they’re
to become a successful trader? Is it long – that’s their risk – and they
more a matter of psychology, or is have an idea of how far the market
it more a question of finding your would go in their favor – that’s the
own niche and trading method? reward. Out of an understanding
B.S. It is first and foremost a of risk and reward, and out of an
matter of building skills. There understanding of how much of
are many skills that go into being their portfolio or their account
a successful trader. There are skills should be put into this idea, they
of recognizing patterns on the come up with a position and they
markets.Thereareskillsofmanaging execute the position. So execution
risk. Just like any performance Trading is first and foremost ends up being very important in
discipline, people have to learn terms of a trader’s skills. A third
their skills and practice those skills a matter of building skills, set of skills would be managing the
to become good at what they are position: position management.
doing. No different than sports.
no different than sport Managing a trade once it is a
Psychology is very important position. So, they would be
in terms of helping people become patterns that occur over days and weeks. following the position, while the markets
consistent in taking advantage of their The expert trader is someone who spends are moving, they would decide whether
skills. Once you have the skills of a good a lot of time observing markets and to add to the trade. For example they
trader, psychology will help you make being able to recognize those patterns might decide to add size to the trade to
the most out of those skills. But it cannotquickly. Out of that pattern recognition, take better advantage of the idea. They
substitute for those skills. Only practice,they generate ideas for good trades. Part may decide to take some of the trade
learning and experience can build the of that generation of ideas is putting off, to gather some profit. They may
skills to make someone a good trader. the information together, synthesizing decide to get out of the trade altogether
information so that the trader has an if conditions change and are looking
FXTM: Can you tell us which are idea about how the market is likely to unfavorable. So they are managing
the main skills that a professional trader move. So they might be synthesizing the trade as the markets are moving,
should have to become successful? information from price action, from integrating this fresh information from

24 FX TRADER MAGAZINE January - March 2010

TraDING Performance FX

the market into ideas about what to learn skills and learn from their mistakes events, you can have someone who is
do with the positions. So we have idea without risking their capital. That’s very very focused on their task and also very
generation as one set of skills, execution, important because everyone makes a lot controlled. So it isn’t necessary to be
as another set of skills, we have trade of mistakes when they start out trading. cool and calm in the “zen” sense but, it is
management as a third set of skills, and And only when you are successful in very important that they be very focused
then there is a forth set of skills that we simulation should you then put some on the markets. Once traders become
could call “self management”. That’s the real capital at risk. So the two important emotionally upset, they begin to focus
psychological part of trading, where on money and on themselves and
the traders keep themselves in a that takes their focus away from
calm, focused state, where they’re the market. And once the focus is
able to process new information in lost from the market, they cannot
an efficient way, so that they can recognize patterns anymore. And
make quick decisions that help them that really ruins their performance.
manage their trades. So traders are So you can be very competitive,
managing themselves at the same but as long as you keep your focus,
time as they are managing their it’s ok.
ideas and positions. Those 4 skills
are some of the most important to FXTM: What does it mean for a
the professional trader. trader to be totally “focused”?
traders have to manage themselves S.B.: Intense concentration. The
FXTM: What would you trader is completely absorbed in
recommend to non professional
at the same time as they are the markets and all their thinking
traders, and more specifically to managing their ideas and positions is about what the markets are
forex private traders, as a technique doing and what the market action
to acquire this set of skills? means. So for instance, let’s say
B.S: There are two things which are things for the non professional trader are I’m trading the S&P index and I’m
important. The first, mentorship, can be mentorship and learning, and second, seeing the market moving, and at the
very helpful. Research on performance practice through simulation. same time I’m watching other markets
suggests that expert performance very that affect the US Stock market. So I’m
often begins with mentors. That is FXTM: Coming back to trading watching interest rates, I’m watching the
people who help during the learning psychology, one interesting point in currencies, I’m watching different sectors
process. In fact finding a mentor who your second book “Enhancing traders’ and related markets, and I’m watching,
is knowledgeable and who trades in a performance” is where you talk about a watching, watching to see if there is
way that you would want to trade is very “competitive psychology”, in other words underlying strength or weakness in what
useful. Mentorship can also come from you say it is more important to want to all of these markets are doing. If my focus
following people’s books, magazine perform than remaining “zen” or calm. is on those markets I can pick up those
articles or websites, because many good Can you explain this idea? patterns quickly and act appropriately. If
ideas are in literature, and this is less B.S.: I would say both are important. my focus is distracted from the markets,
expensive than working with a personal People can be intensely competitive I’ll miss those patterns and I’ll end up
mentor. The second part that’s important – and the best traders I know are very not managing the trade very well.
is once you learn about markets, it is very competitive people – but, in the heat of
important to practice the skills that we the battle, when they are trading, they FXTM: Regarding the development
were just talking about. And that’s where are also very focused and very controlled of trading technologies, you defined a
simulation is important. When traders in what they do. And again, if we think precise road map for trading software
learn through simulation, they’re able to about certain sports, or certain Olympic development companies. Do you think

FX TRADER MAGAZINE January - March 2010 25

FX TraDING Performance

that trading platforms currently offer the learned the skills in a proper way. So they traders will trade online so you can login
right training tools for traders today? really need mentorship and learning andobservethemtrading.Soyoucanlearn
B.S: There are manyplatforms out there before I could really benefit them. some of the skills by watching trades and
that offer training tools for traders but, I think that if I were to work with most I recommend those services to traders.
it’s much more common that platforms retail traders, it would not be honest.
will offer information about traders’ FXTM: You created some tools that
metrics: how much they win, how much FXTM: This brings us back to your help traders improve their results. Can
they lose and how long youtellusmoreaboutthem?
they stay in winning trades B.S.: TThere are two
and in losing trades. There kinds of tools. The first
are many platforms that are market tools. What I
allow for simulated trading. use are different indicators
Platforms like Ninja Trader of market sentiment and
would be an example of market strength and
platforms which have momentum. I’m very
become popular and have interested in tools that
performance training tools. help me identify whether
buyers or sellers are more
FXTM: Do you aggressive in the market.
only coach professional So there are tools such as
traders or do you also the NYSE Cumulative
coach private traders? Tick that identify how
B:S: No, I only coach at I’m very interested in tools that help many stocks are up-
trading firms. So I coach ticking or down-ticking at
tradersatproprietarytrading me identify whether buyers or sellers the moment. And there
firms, and at investment are more aggressive in the market are ways of using this
banks and hedge funds. information to figure out
the short term sentiment
FXTM: Do you receive approach about traders’ development. of the market. There are also tools
requests from the retail market? You say: “First, train to improve your that help you identify whether trades
B.S: Yes, very many, because my blog skills like in any sport and then think are occurring more at the market offer
has become very popular, so I also about psychology. Only then you’ll know price or at the market bid price. If more
receive requests from the retail market. if your problem is about technique or volume is transacted at the offer price, it
psychology.” This is quite an innovative means that buyers are more aggressive.
FXTM: Are you going to enter approach. Many traders go from learning If more volume is transacted at the bid
this market or are you going to stay techniques to working on psychology price, then you know that sellers are
in the professional trading sector? and then back to technique and so forth. more aggressive, and you can follow that
B.S.: I don’t have the time to coach How can traders streamline this process? for each market moment to moment.
retail traders and my experience is that B.S: One way of streamlining this There is a tool called “Market Delta”
retail traders need training in recognizing process is to go through a good training that is very helpful for identifying that
patterns in markets more than they need program. There are some proprietary information. Those very short term
psychology. And many times, when retail trading firms and investment banks that sentiment indicators help identify the
traders have psychological concerns, like run very good training programs. The underlying tendency or trend on a very
getting frustrated or discouraged about other possibility are some of the services shorttimeframe.Therearealsoindicators
their trading, it’s because they haven’t where knowledgeable, experienced that help identify market momentum

26 FX TRADER MAGAZINE January - March 2010

TraDING Performance FX

and strength. So, for example I follow rates, you can’t be an informed trader FXTM: Of the successful currency
how many instruments are making of stocks and not know what’s going traders that you know, is there any
short-term new highs or lows. I also look on with currencies and the facts that pattern that can be identified? Are
at how many instruments are closing move currencies. So forex markets are successful forex traders working more in
above or below their moving averages. important not only to currency traders the long term, swing trading, or scalping?
These are examples of strength and but, to traders who try to understand Are there any relevant statistics, based on
momentum indicators. All of these are what is making markets move. And we see your experience?
put together to help recognize patterns this right now. There is a huge correlation B.S: Yes, and of course my experience
in markets. between movements in the US dollar may not be representative of all traders
The psychological tools are different and movements in the US stock market. but, in general, I find that people who
techniques to help people build strength Forex markets are also affected by many are day-trading currencies successfully
and correct some of their problems. There different factors. I work with traders who are the exception, not the rule. I do
are cognitive techniques, which help are successful forex traders. I’m personally know of people who trade currencies
people change their short term and make
patterns of thinking. money, but they are
There are behavioral The two important things for the non the exception. The
techniques that help ones who I’ve seen
people stay more professional trader are mentorship and learning, be more successful
focused and stay and second, practice through simulation are trading over a
more in control, by period of days to
literally controlling weeks and trading
their body. And there are also what are not an FX trader but I work with people longer term patterns in those markets.
called “Solution-Focused Techniques” who are, and of all the traders I work They are very difficult markets to scalp
that help people identify their positive with, who are successful in currency mainly because of the lack of centralized
patterns, what they are doing right so that trading, I can’t think of a single one who volume information in the spot markets
they can build on their strengths. Those trades exclusively with technical analysis. and the typical spreads to get in and out.
3 techniques are the most common ones They may look at charts, at support and
that I use. The cognitive technique, the resistance levels and certain patterns so, it’s FXTM: Finally, what would be THE
behavioral technique and the solution- not that they ignore technical analysis but, best advice you’d like to give traders?
focused technique. that they trade with other information B.S: My advice would be to make
besides technical information. And use of the affordable information that’s
FXTM: What is your view of the they have an understanding of shifts in out there. There are many good books,
Forex market? interest rate markets, in yield curves and magazines, articles and websites. So
B.S.: The forex markets are becoming how those affect currencies. They have look for quality information because
increasingly important, both to traders an understanding of central bank policy that can help you begin your education
and to trading. The world has become and how economic reports in different in an affordable way. It is important
more global. Financial markets have countries affect currencies and how the to protect your capital and preserve
become far more global. What happens currencies affect each other. So they have your money. So don’t spend too much
in Asia and what happens in Europe a deeper understanding of what makes money on goods, services and promises
affect each other and affect the United currency markets move than simply that people offer but, look for people
States. What happens in different looking at charts. And I encourage who are doing worthwhile research
currencies affects what happens in other traders in the currency markets to really and worthwhile trading so that you
asset classes. So I don’t think you can be understand what makes currency market can learn from them. Everything after
an informed trader of any one thing. You move because there is much more to it that is practice and skill building.
can’t be an informed trader of interest than just shapes on a chart.

FX TRADER MAGAZINE January - March 2010 27

FX strategy

A simple plan to trading

It is generally expected that more than Good or bad, emotions are dangerous. you just made, can be just as destructive.
80% of people who set out to trade for Generally speaking, emotional trading That’s not to say that feeling good about a
a living will fail. If we think of trading leads to poor decisions and impulsive trade is a bad thing. It’s okay to feel good,
as a business, then you’d pretty much reactions. If you’ve traded before, you’ve we want positive energy when trading.
be buying into a failing corporation. In probably experienced this. I know I have But we want to keep that good emotion in
fact, trading is a business and needs to be and I see plenty of seasoned traders lose check to avoid becoming over-confident.
treated as such in order to achieve success. control from time to time. A trader might have 4 great days in a
Why do most traders fail? There is an Negative emotions are obvious. For row, then on the 5th loses everything
array of reasons, but probably to two most example, they come when you lose he made for the week. Why does this
common obstacles are loss of emotional money on a trade and throw any sensible happen? Most likely he was brewing with
control and poor money management. judgement out the window in an effort to confidence and swung for the fences,
So, what can we do to ensure our success make back what you just lost, rather than trading bigger, then losing bigger when
as aspiring traders? The answer is actually moving on to the next well planned trade. the trade was wrong.
quite simple…have a trading plan in Or maybe you missed a trade and chase Let me make this point…Trading well
place. after it only to increase your risk and lose for a few days in a row is not an excuse to
double what you initially intended. trade bigger. You need to be consistently
What is a trading plan? On the other hand, positive emotions, profitable for months on end before
like feeling good about a winning trade considering an increase in position size.
Before we answer that, let’s elaborate
more on the business of trading. Just as
you would create a business model before
opening a retail store to sell widgets, the
same holds true for trading. Every trade
you make is a business decision that will
affect your bottom line. Trading is not
an easy business and therefore having a
plan of action in place will increase your
chances of joining the 20% that make it.
So to answer the question, a trading plan
is a pre-determined strategy or set of rules
used to base trading decisions on when
approaching the markets. Our goal with
a trading plan is to eliminate the obstacles
that hold us back from succeeding.

Trading Obstacles
Figure 1
A trader’s worst enemy is his emotions.

28 FX TRADER MAGAZINE January - March 2010

FX strategy

to make $300. If you lose on 6 of those

trades, you’re out $600. But you win on
the other 4 trades at $300 each totaling
$1200. Your net profit is $600. Of
course we want to be better than 40%,
but this just demonstrates how important
money management is to your success as
a trader.
These two obstacles pretty much go
hand in hand. Without sound money
management, you will most likely trade
off of your emotions. Vice versa, if
you’re trading off of emotions, you’re
most likely going to abandon your
money management principles. This is
what makes a trading plan vital to your
success. It will control your emotions by
managing your risk.

Figure 2 Creating the Plan

The second obstacle separating the controlling your risk.
successful traders from the unsuccessful For example, assume you make 10 trades How do we formulate a trading plan?
is practicing poor money management. and your risk/reward for each is $100 Let me preface this by saying, there is no
To be profitable, you need to instill
good risk management priniciples. Too
many novice traders focus on how much
money can be made rather than how
much can be lost and before they know
it, they’re married to a bad position.
Before entering a trade, the first question
should be, “What if I’m wrong?” If this
trade doesn’t work, “where am I getting
out?” In other words, “What’s my risk?”
After you’ve determined that, then, and
only then, should you ask, “Where is my
profit target?” Once you’ve identified
this, then you can place your trade.
Properly managing your risk will ensure
you have enough bullets to withstand
several losses in a row. You’re not always
going to be right, but with sound money
management, over time you’ll come out
ahead. In fact, you can be right only
Figure 3
40% of the time and still make money by

30 FX TRADER MAGAZINE January - March 2010

strategy FX

one specific way to create a plan. For this 17043 coincides with the 2005 low. Finally,
The Trading Plan
particular trading model, we’re going to use we’ll add in our trend lines for both long and
some basic technical analysis techniques short term. When compiling the data, jot 16514 Last Week’s High
3rd Resistance Range
to come up with something that is simple, it down on paper or in a spread sheet with 16485 20 Day moving average
yet effective and based on the philosophy the level and its description. For example,
16410 50 day moving average
that no market goes straight up or down. 17043 would have a description of Jan 2009
Rather, markets flucuate off of support and high/Nov 2005 low. The reason for this is 16405 100 Day moving average
2nd Resistance Range
resistance areas. We’ll apply a simple method so we always know why we placed a trade. 16378 Daily Breakdown point
to obtain three areas support and resistance Figures 2 and 3 show the weekly and daily
16345 Daily Downtrend Line
which in turn will provide us with key points charts the using the same methods as before. 1st Resistance Range
of reference to base our trades off of. In figure 2, note the weekly upside breakout 16300 Broken Monthly and Weekly uptrend

When analyzing a market, it’s always best to on Oct. 12, the broken weekly uptrend line 16225 Prior Settlement
begin with the larger chart time frames and and the 38% Fibonacci level coinciding with
work your way down. Here we’ll examine weekly congestion lows. On the daily chart 16165 Last Week’s Low
the monthly, weekly and daily charts. Figure in figure 3 we’ve added moving averages into 1st Support Range
16117 Weekly Breakout Range
1 shows a monthly chart of the British the mix.
Pound. We’ve drawn in the Fibonacci After keying in all of the reference points 16030 Prior Weekly Lows
2nd Support Range
retracement from the peak in November we’ve extracted, we’ll have a spread sheet 15980 Prior Weekly Lows
2007 to the low in January 2009. Next we’ve with raw data. See figure 4. The next step is
15800 June Low
taken note of key highs and lows. When to clean up the data and identify pockets of 3rd Support Range
scoping for highs and lows, look for double support and resistance. Begin with the prior 15750 Weekly 38% Fibonacci Retracement

tops, double bottoms and prior breakdowns day’s settlement and work up for resistance 15700 Oct Low
and breakouts. Notice how the 2009 high at and down for support. When done, we’ll Figure 5
have our trading map in place. See figure 5.
Now it’s time to set rules to our plan. For
this strategy, we’ll be buying support and Additional Rules
17315 50% Fibonacci Retrace
17043 Jan 2009 High/Nov 2005 Low
selling resistance. Next, we’ll set our risk/
16879 November High reward parameters. To keep it conservative You must make every trade the plan offers
16820 Minor Monthly Downtrend
we’ll trade each level once and place our and stick to it consistently. I can’t stress
16740 Weekly Triple Top
16570 Minor Monthly Downtrend entry orders in the middle of each range. enough how important this concept is.
16514 Last Week’s High
With three Support and three Resistance If you shy away from the second or third
16485 20 Day moving average
16410 50 Day moving average areas, that translates to a max of 6 trades trades because the prior one lost, the plan
16405 100 Day moving average
being executed on any given day. Our will most likely work against you. You
16378 Daily Breakdown point
16345 Daily Breakdown Line stops will be placed just below the low or must maintain patience. Let the market
16300 Broken Monthly and Weekly uptrend
high of the respective range. This can be come to you and only trade at your levels.
16225 Prior Settlement adjusted to suit your own risk tolerance. Do not force trades that aren’t there.
Our profit objectives will be at the next And lastly, sit back and relax and watch
16165 Last Week’s Low
16117 Weekly Breakout Range range on our map. For example, if we were your accounts grow. Now that you’ve
16030 Prior Weekly Lows
to buy into the 1st Support zone at 16165- got your trading plan in place, you have
15980 Prior Weekly Lows
15800 June Low 16117, our profit target will be at the 1st a solid foundation that will lead you to
15750 Weekly 38% Fibonacci Retracement
Resistance zone at 16300-16345. Or, if prosperity.
15700 Oct Low
15356 Jan High and May Brekout we were to buy the 2nd Support zone,
15225 Oct 2008 Low
our target would be at the prior broken
Figure 4 Support zone and so on and so forth. Jeremy Ascher

FX TRADER MAGAZINE January - March 2010 31


Ganges’ Gold
The antagonist rally
Wilbur Ross says that gold is a 125.000 boxes). enthusiasm is sky high. Are they
psychological commodity. For all A metric ton of gold is in fact little right?
other metals, in effect technicalities, bigger than a shoe box and has a 37
such as the amount produced cm. side. The 200 tons bought by India From 1971 until a few months ago
annually, industrial demand, stocks, and offered for sale by the IMF, the only one type of gold fan existed.
fungibility (between aluminum and 200 tons that have made the market We will call him Homo Aureus
steel for instance), matter. Gold go crazy, bringing the price from 1000 Occidentalis. This is a species that grew
however, being free since 1971 from to 1100 and raised calls for the final up toughening in difficult conditions.
the burden of money supply due to demise of the dollar, this 200 tons are In the first ten years he had to survive
dollar equality, fluctuates lightly and in the end just a cube with a side of on the edge of legality, hindered
impalpable (despite its high specific two meters. 7 billion dollars was paid in any way by governments around
gravity) in a symbolic and psychic for this cube, which is a lot for two the world. These governments after
world. metres of stuff, but is only 2.5% of marrying gold for centuries, furiously
Indian foreign exchange reserves and denied and banished it from civilized
All the gold extracted from mankind would be 0.3% of reserves if the buyer society to impose their currency, the
from Neolithic times to today, with were to be China. ‘fiat money’, paper currency baptized
its immense price in blood terms, Among gold’s devotees however, with a sovereign act.
with ‘conquistadores’ blind rage
in search for El Dorado, with the
drama in the Wild West during the
Gold Rush, to end up with the HIV
positive miners who populate tunnels
of several kilometres underground in
contemporary South Africa, all this
gold, which amounts to 158.000 tons
of which 145.000 are still around,
may be contained in the courtyard
of Abaxbank (a very small Italian
investment boutique). If itseems
impossible, just put 50 shoe boxes on
the floor in a row (horizontal), create
50 columns from each of the lined
up boxes (and we’re already at 2.500
boxes) and then stack 49 boxes upon
each of the 2.500 boxes (and we get Richard Wagner. L’Oro del Reno. Ellie Dehn interpreta Freia. Los Angeles Opera. 2009-11- 11

32 FX TRADER MAGAZINE January - March 2010


to inflation, because since 2001 there

has been only little inflation. Gold is
in fact perceived by those who buy
it as a bulwark against imminent
inflation, but today it actually
flourishes when three conditions
are fulfilled simultaneously, namely
negative or close to zero real interest
rates and (consequently) monetary
and economic expansion.

The recovery of gold from 2001 to

2007 should be read in this light
and, in this context, it seems fully
legitimate. Homines Aurei have lived
Richard Wagner. L’Oro del Reno. Allestimento de La Fura dels Bauls di Barcellona. Direzione di Zubin Mehta. 2009-11-11
through this first rebirth phase with
understandable feelings of pride.
The first 10 years of semi-clandestine Homo Aureus was decimated by The second stage of recovery, from
survival, though difficult, were at this experience and faced extinction. 2007 to today, has somehow different
least rich of economic satisfaction. Survivors during this selection characteristics.
In the chaos of stagflation, of the underwent genetic mutations in
maximum point of geopolitical which the main treat of gold buyers Unlike most of the other commodities,
expansion reached by the Soviet for centuries, fear, became in some which collapsed along with global
Empire of Evil and of Western cases paranoia, hate of the world, growth (think of oil dropping at some
governments trying to buy consensus permanent catastrophism. Next to point from 147 to 35 dollars), gold
creating paper money and public sound institutions like the World has held up very well in the face of
debt, the price of gold rose from 35 Gold Council and the gold industry, the crisis, taking on another identity,
to 800 dollars. there was a flourishing (and there still a refuge from a world confused,
is) of picturesque characters, barkers, unintelligible and especially on the
Were the next twenty years to be vendors of elixir in the nineteenth brink of bankruptcy.
really dramatic? In addition to century fairs. In 2000-2002 the most
marginalization, gold fans had grotesque point was reached. Even a After the acute phase of the crisis,
to endure a long and exhausting real disaster like September 11th was in 2009 gold has resumed its walk
downward movement in price from unable to spark some interest in the in harmony with the majority of
800 to 250 dollars while equity precious metal. financial assets and commodities.
markets produced one of the biggest Gold ideologists, starting from Marc
rallies of all time. Governments, for It has been paradoxically Greenspan, Faber, have however maintained their
their part, for all this time were only who both during his youth and pride of being a minority, contrarians,
sellers. They tried to get rid of the in his old age has never ceased to outsiders, opponents of a plutocratic
gold accumulated over centuries by proclaim himself a gold supporter establishment in which bankers from
selling at lower prices and all together, first and a gold nostalgic later, to the private sector and central bankers
stamping on each other’s feet just to restore the yellow metal shine with an hold up a rotten system, creating
get rid of a symbol representing a extraordinarily expansive monetary scented financial bubbles in order to
‘damnatio memoriae’ in their eyes. policy. Please note, not a shine due cover the stink.

FX TRADER MAGAZINE January - March 2010 33


Apocalyptic streams ride the gold lover it has an even more disturbing In the worst case scenario, the usual
culture today more than ever. Roubini (and stimulating ) aspect. exogenous event will finalize the
is a man from Enlightenment when devastation and gold (in the dreams
he judges Homines Aurei’s fears Private debt, in fact, can lead to of its devotees) will run free on the
of inflation groundless in a world a wave of defaults that can only prairie toward the 2.000, the 5.000,
which, on its own, is best suited be deflationary. Individuals, the 10.000 dollar mark. We know,
to deflation. The apocalyptic voice corporates and banks cannot print in fact, that exogenous events do
speaks in fact to the belly, not to the the dollars, euro and yen which not respect gradual and orderly
head, and should not necessarily be would enable them to repay their adjustment plans, they happen when
based on reality, plausibility is more debts. Governments however can. they want and almost always in the
than enough. Between being able to do something least opportune moments.
and doing it there is a difference, but
Today the evidence suggests a clear the anthropological pessimism of a Gold lovers nowadays thrive in a
absence of inflation and the millions gold lover leads him to cancel such stage magic. Their logic says that
of unemployed created by the crisis a difference. If a man can sin, he will if there is growth then inflation
will be in charge of keeping wage sin. If a government can repudiate will ensue with the same certainty
inflation low in the years to come. its’debt through inflation, it will. with which night follows the day.
Monetary expansion however, makes This doubt will remain throughout If, however, growth is missing then
inflation plausible, although not the next decade. In the best case even more money will be printed
true. Besides monetary expansion is scenario growth in the stock of and inflation, when it comes, will
not alone: we need to add to it the public debt will be stopped and the be even more violent.
public debt explosion in the States, stock will be slowly reduced (but
Europe and Japan. This explosion only from 2011) not in absolute In this context, those who have
is the other side of private debt value but as a percentage of GDP, already bought gold not only
implosion, but in the eyes of a gold provided that GDP will grow well. will keep it tight and will not
sell it, but they will buy more in
case of lower prices. Just look at
the daily statements Faber and
other lovers are making. Gold, it
should be remembered, is not as
all other commodities that have a
lot of production and low stocks.
Conversely, gold has a lot of stock
and very little production. Only
around 2,500 tons are mined yearly.
87 percent of it goes for industrial
use and jewelry. 325 new boxes of
shoes are left and can be added every
year to the Abaxbank courtyard
containing already 145.000 of them.
Almost nothing, a little more than
the two cubic meters bought from
India. That is why it only takes a
RichardWagner.L’OrodelReno.Ban¬gkokOpera.DirezionediS.Suchariktul.2006 few purchases to move the price.

34 FX TRADER MAGAZINE January - March 2010


In a buyer’s market, from the end moment of truth will come later, further.
of 2006, a new player has arrived: when the exit strateg y of central Keep your foot safely down on
Homo Aureus Orientalis. Unlike banks restore positive real interest the accelerator, the IMF says,
the Homo Occidentalis, private, rates on the short part of the at the cost of going too far. Do
the Oriental is institutional and curve. something right away, if you can,
does not buy to trade but buys to show that you will deal (later
to hold. In their recent buying of It will indeed be a moment of on) with the public debt issue, but
gold Russia, China and India are truth not only for gold, but for all on monetary policy take as long as
picking up the flag dropped by assets, bonds as much as equities. you need. Do not worry too much
the West, the one representing Gold, for that matter, although it about the more or less toxic assets
absolute monetary orthodoxy. is felt by its practitioners as fiercely that you bought from banks, as
alternative, negatively correlated, you will sell them in a few years.
Do not exaggerate, though. an ultimate lifeline against the
Diversification into gold involves drift of the world, shares in fact at A green light is given to keeping
only a small part of the new this stage the world destiny. a zero rate policy, with a broad
dollars reaching the coffers of smile to financial markets which
the emerging countries. Dollars One who buys gold thinks are regaining confidence. Probably
accumulated in the past are not sometimes to spite central banks, they do not go as far as wishing
being sold for now. In the first six showing his full disdain for paper a rampant bull market, but the
months of 2009, for the first time currency and the world as it is. rally we have seen so far is fully
in decades, central banks have Currently though he is actually approved.
become net buyers of gold, but for almost doing a favour to policy
modest amounts, 53 tons. For the makers because he participates in Cesare Beccaria (Italian economist
rest, as in the India – IMF case, the general asset reflation process, and philosopher, 1738-1794)
they have been swapping it with just as those who buy shares because suggested that the extreme resort
each other. they clearly have confidence in the to the death penalty should be
world as it is and it will be. banned from civilized nations. On
For a country like China it is Gold is thus not an alternative and the other hand he added that people
probably more important to build culturally antagonistic market, but who commit a crime must perceive
up strategic reserves of industrial actually parallel and complying. In the certainty of punishment,
metals and oil. Even for military some ways it is the pessimist’s vent human but inexorable, which they
purposes oil is more strategic. To which is redirected constructively will face.
store up oil and industrial metals towards the general reflation. It
however, massive investments would be different if gold was Today the extreme act of a parabolic
in infrastructure are required, bought while equities and bonds rally in stock markets is not
which in turn require a few years. were sold, but this is not the case. needed in order to kick-start the
Meanwhile you can buy gold, for As far as the policy makers animal spirits of the real economy.
which a little room in the basement orientation, with respect to asset A small and steady rise and, above
of a central bank is sufficient. reflation is concerned, just all, the certainty for short-sellers
As it can be seen, the combined read the seven policy points of the inexorable punishment they
power of Occidentalis and contained in the IMF document will face, is sufficient.
Orientalis Homines Aurei will be presented at the G20 a few days
enough at least to grant a strong ago. They are already extremely
support to current prices. The concise, but we summarize them Alessandro Fugnoli
FX TRADER MAGAZINE January - March 2010 35

Christopher Brandon
founding partner
Rhicon Currency Management
explains why it is fundamental to focus on the absolute
risk and be aware of the worst case scenario at all times.

Interview by JW Partners for FX Trader Magazine


Manager Christopher Brandon

Strategy Rhicon Strategic Program
Location Singapore and London
Assets Under Management 450 mln Usd
Type Short to Medium Term Discretionary
Style Technical Analysis
Instruments Spot FX & options
Currencies Majors & selective emerging marktes

JW:How long have you been trading about your job? market direction, equally comfortable
foreign exchange for? Tell us about your CB: The markets are continually trading from the short & long sides
career evolution. evolving and thus one faces a constant unlike in equity markets for example.
CB:I have been trading foreign challenge to remain ahead of the curve in
exchange since late 1995 when I first terms of idea generation, interpretation JW:When was Rhicon born? What
joined Swiss Bank Corporation in of trends and other market participants. ideas brought to its creation?
Geneva, at the time a major player in the One can never get complacent, and the CB: Rhicon was established in 2000
French Franc and Italian Lira markets. need to maintain a trading edge is what in Singapore, and we launched our first
Thereafter I moved to SBC London makes it so interesting. fund in December 2001. It was a natural
and onto UBS Singapore once the two progression from the private trading
banks had merged in 1999, market JW:In which way trading currencies that the three partners had been doing,
making, providing technical analysis and is different from trading other financial which taught us the invaluable lessons
proprietary trading. In 2000 I resigned instruments? of discipline and risk management, the
to trade on a private basis with my CB: The 24 hour and the truly global keys to successful money management.
two business partners, and established nature of the foreign exchange market
Rhicon Currency Management, taking does make it unique, and it means as a JW:How is today the company
on outside investors in late 2001. trader you have to maintain your focus structured?
throughout the whole working week. CB: Rhicon currently has 14
JW:What do you particularly like You are required to be agnostic to employees, equally split across our two

36 FX TRADER MAGAZINE January - March 2010


main offices in London and Singapore the risk of errors but reassures our on the overall portfolio, on the three
and a partner trading from Geneva. investors as well as ourselves. managers’ trading books, and on each
Due to the nature of the markets we and every underlying position. As
trade we felt it was important to have JW:As currency program manager, such we have a maximum monthly
better internal coverage of the markets how would you describe your loss on the strategy of 4%, split across
on a global basis, both in terms of investment strategy? the three books (1% for the intra-day
monitoring & execution as well as CB: Our investment strategy is best book, 1.5% for the other two), and
back office & operations. This shaped defined as being short to medium also a maximum amount of risk that
the decision to have offices in Europe term discretionary trading, with a can be deployed on any single trade
as well as in Singapore. strong emphasis on technical analysis. within each book. This emphasis on
We have been quite fortunate that the absolute risk means that we are
JW:What are the key positions in the three portfolio managers have aware of what our worst case scenario
your company? naturally evolved into three different might be at all times.
CB: Beyond the three portfolio time frames with complementary
managers, the most important styles. These include intra-day trading JW:What’s the most important
position is held by our Head of Risk with a more contrarian bias, short lesson you’ve learned from trading?
Management & Compliance who is term trading with a bias towards CB: The old adage of plan your
based in London, and has been with breakout/momentum, and a more trade and trade your plan is one that
the firm for nearly seven years. medium term perspective which we have learned from experience
comprises both technical analysis and many years ago. Without a strict
JW:Which authority regulates thematic studies. This should enable plan, comprising of entry points, stop
Rhicon? Do you keep and update us to generate profits in a broad range loss levels and targets, a trade should
procedure manuals? Do you have a of market environments. not be implemented. This holds true
compliance and risk management regardless of investment style or time
policy? How time consuming and JW:How and when did you frame and one which we all adhere to.
important is this? develop your current FX management
CB: Rhicon is regulated by the FSA strategy? JW:Do you use a blend of strategy
in the United Kingdom, as well as by the CB: The partners at Rhicon have types for diversification or one and
Monetary Authority of Singapore and been trading their own capital for over only?
the National Futures Association (US) 10 years, and we continue to be heavily CB: Whilst we all rely on technical
in Singapore. Rhicon has dedicated invested in the strategy. This has analysis as the basis for our trading, we
personnel in both locations who shaped our approach to trading and benefit from a natural diversification
maintain our internal compliance & most importantly to risk management across time frames and trading styles.
risk management policies & procedures. which is the cornerstone of our Within a robust risk management
In addition, we have employed outside strategy. framework this means that we should
regulatory consultants to keep us be able to take advantage of a wide
abreast of external developments as JW:Risk, an exciting yet dangerous set of market opportunities and
well as provide a ‘health check’ on our word. How do you manage it? environments.
own procedures. Whilst this may be CB: Anyone who thinks risk is an
time consuming, we feel it is a very exciting word should not be trading JW:How do you think has your
important part of our business, and foreign exchange. In our view, the performance been over time? What
we have been keen to devote resources key to successful trading relies on market conditions are expected to have
to ensure that we are fully compliant faultless discipline and focus on the a positive and negative impact on it?
at all times. This not only minimizes absolute risk deployed at all times CB: We are constantly striving

FX TRADER MAGAZINE January - March 2010 37


to perform better, limit our draw-

downs and take advantage of fresh
opportunities; hence the benefit of
20-20 hindsight is not particularly
useful in assessing prior performance.
We typically tend to benefit from a
change of volatility, often when this
marks a market correction or reversal.
Low volatility environments such as
witnessed in 2006 or choppy intra-
day markets such as the ones we have
been experiencing this year can prove
challenging to us.

JW:Can you give some recent

examples of where you have made a
unique winning decision?
CB: A recent winning trade took
HUF, CZK and to a lesser extent the JW: How much time do you allocate
advantage of the short term correction
ZAR, MXN and SGD. The higher to further research and development
higher in the USD against the CAD
volatility in these markets generally of existing or new trading strategies?
in late October. We had been aware
compensates for the lower liquidity, CB: We are constantly reviewing our
of the market building long CAD
however this is not always the case own discretionary trading (on a weekly
positions as we broke through the
and careful monitoring is required to basis) to ensure we are adapting to the
September lows of 1.0590, and with
ensure the risk reward is present before current market environment whilst at
commodities surging to new highs. As
implementing a trade. the same time respecting our own style
equities and risk assets paused in mid
and guidelines.
October, the market made a perfect re-
JW:Would you recommend private
test of this breakdown level, forming a
traders to trade some of the less matureJW: Do you believe in ever-valid
pivot point. This is a point of inflection
currency pairs? rules? Have you ever found strategies
where the market swings from bullish/
CB: The same issues of ensuring that come back into phase after a long
bearish. This provided us with an
that your risk reward is skewed in time in negative?
entry point (ie. Long USDCAD) to
your favour as well as knowing where CB: Money management rules are
take advantage of the correction in risk
your stop loss is are just as relevant for
ever-valid. Strategies may however
assets, as USDCAD traded through
individual traders as hedge funds. need to be tweaked according to
that level and on towards the 1.0870
market environments to adjust to new
region. We reached our take profit
participants, interest rate backdrops
target within a week, before the move
JW:When developing strategies how etc. Indeed some strategies such as
eventually petered out.
much time do you spend on building carry based ones tend to be cyclical.
entry and exit signals, and creating
JW:Do you use less mature
money management rules? JW:Do you agree that one way to
currencies? Or do you consider the
CB: One can spend a lot of time react to the ever-changing market is
relative lack of liquidity and wider
developing money management rules, to adjust parameters? Do you already
spreads to be an obstacle to efficiency?
but the real key is to follow them at all use changing parameters based on
CB: We trade some liquid spot
times, and never deviate from them. volatility measures or filters?
emerging markets such as PLN,
38 FX TRADER MAGAZINE January - March 2010

CB: A successful trading strategy JW:How many execution brokers have not been relevant to date, however
should naturally adjust to volatility, do you use? How do you split we would look to soft close the strategy
and in this respect our use of technical execution between electronic and as we approached 800mio USD to
analysis allows us to do this seamlessly, “dear old voice”? ensure that our performance was not
as higher volatility is captured in CB: We use over a dozen execution being affected by asset growth.
larger hourly and daily ranges. Whilst brokers which includes all the major
your trading parameters thus adjust banks, and split our execution JW:What is the single biggest
to these, your risk reward should between electronic platforms and strength of your team?
however remain constant to ensure market orders approximately 1/3 CB: Rhicon’s greatest strength lies
consistency in risk taking. versus 2/3 respectively. in the fact that we are a team, and have
been trading together for some 10
JW:What should an inexperienced JW:What historical data do you use years. This means that we understand
trader watch when choosing the time in developing your strategies? How each other’s strengths and potential
frame to trade on? important that is? weaknesses and have been able to
CB: He or she should focus on the CB: As we rely on technical analysis help each other to develop as better
time frame they feel most comfortable the accuracy of data is very important traders.
in. This should be a reflection of their and thus we have invested in one of
personality, so for example a trader the premier charting packages for this JW:Can you give us your feeling
who struggles to sleep with positions reason. about the most popular, EurUsd, over
overnight should probably focus their the next 6/12 months.
efforts on intra-day trading. JW:How does liquidity impact the CB: It appears at the time of
efficiency of your strategies? Have writing that whilst Asian central bank
JW:What are your average and you already explored to what AUM diversification persists, the EURUSD
maximum leverage used? limit the strategies would allow you should continue in its uptrend. This
CB: Our average leverage used to grow to? may lead to further jaw-boning by
is about 0.5 times AUM, with the CB: As our overall leverage is low, European officials however, and could
maximum having been 3 times. the effects of liquidity on our strategy even potentially lead to intervention
if the pace of the appreciation

JW:What’s the best advise to give

to an individual trader and to a semi
professional trader who wants to enter
the FX fund management industry?
CB: The all consuming nature of
this business and discipline required
are two of the reasons many traders
fail to succeed. I don’t personally
believe trading is something that can
be undertaken on a part-time basis
and as such a total commitment
needs to be made in terms of time and

FX TRADER MAGAZINE January - March 2010 39

FX options

Speculative Trading with

Options: Volatility Plays

In products with low leverage to the price curve of the option. The in spot and that the option payoff
opportunities, like stocks, options slope of the tangent tells how much the thus can be perfectly replicated
are often sold for the ability to create price of the option moves with respect trading the spot. This is, however,
extra leverage. For a product like FX to the underlying in a localized area. not possible due to friction, but
where there is plenty of leverage to The slope of the tangent is called the still works to some extent discretely
begin with in the retail segment that delta of the option and delta hedging as will be explained below. One
trades on margined accounts, it is in the Black-Scholes model works by particular thing to notice though
interesting to see what options can holding the delta, thus replicating the is the curvature of the option
additionally deliver. In this article we option price, through the underlying price. The price always stays above
explain how options can be applied spot in localized areas. Because the the tangent. This implies that if
to make portfolio returns in dull slope is different for different values we go long the option and short
markets as well as making money in of spot, hedging the change in option the signed delta in the spot, that
volatile markets without predicting price requires dynamically re-hedging would be subtracting the tangent
the direction of the spot. of the spot position as spot moves. at the current spot from the option
In the prior article about pricing we The Black-Scholes model assumes that price, see Figure 3, then whenever
said that the price depends a lot on this can be done for all small moves spot moves in either direction the
hedging arguments. The hedging portfolio will make a profit. This
in the Black-Scholes model is done curvature in the option price with
through trading the underlying. respect to the underlying is known
This hedging is referred to as delta as the gamma of the option. When
hedging. The point is to replicate the going long an option and hedging
payoff of the option by replicating the away the delta we are said to be long
price moves in the option through gamma.
spot. Looking at how the price of the It seems that this is the perfect
option reacts to movements in spot, strategy; we make money if spot
see Figures 1 and 2, we observe that moves, and spot is bound to move at
call options appreciate when spot sometime. We can then re-hedge to
rises, whereas put options depreciate the new delta of the option and wait
when spot rises. This is the foundation for spot to move again. However,
of the convention that delta is signed Figure 1. The figure shows the price of there is the time value of the option
a call option (black line), together with
positive for call and negative for puts. to consider and as time goes by the
tangents for different spot values (the
However, the change in the option slope of the tangents being the delta value of the option decreases. The
price is not the same for the same of the option), and the payoff at expiry loss in time value is also known as
spot move across the curve. This is (blue line). Notice that the price of the the theta, decay, or bleed. Figure 3
illustrated by drawing tangent lines option is always above the tangent line. illustrates the loss of time value.
40 FX TRADER MAGAZINE January - March 2010
options FX

in a larger profit from the gamma increase. Thus the long gamma
than the bleed reduces the value strateg y will gain additionally as
of the option, thus returning an the price of the option increases
overall net profit. Vice versa, if the due to the increasing implied
actual market volatility turns out volatility. Likewise, if the implied
to be below the current implied volatility is high compared to the
volatility, then moves in spot subsequent market moves, then
will, on average, be too small for the short gamma strateg y will
gamma trading to compensate the earn additionally on the fall in the
bleed. In the latter case, selling the option price from the decrease in
option and going long the signed implied volatility.
delta hedge is a way to collect the The reader of the first article in
excess time value component of the the series might notice that the
Figure 2. The figure shows the price of option premium. profile of the long option and
a put option (black line), together with In addition to the play on gamma, short delta strateg y is very much
tangents for different spot values (the the strateg y also becomes a play like that of a delta-neutral strangle
slope of the tangents being the delta
on the implied volatility. As we or straddle (which is just a strangle
of the option), and the payoff at expiry
(blue line). Notice that the price of the observed in the earlier article about with the put and call legs having
option is always above the tangent line. pricing, the implied volatility the same strike). However, there
changes over the life of the option. is an additional advantage. With
So, when is it good to trade Usually, if the implied volatility is the delta-neutral strangle, we
options using delta hedging ? To lower than what is subsequently depend on the spot to eventually
understand this, we need to go experienced in the market, then move to one side; otherwise, the
back to volatility. As we explained the implied volatility will start to options expire worthless. With
in the second article in this series, the long option and short delta
the option price depends on the combination, we can repeatedly
volatility parameter. Volatility tells re-balance the net delta position
how much the spot needs to move to obtain a profile that again
to equal out the time decay. If the makes money if the spot moves in
option is priced using the correct either direction. This way, spot
market volatility and this volatility does not have to move anywhere
stays constant over the life of the over the lifetime of the option as
option, the delta hedge will, on long as it moves from day to day
average, simply earn the risk free in either direction. So, with delta
rate. This is the arbitrage argument hedging , aka gamma scalping ,
used for deriving the Black-Scholes you can now see that there is not
price and why to some extent Black- Figure 3. The figure shows the
a strict requirement to make a
instantaneous P/L, with respect to spot,
Scholes still works with discrete of a portfolio with a bought option that is prediction about the direction
hedging. However, if the actual delta hedged (black line). The blue line of the market even when trading
market volatility turns out to be illustrates the effect of lost time value. positions in single-legged calls or
greater than the current implied To make money from a delta hedging puts.
volatility of the option, then moves strategy, the moves in the spot must be
great enough to compensate for the loss
in the spot will, on average, result of time value. Steffen Gregersen

FX TRADER MAGAZINE January - March 2010 41



SPOT PRICE 16/12/2009 01/01/2009 ∆% 01/01/2008 ∆%

EURUSD 1.4547 1.3952 4.3% 1.4583 -0.2%

USDJPY 89.69 90.79 -1.2% 111.79 -19.8%
EURJPY 130.45 126.65 3.0% 163.04 -20.0%
EURGBP 0.8896 0.9573 -7.1% 0.7350 21.0%

Dollar/yen has been moving in a major down trend for From the beginning of April, the pair moved strongly
several decades: at the beginning of the seventies it was downwards. From the top at 101.50, the pair started
trading at around 350, since the mid-eighties it went coming down again and reached a bottom at 84.83
stably below 175. After having collapsed to a historical low at the end of November. From this bottom the pair
at 79.75 in April 1995, the dollar started a strong reversal, – supported by the Bank of Japan’s quantitative easing
reaching a top at around 147.65 in August 1998. From that – succeeded to bounce back towards 90.00/50. In
level, the major down trend resumed, with a series of falling order to keep a good momentum the support at 87
highs and “raids” below the key support at 115 (a level should not be broken. The next resistance is in the
repeatedly supported by the Bank of Japan’s interventions). area 92.50-94, and in case the pair should overtake
The dollar reached a bottom at around 101.35/85 at the it, a bullish signal would be triggered for the coming
end of 1999, level tested again at the end of 2004. The months. Renewed weakness is expected below 87,
break of that support last year caused a new sell-off, that for a new test of the 84.83 low, below which the pair
led the dollar towards 87 at the beginning of this year. could fall, in the coming months, towards the April
The following rally reached a peak at 101.50 on April 6th 1995 low at 79.75.


Trend 3-6 months side-up S1 88 R3 97+
Trend 6-12 months down-side S2 87+ 89.69 R2 92.50-94+
Trend 12-18 months down S3 84.83++ R1 90.00/50

42 FX TRADER MAGAZINE January - March 2010



Euro/dollar was first traded in January 1999, at Since the beginning of March until the beginning
around 1.1800-1.1900 and fell to a historical low at of December, the pair moved strongly upwards,
0.8231 on October 26th, 2000. From that bottom, and recently pushed above the key resistance level
the euro began accumulating and – since summer at 1.5000 reaching a new peak for the year at
2002 – moving upwards, entering progressively a 1.5141 on December 3rd. From these levels started
major up-trend and reaching a top at 1.6038 on a correction that is heading towards the strong
July 15th, 2008 (+95% vs. the historical low). The support at 1.4450, which is supposed to held to
fall below the strong support at 1.5275 on August preserve a positive momentum. If that support
8th, 2008 (level that had supported the pair in the were to be broken a more severe correction should
period April-July) caused a major reversal, with a be expected; anyway, the 1,4000/50 area should
fast decline towards 1.3900, followed by a pull- provide a solid support. A bearish signal for the
back to a top at 1.4866 on September 23rd and next months would be triggered only below the
a new sell-off to a bottom at 1.2330 on October key support at 1.3750 (unlikely). The tone would
28th. In mid-December 2008, a strong rally improve above 1.4900 but only above 1.5000-
brought the pair, in just a week, to a top at 1.4719. 1.5140 (premature) there would be a signal of the
Then it started going down again and fell to a major up-trend resume, with the first target at
bottom at 1.2460 at the beginning of March, 2009. 1.5300.


Trend 3-6 months side S1 1.4450+ R3 1.5000-1.5140++
Trend 6-12 months up/ side S2 1.4000/50+ 1.4547 R2 1.4900+
Trend 12-18 months up S3 1.3750++ R1 1.4700

FX TRADER MAGAZINE January - March 2010 43


The cross euro/yen was first traded in January 1999, yen. After the break of 156 in September 2008 – in
at around 132.50-135.50, and fell to a historical low correspondence with the trendline that sustained the
at 88.96 in October 2000. From the bottom, the euro major up trend), the cross collapsed to a low at 113.65
began moving upwards, entering progressively a major on October 27th, 2008. In the following months, the
up-trend, and reaching a historical high at 169.95 in cross moved sideways, above that level and below 131.
July 2008 (+91% vs. the October 2000 bottom). The In January 2009, the euro reached a new low at around
strong depreciation of the yen during last years has 112.10 (-34% form the historical high).
been mainly caused by the so called “carry trade”, i.e.
the funding in low-yield currencies like the Japanese From the end of January, the cross started to rally,
yen with the contextual reinvestment in asset classes reaching a 2009 top at 139.19 on June 5th. Since then
in other currencies (i.e. stocks and bonds in euro, the cross has been moving sideways below the top
Australian and American dollars, etc.). After the burst and above the support at 127. A directional signal
of the real estate and financial bubble – begun in the for the coming months would be triggered only by
2007 summer, with an acceleration after September a break outside the range 127 – 139.20 (unlikely at
2008 – a progressive strong disinvestment from Stock the moment). Within this trading-range, a resistance
Exchanges around the world led to massive yen buying level is at 135.50. An upside break above 139.20
in order to square up carry trade positions. That (premature) would target, for the coming months, the
provoked a crash of euro vs. yen, driven by a double area 140-142, and then 147-150, where sell orders are
source: the fall of euro against the dollar and, at the to be expected. Renewed weakness below 127, with
same time, the decline of the US dollar versus the first target the support in area 124.40-126.


Trend 3-6 months side S1 128 R3 139.20++
Trend 6-12 months side S2 127++ 130.45 R2 135.50
Trend 12-18 months side S3 124.40-126+ R1 132

44 FX TRADER MAGAZINE January - March 2010



The cross euro/gbp was first traded in January began, and the cross fell to a bottom at 0.8834 in
1999, at around 0.7100, and fell to a historical mid-November. As long as the cross stays below
low at 0.5683 in May 2000. From the bottom, 0.9150-0.9200 the tone remains weak: a break
the euro began moving upwards, entering below 0.8800 would trigger a correction towards
progressively a major up-trend, and reaching a the strong support at 0.8700, where buy orders
historical high at 0,9809 on January 1st, 2009 are to be expected. A bullish signal would be
(+72.6% vs. the May 2000 low). From that peak a triggered above 0.9200, targeting the area 0.9410-
strong correction drew the cross down to a low at 0.9520 tops. A stronger rise seems unlikely by now.
0.8638 on February 10th, 2009. Then the cross Anyway, over there the cross would aim at the
bounced back to a top at 0.9478 on March 19th. historical high at 0.9809, touched on January 1st
Then the downtrend resumed and pushed the 2009, with extensions towards the psychological
cross towards a 2009 bottom at 0.8402 on June resistance level at 1.0000. Strong weakness below
2nd. 0.8700, with target the June lows at 0.8400, where
From the end of June bottom at 0.8402, the cross buy orders are to be expected.
started heading north, increasing the pace since
the end of August and reaching a peak at 0.9410 in
mid-October. From those levels a severe correction Maurizio Milano


Trend 3-6 months side-down S1 0.8800 R3 0.9809-1.0000+++
Trend 6-12 months side S2 0.8700+ 0.8896 R2 0.9410-0.9520++
Trend 12-18 months up-side S3 0.8400++ R1 0.9150-0.9200+

FX TRADER MAGAZINE January - March 2010 45


Central Bank: Central Bank of Norway Economic data

www. Real GDP: -1.4%

Current interest rate: 1.50% Inflation: 3.0%
Last change: 29/10/2009 Unemployment: 2.6 %

NORWAY KRONE (13/12/2009)

Watching the EurNok chart over the last decade, we The stochastic in a very lower position and the fact
can notice how the long period trend line, which used that in case of surpassing 8.50 the bearish trend line
to connect the max 9.30 and 8.89, has been violated started from 10.15 would be violated, lead us to think
between October and November 2008, with an upward about a bullish beginning of the next year for EurNok,
movement reached in December 2008 with a max with an intermediate resistance at 9.14 (9.43 before).
10.15. In order to confirm a possible bullish scenery, we
can also quote the conformation in 3 waves of the
Starting from that moment, the EurNok correction correction started from 10.15.
has been quite heavy and in just 42 weeks the cross has
recovered nearly the 19% reaching 8.25. This bottom Only a descent under 7.84 might confirm instead
led us to think about a return inside the old bearish the recovery of the long period bear market, with
trend line started downward that
in 1998, but in the might surely concern
last days, with a the absolute min of
strong reaction, the 7.21 in 2003.
bulls took back the
cross shortly over The real change is
this important the rate that you can
separation line. use to buy goods or
services made in a
The elements to country with other
look at are now goods or services
two: the first one made in another
is the important one.
support offered
by the 61.8 % of This rate can evaluate
retracement of the the convenience
whole bull market 7.21-10.15 (8.34), while the second to buy in a foreign country, and a value fewer than
one is the potential return move end on the previous 100 means that the local goods are more profitable
ten-year dynamic resistance (now support) with a in a price term against those imported from a foreign
consequential restore of the bullish trend. country.

46 FX TRADER MAGAZINE January - March 2010


NORWAY KRONE (13/12/2009)

On the 31st October 2009 (Bank of International Furthermore, the 78.6% of the bull market of April-
Settlement font) the effective real change of the October 4.94-7.31 is at 5.45, and starting from the
Norway Krone was 101.71. min of these weeks, we may reconstruct the base for
a restart of the bulls, also because the Rsi weekly
The “Purchasing Power Parity” fundamental is hyper sold with strong differences compared to
assumption is that the change rate between two prices; 5.85 (bearish down trend line of the recent
currencies should naturally have a tendency to fall) represents the first stop to overcome in order to
improve so that the basket of basic goods in both restart upward; a return under 5.20, instead, might
the currencies restart the
has the same Nok destinies
cost and that the as a haven
nominal change currency,
between two intended to
currencies from the carry trade
two countries is strategies of
equal to the ratio 2010.
between the
two currencies The Big Mac
purchasing Index is a
power. comparison
In accordance tool for the
with the c urr en c y
most recent purchasing
evaluations power. The
supplied by the parity ratio of
OECD, the the Big Mac
Norway Krone has an overvaluation of 20% respect purchasing power between two currencies, comes
Euro, and 37% respect the US Dollar. from the division of the Big Mac cost in one nation
(in its own currency) with the Big Mac cost in
UsdNok Watching the graph, we can notice how the another one (in its own currency). This value is
bear market started in 2001 (9.64-4.94) has been compared with the current change rate; in case it
violated in October 2008 with a 5.50 bullish break is lower, then the first currency is underestimated
which has been able to lead the UsdNok to 7.31, (according to the purchasing power parity theory)
26 weeks after the bottom, a level exactly equal to respect the second one, while in case it is higher
the 50% retracement of the above mentioned bear then the first currency is overestimated.
As a result, there has been a strong reinforcement At the moment, the Norway Krone compared to
of the Nok, that has reached at the moment 5.51 on Euro has an overvaluation of 39% while compared
the 16th October, when 5.50 was the level of the to the US Dollar the overvaluation is at 94%.
down trend line last violation; this is fundamental
for the future strategies to be kept for this cross. Giorgio Martini

FX TRADER MAGAZINE January - March 2010 47


Technical outlook


Current level Major trend Major target Trend change level

EUR/USD 1.4650 Up 1.5287 & 1.6039 1.3739
USD/JPY 88.50 Down 83.72 & 79.91 97.77
USD/CHF 1.0325 Down .9733 & .9651 1.1262
GBP/USD 1.6250 Sideways 1.4975
USD/CAD 1.0650 Down 1.0005 & .9547 1.1725
AUD/USD .9125 Up .9680 & .9847 .7705
NZD/USD .7250 Sideways .6070
EUR/JPY 129.75 Sideways 127.01
EUR/CHF 1.5120 Sideways 1.4913
EUR/GBP .9020 Up .9411 & .9801 .8524
EUR/NOK 8.4750 Up 8.7239 & 9.1458 9.1610
EUR/SEK 10.4000 Sideways 11.1880


Current level Major trend Major target Trend change level

EUR/CZK 25.750 Sideways 24.971 / 26.614
EUR/HUF 273.75 Sideways 262.89 / 283.48
EUR/PLN 4.1550 Sideways 3.8615 / 4.5971
EUR/RON 4.2475 Sideways 4.1824 / 4.3269
USD/ILS 3.7975 Down 4.5700 4.0107-36
USD/RUR 30.10 Sideways 28.603 / 33.076
USD/TRL 1.5050 Sideways 1.4386 / 1.5885
USD/ZAR 7.4750 Sideways 7.2292 / 8.3587

Data: 10th December 2009

48 FX TRADER MAGAZINE January - March 2010



EUR/NOK peaked at 10.1510 in of fresh falls in favour of a possible

December 2008 and since then has multi-month recovery phase. The
retraced almost 76.4% of the previous recovery off 8.2520 & 8.3181 lows
rise from the October 2007 extreme is classed as corrective in nature and
low of 7.6256, reaching 8.2520 in may extend to at least the 8.7002 /
October 2009 ahead of the latest 8.7239 region (23.6% retracement of
sideways to higher correction. With 10.1510-8.2520 decline / September
current price action being mid-way 2009 lower top) and possibly as far as
between the (orange) 2 year uptrend the aforementioned (blue) 260 day (1
line connecting the 2007 & 2008 lows year) moving average (currently around
at 7.6256 & 7.7801 and the (blue) 8.8050), without signalling a lasting
falling 260 day (1 year) moving higher bottom above the October 2007
average, potential exists for an overall e x t r e m e l o w. H o w e v e r, f a i l u r e t o c l e a r
period of range trading to last several the recent 8.5580 & 8.5664 highs ahead
more months, at least. The recent of a reversal under 8.3181 & 8.2520
break above the (pink) downtrend line would weaken the outlook, pointing
connecting 10.1510 & 9.1458 combined to a fresh attack on and possible break
with MACD regaining the pivotal zero of the (orange) 2 year uptrend line,
line has put on hold immediate fears currently around 8.17.

FX TRADER MAGAZINE January - March 2010 49



EUR/USD has now retraced close to action is in danger of gathering pace. A

76.4% of the retreat from the all-time sustained break of support at the early
tr a d e d h i g h at 1 . 6 0 3 9 o n 1 5 Ju l y 2 0 0 8 Novemb er 1.4628 low warns of a return
which reached a 2 ½ year low at 1.2329 on towards resistance-turned-support at
28 October 2008, that itself being close 1.4447-1.4481 and possibly the 1.4046-
to the 50% retracement of the 8 year rise 1.4118 region, but the rising 260 day (1
from the October 2000 all-time traded year) moving average (in blue) which is
l ow at . 8 2 3 2 . Howe ver, th e su c c e ss i o n o f now around 1.3930 (close to the mid-
higher highs and higher lows over recent point of the 38.2% and 50% retracements
months failed to be matched by the MACD of the 1.2459-1.5144 bull-leg ) is expected
indicator which registered the opposite underpin weakness and set up renewed
sequence. MACD is a lead indicator upside attempts over coming weeks and
but non-confirmation of highs is not m o nths . Howe ver, th e 1 . 5 0 6 2 - 1 . 5 2 8 7 a re a
necessarily bearish, as it often indicates may continue to provide a solid barrier
an unwinding of an existing overboug ht / to streng th, but an eventual clearance of
oversold condition within an established this reg ion will increase the likelihood
trend. MACD now shows signs of losing o f a re turn towa rd s th e Ap ri l / Ju l y 2 0 0 8
the pivotal zero line and recent downside double top at 1.6020 / 1.6039.

50 FX TRADER MAGAZINE January - March 2010



EUR/PLN appreciated by almost 54% are not strong and that price action is
from the Ju ly 2008 extreme low at 3.2020 more likely to be corrective (following
to a peak of 4.9284 in Februar y 2009. A the 3.2020-4.9284 rise), rather than
steady unwinding of gains has followed, the start of a prolonged bearish phase.
and for several months price action was The risk remains for a further decline
almost exactly centred on the rising 260 towards the 3.8615-3.8867 area which
day (1 year) moving average (shown in ma rk s th e Ja nua r y 2 0 0 9 s e tb a c k l ow a n d
b l u e ) . H o w e v e r , A u g u s t ’s 4 . 0 6 7 1 l o w the 61.8% retracement of the 3.2020-
failed to mark a lasting base and since 4.9284 Ju ly 2008-Febr uar y 2009 rise.
reaching a 4.3290 recovery high on 02 Successfully leaving a base in that area
Novemb er a f ur ther unwinding of g a ins over coming months may be followed
has occurred, briefly / slightly exceeding by the start of a fresh bull move which
4.0652, the 50% retracement of the could eventually see the key 4.9284 /
3.2020-4.9284 rise. Current action 4.9451 area (2009 / 2004 peaks) cleared
is near the centre of an 8 month bear to reach a succession of new all-time
channel, but during this time MACD has traded highs.
traded either side of the pivotal zero line
to show that bearish trending pressures Steve Jarvis

FX TRADER MAGAZINE January - March 2010 51


Country Flag USD Spot Last vs USD % Ch 3M % Ch 12M 12mth High 12mth Low

Eurozone EUR= 1.4301 -3% 3% 1.5987 1.2457

UK GBP= 1.6128 -1% 9% 2.008 1.3746

Japan JPY= 90.5 -1% 0% 110.49 87.31

Switzerland CHF= 1.0422 2% -5% 1.2241 0.9843

Australia AUD= 0.8833 1% 29% 0.9787 0.6018

Canada CAD= 1.0692 0% -12% 1.2995 0.9832

New Zealand NZD= 0.7081 -1% 23% 0.8097 0.4923

Sweden SEK= 7.2792 7% -8% 9.2927 5.838

Norway NOK= 5.8615 0% -18% 7.2227 4.953

Iceland ISK= 128.17 4% 4% 147.55 71.67

Israel ILS= 3.7999 2% -1% 4.236 3.213

South Africa ZAR= 7.622 4% -21% 11.62 7.2025

Egypt EGP= 5.4975 0% 0% 5.694 5.2825

Saudi Arabia SAR= 3.7503 0% 0% 3.7685 3.7115

Czech Rep. CZK= 18.393 8% -2% 23.438 14.404

Poland PLN= 2.9246 4% -1% 3.9003 2.0221

Hungary HUF= 192.96 6% 2% 251.64 143.19

Russia RUB= 30.592 2% 8% 36.3438 23.1531

Turkey TRY= 1.5242 3% 0% 1.806 1.1512

China CNY= 6.8281 0% 0% 7.083 6.8108

Hong Kong HKD= 7.7536 0% 0% 7.8142 7.7483

Singapore SGD= 1.4038 -1% -3% 1.5562 1.3476

Taiwan TWD= 32.372 0% -2% 35.21 29.996

India INR= 46.83 -2% -2% 51.96 39.75

South Korea KRW= 1182.75 -1% -10% 1570.1 973.5

Thailand THB= 33.21 -1% -4% 36.26 31.04

Malaysia MYR= 3.433 -1% -1% 3.726 3.1305

Indonesia IDR= 9485 -2% -13% 12100 9070

Philippines PHP= 46.68 -1% -1% 49.94 41.3

Mexico MXN= 12.8615 -4% -2% 15.555 9.858

Brazil BRL= 1.7803 -1% -26% 2.511 1.5591

Chile CLP= 503.8 -7% -20% 682.5 430.6

Venezuela VEB= 2144.6 0% 0% 2144.6 2144.6

Colombia COP= 2025.9 5% -7% 2608.15 1655.9

Levels Date:21-Dec-09 Source: Thomson Reuters

52 FX TRADER MAGAZINE January - March 2010


Country Flag Central Bank Rate Name Actual Previous

USA FED Fed funds 0-0.25 0-0.25

Eurozone ECB Refi 1.00 1.00

UK BOE Bank Repo 0.50 0.50

Japan BOJ O/N Call 0.10 0.10

Switzerland SNB 3 mth Libor 0.25 0.25

Australia RBA Cash 3.75 3.50

Canada BOC O/N Funding 0.25 0.25

New Zealand RBNZ Cash 2.50 2.50

Sweden Riksbank Repo 0.25 0.25

Norway Norges Bank Depo 1.75 1.50

Iceland CBI Policy 10.00 11.00

Israel BOI Short Term Lending 1.00 0.75

South Africa Reserve Bank Repurchase 7.00 7.00

Egypt CBE O/N Depo 8.25 8.25

Czech Rep. CNB 2 Week Repo 1.00 1.25

Poland NBP 28 Day Intervention 3.50 3.50

Hungary MNB 2 Week Depo 6.50 6.50

Russia CBR Refinancing 9.00 10.50

Turkey TCMB O/N Borrowing 6.50 6.50

China PBC 1 Year Lending 3.33 3.60

Taiwan CBC Discount 1.25 1.25

India RBI Repo 4.75 4.75

South Korea BOK O/N Call 2.00 1.97

Thailand BOT Repo 1.25 1.25

Indonesia BI BI 6.50 6.50

Philippines BSP Repo 4.00 4.00

Mexico BDM Target 4.50 4.50

Brazil BCB Selic 8.75 8.75

Chile CBC MPR 0.50 0.50

Levels Date: 21-Dec-09 Source: Thomson Reuters

FX TRADER MAGAZINE January - March 2010 53


GDP CPI Industrial Production Unemployment
y-o-y y-o-y y-o-y level
USA 2.80 0.40 0.80 10.00
Eurozone -4.10 0.10 -0.60 9.80
UK -5.20 0.30 0.00 7.90
Japan 1.20 -2.20 0.50 5.10
Switzerland -1.30 0.20 4.10
Australia 0.50 1.30 5.70
Canada 0.40 0.50 8.50
New Zealand (partecipation) -2.10 1.70 68(partecipation)
Sweden -5.00 -0.70 -2.70 8.00
Norway 0.90 1.50 -1.50 2.70
South Africa -2.10 5.80 -9.30 24.50
Czech Rep. -4.10 0.50 -7.20 8.60
Poland 1.70 3.30 9.80 11.10
Hungary -7.10 5.20 -12.70 10.40
Russia -8.10 0.30 1.50 8.10
China 8.90 0.60 19.20
India 6.70 10.30
Mexico -6.20 0.20 -5.20 5.94
Brazil -1.20 0.41 -3.20 7.40
Levels Date: 21-Dec-09 Source: Thomson Reuters

3 Month Days since Poll Poll Median Poll Min Poll Max Poll Mean Std Deviation Spot@Poll Date
EurUsd 19 1.5 1.4 1.56 1.5 0.041 1.5083
GbpUsd 19 1.665 1.55 1.85 1.661 0.05 1.6611
AudUsd 19 0.93 0.82 1 0.926 0.036 0.9248
UsdJpy 19 90 80 100 90.1 4 86.72
UsdChf 19 1.013 0.84 1.1 1.014 0.04 0.999
UsdCad 19 1.045 0.96 1.15 1.048 0.042 1.0458
EurJpy 19 134.4 120 151.9 135.1 5.8 130.81
EurChf 19 1.52 1.302 1.628 1.521 0.044 1.507
EurGbp 19 0.901 0.838 0.963 0.903 0.024 0.9076
GbpJpy 19 148.8 135.9 181.3 149.7 7.8 144.05
1 Year Days since Poll Poll Median Poll Min Poll Max Poll Mean Std Deviation Spot@Poll Date
EurUsd 19 1.45 1.2 1.6 1.445 0.092 1.5083
GbpUsd 19 1.651 1.43 1.92 1.654 0.107 1.6611
AudUsd 19 0.9 0.75 1.02 0.911 0.064 0.9248
UsdJpy 19 98 83 115 97.4 6.7 86.72
UsdChf 19 1.065 0.84 1.25 1.053 0.078 0.999
UsdCad 19 1.057 0.9 1.17 1.057 0.061 1.0458
EurJpy 19 139.5 116.8 165 140.4 9.7 130.81
EurChf 19 1.544 1.134 1.612 1.527 0.081 1.507
EurGbp 19 0.869 0.74 0.981 0.875 0.047 0.9076
GbpJpy 19 159.3 135.9 198 160.9 13.2 144.05
Levels Date: 21-Dec-09 Source: Thomson Reuters

54 FX TRADER MAGAZINE January - March 2010


Stock Indices Last % Ch 6M % Ch 12M Commodities Last % Ch 6M % Ch 12M
Gold 1112.3 20.23% 32.92%
MSCI World 1155.22 19.4 23.3 Silver 17.28 25.04% 60.00%
Dow Jones Ind. 10454.57 20.7 20.0 Brent DTD 72.11 8.24% 80.86%
S&P 500 1116.4 20.0 24.5 WTI 73.29 6.51% 126.41%
Nasdaq 100 1832.11 24.3 50.0
Eurostoxx 50 2925.23 18.9 17.1 Bonds Last % Ch 6M % Ch 12M
UK FTSE 100 5317.78 21.4 20.0 5Y Euro 2.181 -0.420 -0.266
Dax 5933.47 20.5 22.6 10Y Euro 3.146 -0.313 0.139
Cac 40 3873.35 18.8 17.3 10Y US Treasury 3.546 -0.079 1.415
FT MIB 22780.27 16.8 14.9 30Y US Treasury 4.46 0.101 1.907
Swiss SMI 6523.66 20.2 17.2 10Y UK Gilt 3.761 0.027 0.576
Nikkei 225 10183.47 4.5 17.0 10Y CH Govt Bond 1.932 -0.461 -0.303
Australia AORD 4659.464 20.2 32.7
HK Hang Seng 20948.1 19.1 36.6 Money Markets Last % Ch 6M % Ch 12M
Shanghai Comp. 3122.973 9.1 54.5 US 6M Depo 0.43538 0.71337 -1.40962
Singapore StraitT. 2786.81 25.2 55.8 EUR 6M Depo 0.995 -0.421 -2.17
India BSE30 16601.2 17.3 65.9 GBP 6M Depo 0.83625 -0.60625 -2.3225
Brazil Bovespa 67617.05 31.2 68.9 CHF 6M Depo 0.34333 -0.165 -0.55667
Russia RTSI 1428.61 22.0 110.1 JPY 6M Depo 0.48031 -0.23094 -0.53219
Levels Date: 21-Dec-09 Source: Thomson Reuters

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FX TRADER MAGAZINE January - March 2010 55

FX Economic Calendar


GMT London Time

January 5:15pm CAD BOC Press Conference

11th-14th CNY Trade Balance 10:30am GBP Prelim GDP q/q
9:15am CHF Retail Sales y/y Fri 22 10:30am GBP Retail Sales m/m
Mon 11 2:15pm CAD Housing Starts 2:30pm CAD Core Retail Sales m/m
2:30pm CAD Building Permits m/m 1:30am AUD PPI q/q
Mon 25
10:00pm NZD NZIER Business Confidence 4:00pm USD Existing Home Sales
1:30am AUD Home Loans m/m Tentative JPY BOJ Press Conference
2:30pm CAD Trade Balance 10:00am EUR German Ifo Business Climate
Tue 12 Tue 26
2:30pm USD Trade Balance
4:00pm USD CB Consumer Confidence
4:30pm CAD BOC Business Outlook Survey
1:30am AUD CPI q/q
10:30am GBP Manufacturing Production m/m
Wed 13 4:00pm USD New Home Sales
10:45pm NZD Building Consents m/m
8:15pm USD FOMC Statement
1:30am AUD Employment Change
Wed 27
1:30am AUD Unemployment Rate 8:15pm USD Federal Funds Rate
1:45pm EUR Minimum Bid Rate 9:00pm NZD Official Cash Rate
Thu 14 2:30pm EUR ECB Press Conference 9:00pm NZD RBNZ Rate Statement
2:30pm USD Core Retail Sales m/m Tentative GBP Nationwide HPI m/m
2:30pm USD Retail Sales m/m 12:00pm GBP CBI Realized Sales
2:30pm USD Unemployment Claims Thu 28 2:30pm USD Core Durable Goods Orders m/m
2:30pm USD Core CPI m/m 2:30pm USD Unemployment Claims
Fri 15
3:55pm USD Prelim UoM Consumer Sentiment 10:45pm NZD Building Consents m/m
3:00am CNY GDP q/y Fri 29 11:30am CHF KOF Economic Barometer
3:00am CNY Industrial Production y/y 2:30pm CAD GDP m/m
10:30am GBP CPI y/y 2:30pm USD Advance GDP q/q
German ZEW Economic
11:00am EUR
Tue 19 Sentiment
3:00pm CAD BOC Rate Statement February

3:00pm CAD Overnight Rate 2:00am CNY Manufacturing PMI

3:00pm USD TIC Long-Term Purchases Tentative GBP Halifax HPI m/m
10:45pm NZD CPI q/q Mon 1 10:30am GBP Manufacturing PMI
10:30am GBP Claimant Count Change
4:00pm USD ISM Manufacturing PMI
10:30am GBP MPC Meeting Minutes
10:45pm NZD Labor Cost Index q/q
1:00pm CAD Core CPI m/m
Wed 20 4:30am AUD Cash Rate
2:30pm USD Building Permits
2:30pm USD PPI m/m Tue 2 4:30am AUD RBA Rate Statement
10:45pm NZD Retail Sales m/m 4:00pm USD Pending Home Sales m/m
2:30pm USD Unemployment Claims 1:30am AUD Trade Balance
Thu 21 4:00pm USD Philly Fed Manufacturing Index Wed 3 10:30am GBP Services PMI
4:30pm CAD BOC Monetary Policy Report 2:15pm USD ADP Non-Farm Employment Change

56 FX TRADER MAGAZINE January - March 2010

Economic Calendar FX

4:00pm USD ISM Non-Manufacturing PMI 9:15am CHF Retail Sales y/y
10:45pm NZD Unemployment Rate 10:30am GBP CPI y/y
1:30am AUD Building Approvals m/m 11:00am EUR German ZEW Economic Sentiment
1:30am AUD Retail Sales m/m 3:00pm USD TIC Long-Term Purchases
Tentative GBP Asset Purchase Facility 10:30am GBP Claimant Count Change
Tentative GBP MPC Rate Statement 10:30am GBP MPC Meeting Minutes
Wed 17
1:00pm GBP Official Bank Rate 2:30pm USD Building Permits
Thu 4
1:45pm EUR Minimum Bid Rate 8:00pm USD FOMC Meeting Minutes
2:30pm CAD Building Permits m/m Tentative JPY BOJ Press Conference
2:30pm EUR ECB Press Conference 1:00pm CAD Core CPI m/m
2:30pm USD Unemployment Claims Thu 18 2:30pm USD PPI m/m
10:45pm NZD Employment Change q/q 2:30pm USD Unemployment Claims
1:30am AUD RBA Monetary Policy Statement 4:00pm USD Philly Fed Manufacturing Index
1:00pm CAD Employment Change 10:30am GBP Retail Sales m/m
1:00pm CAD Unemployment Rate Fri 19 2:30pm CAD Core Retail Sales m/m
Fri 5
2:30pm USD Non-Farm Employment Change 2:30pm USD Core CPI m/m
2:30pm USD Unemployment Rate 10:00am EUR German Ifo Business Climate
Tue 23
4:00pm CAD Ivey PMI 4:00pm USD CB Consumer Confidence

Sat 6 Day 2 ALL G7 Meetings 3:00am NZD Inflation Expectations q/q

Wed 24
10:30am GBP Manufacturing Production m/m 4:00pm USD New Home Sales
Tue 9 1:30am AUD Private Capital Expenditure q/q
2:15pm CAD Housing Starts
3:00am NZD NBNZ Business Confidence
1:30am AUD Home Loans m/m
12:00pm GBP CBI Realized Sales
11:30am GBP BOE Gov King Speaks Thu 25
2:30pm USD Core Durable Goods Orders m/m
Wed 10 11:30am GBP BOE Inflation Report
2:30pm USD Unemployment Claims
2:30pm CAD Trade Balance
10:45pm NZD Building Consents m/m
2:30pm USD Trade Balance
Tentative GBP Nationwide HPI m/m
1:30am AUD Employment Change
10:30am GBP Revised GDP q/q
1:30am AUD Unemployment Rate
Fri 26 11:30am CHF KOF Economic Barometer
2:30pm USD Core Retail Sales m/m
Thu 11 2:30pm USD Prelim GDP q/q
2:30pm USD Retail Sales m/m
2:30pm USD Unemployment Claims 4:00pm USD Existing Home Sales

10:45pm NZD Retail Sales m/m

Tentative CNY Trade Balance March
8:00am EUR German Prelim GDP q/q 2:00am CNY Manufacturing PMI
Fri 12
10:30am GBP PPI Input m/m Tentative GBP Halifax HPI m/m
3:55pm USD Prelim UoM Consumer Sentiment Mon 1 10:30am GBP Manufacturing PMI
Mon 15 10:45pm NZD PPI Input q/q 2:30pm CAD GDP m/m
12:50am JPY Prelim GDP q/q 4:00pm USD ISM Manufacturing PMI
Tue 16
1:30am AUD Monetary Policy Meeting Minutes Tue 2 1:30am AUD Building Approvals m/m

FX TRADER MAGAZINE January - March 2010 57

FX Economic Calendar

1:30am AUD Retail Sales m/m 2:30pm USD Retail Sales m/m
4:30am AUD Cash Rate 2:55pm USD Prelim UoM Consumer Sentiment
Tue 2 4:30am AUD RBA Rate Statement 10:00am GBP Inflation Report Hearings
Mon 15
3:00pm CAD BOC Rate Statement 3:00pm USD TIC Long-Term Purchases
3:00pm CAD Overnight Rate 1:30am AUD Monetary Policy Meeting Minutes
1:30am AUD GDP q/q 9:15am CHF Retail Sales y/y
10:30am GBP Services PMI 10:30am GBP CPI y/y
Wed 3
2:15pm USD ADP Non-Farm Employment Change Tue 16 11:00am EUR German ZEW Economic Sentiment
4:00pm USD ISM Non-Manufacturing PMI 1:30pm USD Building Permits
1:30am AUD Trade Balance 8:15pm USD FOMC Statement
Tentative GBP Asset Purchase Facility 8:15pm USD Federal Funds Rate
Tentative GBP MPC Rate Statement Tentative JPY BOJ Press Conference
1:00pm GBP Official Bank Rate 10:30am GBP Claimant Count Change
Wed 17
Thu 4 1:45pm EUR Minimum Bid Rate 10:30am GBP MPC Meeting Minutes
2:30pm CAD Building Permits m/m 2:30pm USD PPI m/m
2:30pm EUR ECB Press Conference 12:00pm CAD Core CPI m/m
2:30pm USD Unemployment Claims Thu 18 1:30pm USD Unemployment Claims
4:00pm USD Pending Home Sales m/m 4:00pm USD Philly Fed Manufacturing Index
2:30pm USD Non-Farm Employment Change 10:30am GBP Retail Sales m/m
Fri 5 2:30pm USD Unemployment Rate Fri 19 1:30pm CAD Core Retail Sales m/m
4:00pm CAD Ivey PMI 2:30pm USD Core CPI m/m
10:30am GBP Manufacturing Production m/m 10:00am EUR German Ifo Business Climate
Tue 9
2:15pm CAD Housing Starts Tue 23 4:00pm USD Existing Home Sales
1:30am AUD Home Loans m/m 10:45pm NZD Current Account
9:00pm NZD Official Cash Rate 2:30pm USD Core Durable Goods Orders m/m
Wed 10
9:00pm NZD RBNZ Press Conference Wed 24 4:00pm USD New Home Sales
9:00pm NZD RBNZ Rate Statement 10:45pm NZD GDP q/q
1:30am AUD Employment Change 12:00pm GBP CBI Realized Sales
Thu 25
1:30am AUD Unemployment Rate 1:30pm USD Unemployment Claims
9:30am CHF Libor Rate 10:30am GBP Current Account
Fri 26
9:30am CHF SNB Monetary Policy Assessment 11:30am CHF KOF Economic Barometer
Thu 11
1:30pm USD Unemployment Claims Tentative GBP Nationwide HPI m/m
Mon 29
2:30pm CAD Trade Balance 10:45pm NZD Building Consents m/m
2:30pm USD Trade Balance Day 2 ALL G8 Meetings
Tue 30
10:45pm NZD Retail Sales m/m 4:00pm USD CB Consumer Confidence
3:00am CNY Industrial Production y/y 12:50am JPY Tankan Manufacturing Index
Tentative CNY Trade Balance 1:30am AUD Building Approvals m/m
10:30am GBP PPI Input m/m 1:30am AUD Retail Sales m/m
Fri 12 Wed 31
12:00pm CAD Employment Change 3:00am NZD NBNZ Business Confidence
12:00pm CAD Unemployment Rate 1:15pm USD ADP Non-Farm Employment Change
2:30pm USD Core Retail Sales m/m 1:30pm CAD GDP m/m

58 FX TRADER MAGAZINE January - March 2010

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