Fisic performance & the importance of a flexible strategy 16th Dec 2013

December 16, 2013 in Forex Analysis

As we head into the holiday period, liquidity will shrink and the price action should get pretty random with a few stop runs thrown in. One complicating factor is that FOMC is up again this week so need to be cautious ahead of that especially since the thin liquidity conditions may exacerbate price moves.
Performance last week was 0.83% but draw-down is close to my limit now of 20% so I need to manage that carefully. I was looking for some reversals to kick off last week to melt that draw-down away but unfortunately it did not go my way. However, the plan is to stay focused. keep my eye on the ball, manage the risk and eventually the moves will go my way. It is not easy to make money in these market conditions but I am focused on the long term growth of the equity curve and it is important not to become distracted by ever changing market conditions which blunt performance at times.
Last week the dollar index looked like it want to break down and head towards 79 only to turn and blow out traders shorting the pullback to 80. This morning it looks headed back to 80 and is unlikely to do anything decisive into the end of the year unless we get a big surprise from the Wed FOMC meeting.
EURUSD – Same story as last week. Really hard to get a directional bias with confounding fundamentals and too many shorts in the market. About 80% of retail traders are reported as being short. It is usually not wise to be on the same side.
GBPUSD – This pair is in the buy zone for bulls so it is a question of seeing if they win the battle here. CPI news is out on Tuesday so lets see if that is in the bears or bulls favor. My bias is long for now.
USDJPY – I took some profits on the run to the daily chart top at 103.75. which turned out to be a good call as it turned there. Now we wait to see if bulls buy one of the pullback points at say 102 or 101.60.
USDCHF – This pair has been a thorn in my side. Late last week it looked liked it wanted to turn higher back into the daily chart range but retraced all of the move this morning which is not a good sign for my longs. Traditionally both the dollar and the Swiss franc have been regarded as safe haven currencies. It may be that the franc is being repriced as a ‘safer’ haven than the dollar despite the Swiss central banks attempts to keep the lid on the currency. Lets wait & see what Wed brings.
For trading perspective this week, this is an interesting story with a lesson for all of us as traders,
describing the downfall of Eric Sprott as a ‘golden’ hedge fund manager.  A well known gold bug Sprott had $3billion under management in 2008 and this has fallen to about $350 million due to a combination of both redemption and losses.  The investment company, Sprott Inc., is phasing him out of the investment decisions and has already added co-chief investment officers to all of the funds. So easy to read between the lines there.
The Richard Dennis story is similar. In the early 1970s, he borrowed $1,600 and reportedly made $200 million in about ten years with his famous ‘Turtle’ trend trading strategies. The famous 1983 movie “Trading Places” with Eddie Murphy and Dan Ackroyd was related (though not directly connected) to this story at http://en.wikipedia.org/wiki/Richard_Dennis
But Dennis fell from Grace also. Via Wikipedia – ‘Dennis managed pools of capital for others in the markets for a while, but withdrew from such management in the spring of 1988 after his clients suffered heavy losses. In the Black Monday stock market crash of 1987, he reportedly lost $10 million, with a total of $50 million reportedly lost in 1987-88. In 1990 his firm settled investor complaints of his failure to follow his own rules, for over $2.5 million, without admitting or denying any wrongdoing. He also managed funds for some time in the mid and late 1990s, closing these operations after losses in the summer of 2000’.
The moral of the story for all of us as traders – stay flexible, your trading strategy must suit the underlying market conditions of the time   – a lot of traders look for some ‘system’ that works under all conditions.  I suspect this is a search for fools gold.  Both Richard Dennis and Eric Sprott had a winning formula for a while but then where too slow to recognize that the market had changed and did not suit the old winning formula.
People who are new to trading often have a desire to make money every day or every week and certainly every month. If only the market would let us do that. For example, the PSAR 4 hour chart add strategy I like to use does not suit typical December conditions as the market thins out and trends are unlikely. However, it does suit a sentiment index fade strategy (Fisic FSI strategy) as there is a lot of stop running in these choppy thin conditions.

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