I was looking at the ATR (default FXCM period: 14 trading days) for a few pairs and for FTSE100, and it has been steadily dropping on the daily chart to December lows…
Also, the VIX shows an extremely quiet/low reading, which means less speculators/investors are buying insurance, and in turn it is a measure of how much fear there is in the system…
Conditions of extreme quiet in the first full week of the second quarter are an alarm bell, because these are overexposed markets from a risk perspective, and the lack of true trends in big assets like S&P500 or EUR/USD, accompanied by low trading ranges and extremely low volatility (VIX) signal that the next move is going to be significant, as extremely quiet conditions cannot continue indefinitely…
We are not talking about an NFP-day volatility flash; we are talking about a wider increase in volatility over time, and across all assets…
Hmmmm, maybe the leaking of some 11 million documents concerning use of tax havens might end up causing a few ripples around the globe. Tax haven accounts are not in themselves illegal but the monies that often pass through them may be of doubtful origin and/or for illegal purposes such as tax avoidance, money laundering, etc. So far many famous names and companies are coming into the light of day and there is speculation that we might be seeing the end of tax havens per se.
If that is the case then the repercussions could be enormous. The amounts involved are huge and of course are not just sitting dormant in accounts, they are disbursed and invested all over the globe. If we see the start of court cases and freezing of assets then the fall-out could be dramatic and continue for decades.
I am not saying this is the reason for the current quietness, but could certainly lead to some significant repercussions in the near future…
Yes, Manxx, I was reading that… I saw that David Cameron’s father’s assets were also on the list, and that he was a stockbroker… Maybe he would like to come on BabyPips and tell us about his trading strategy haha
OKay, seriously, you are right, at this point it could be anything…
As in this article by Ilya Spivak today
the next ‘sub-prime’ crisis could happen all over again, meaning that it could be the least suspected corner of capital management showing cracks and dragging other things along with it…
The million dollar (okay, inflation-adjusted: the billion dollar) question is: what will that catalyst be?
I recently did a analysis of daily price movements in the last 10 years or so. I always learned that the summer season is the most quiet season, but it seems that Q2 is quieter than the summer season.
Allthough something significant will happen in some way the statistics tells me that it is not uncommon that it is quiet in Q2.
Yes, John Kicklighter of DailyFX did a volatility analysis of markets for the last two decades and he came to the same conclusion…April is, historically, a quiet month…
the spring and summer months are always very quiet. have always been. no movements no trends.
April is the last month where you can expect t least a bit of movementbut not much if you want the truth.thats due to the dow and big nasdaq companies reveal their numbers forfirst quartal of the year and finalize the numbers of the prior fiscal year and divident payouts for the prioryear. after that is done in april everything is pretty much closed till middleof summer. usually in august you have a summer hole where indexes drop 10-15% and then in september come back again to old level.
In those months i go over to commodities as they are more demanded/asked in summer then stocks etc.
but, you shouldnt use these market cicles to initiate trades which last months. i use these cicles (among other things) to see which direction in general to trade.
Theres no use going or looking for shorts starting from october till end of december- for example. look for good long entries and youre in trend.
Theres no use in looking for big movements starting from april till summer. look for small gains and take profits earlier then usuall. dont look for 1000 points, look for 300 points and adjust your ammount of contracts you are trading.
i dont mean to say that someone shouldnt trade in low cicle season i only mean to say “know what to expect and adopt to it”
for example, in winter my stop losses on dowjones easily exceed 200 points and tp is always time 4 with me, so 800 points (if i dont scale in).
In may, june, july my stop losses are on average 50-70 points and tp are 200-450 (if i dont scale in)
therefore in winter i trade x ammounts of contracts (dollar per pip) and in summer x times 2 or 3 contracts per trade.
…for me, I will never be a ‘trader’, just an amateur, so whatever will work for me may happen as a combination of factors, because I do not have a ‘system’.
Plus, my seven-year cycle theory is still under review, with a +1 year from the equities’ tops of 2015 still hanging on for dear life. . .
‘Past history is no guarantee of future performance’…
in my book i have you sorted under trader, so why do you think you are no trader?
i didnt mean to destroy this thread with my post or upset anyone. i wasnt reffering to history performances, in my talks, no mater when i talk and about what, i always reffer to “human behaviour” and the patterns of human behaviour which are always the same starting from 10.000 bc till now.
the market for me is not numbers, it is not charts, the market is to know what the masses are doing and what they will do, and there the best tool that you have is studyng “human behaviour” and combine it with numbers you are getting from price and the charts.
those are all my theories, i did not find them somewhere online, i didnt read up on them, i made them up by observing humans and the market for years. in fact observing humans since im 13 years old as thats what my retarded charackter is, never cared for booze party or whatever, always cared to understand why this person is behaving that way in exactly that moment.
Im sorry if i sometimes overdo it with my theories here on the forum but if you want the truth; in real life i have noone i could share stocks topics with as i am definately the only one who is doing trading stocks or economy in my cirlces in real life.
Psychology books written 100 years ago are still the same valid as the newly published books because humans in their nature never change, so does the market reflect human behaviour of gree hope and fear. to hold on to what is “known” or “familiar” to the average human is one of the most natural habbits of behaviour. when i say “seasonal hole, flat market, cicles etc” i mean the “predicatable human behaviour”.
skip the raw numbers. i have never seen anyone making money on raw numbers. in my theory it is important to know what the crowd is doing by standing outside of it and watching the crowd.
A COT report here and there, basic important fundamentals and a few charts with lines are guidelines to find good entree/exit points and to define money management but in my theory it is far from beeing enough to be sucessfull.
What i learned by observing people who know on trading and people who read up every life data found on internet and professionals is simply that the person who doesnt know how to trade has a 50/50 chance to be right/wrong a person constantly on the lookout for the latest news and practices and strategies has a 20win/80fail ratio and a professional has a 50/50 ration back to the noob stage, just with the difference that he knows how to manage his trades and money to be consistens in his profits.
thats the biggest reason why i skip news, because in my opinion the news doesnt make the market, the market and the mood of the participants makes the news.
You mentioned china dificulties as reason for a 15% decline in markets in USA and Europe. i remember a Asia crisis in 1990 which did not reflect on the stocks in europe and usa at all, not even by one percent, while whole asia was in the biggest recession since world war 2 in USA and Europe people were partying. Why? everyone has his hown theory and noone knows which one is right but in my believe my theory is that the people simply didnt care as it was a boom phaze in europe and usa. bad news are beeing skipped/ignored. the bad news a few months ago from china were only a trigger for the “already on its way”- downwards movement, the china news only served as good reason for the people who need to explain the movements with numbers and facts of economy.
but the real reason why it went down was simply because people wanted to sell their stocks. easy as that, we can make it complicated or easy but to bring it to the least common number: people wanted to sell. and these “i want to sell now” occure in always repeating patterns at always “the same dates” in a microcircle of each year.
I remember a tsunami in Japan damaging the japanese economy more then any bad data from asia in the last 10 years and the european stocks barely noticing it for a week or two. i remember japan sliding into recession for the third quartal in a fiscal year in 2014/15 and the DAX doing a 3% plus the very same day while the dow did a plus of 2,2%
After college we have a life that looks exactly like this (90% of people):
Year one:
get married
Get kids
Year two:
work
holidays
save for house
save for retirement
Year 3:
work
holidays
save for house
save for retirement
Year 3:
work
holidays
save for house
save for retirement
Year 4:
work
holidays
save for house
save for retirement
Year 5:
work
holidays
save for house
save for retirement
Year 6:
work
holidays
save for house
save for retirement
Year 7:
work
holidays
save for house
save for retirement
Year 8:
work
holidays
save for house
save for retirement
… continues till the year of 65 of everyones life…
so with this easily predictable humans, i think that predicting human behaviour in markets will give you the edge to know when who is going to do what in terms of selling/buying his stocks/retirement fund/extra money for rent/money for his car etc. etc.
but, as i constantly point out in most of my post. im talking from the perspective of stocks/commodities and bonds markets, not forex.
One of the advantages of trading a low timeframe. I don’t need long moves, actually long swings just takes longer to complete a trade… It is al year round for me, with the exception og the last two weeks of December.
Stocks, bonds, commodities, cfds, new, amateur or professional. It doesn’t matter. We all have the same profession but most here just started others are mid-career and some will stop. We all have the same motivation, just other ways to reach our goal. I just don’t like parasites.
Great posts by the way. It is a pity that replying on them the way I want would take all night. I reserve that for our first BP IRL meeting.
The trouble with forex is that it has (historically) less volatility than stocks/equities, so trends can take longer to develop; also, cycles are less clearly mapped than in equities, but I have done studies in cycle theory, and indeed two books were recommended to me by cycle specialist Kristian Kerr of DailyFX:
“The Geometry of Markets” by Bryce Gilmore;
“The Great Wave” by David Fischer.
I also have read none other than Ludwig van Mises (the great Austrian economist)'s theory of the business cycle, first developed in 1912… You can read it within this volume:
I do believe that the GBP/USD pair, as I elaborated in my videos and mentioned in the recent Daily Reckoning article I have posted on here at some point, is a massive three-period cycle from the 1990s, but, again, such great cycles take a long time to develop; I also highlighted the FTSE100 cycle in September 2014, in this post
and have been positioning accordingly since mid-2015 for the next leg (down) of this cycle… It is taking
its sweet merry time to develop, and this time the accumulation phase at the top is taking much longer
than previously… This shows one thing: cycles are not perfect (just like harmonic/Elliott Wave patterns)
and can misfire or come out of phase due to any number of unpredictable factors.
This is why Long Term Capital Management’s option-based strategy failed in the late 1990s, and here I
can link to what Turbo was saying by slightly disagreeing (if I may) because the collapse of LCTM brought
down a lot of capital with it, and had the Fed rushing in to plug the hole: when the East Asian crisis of
1997-1998 spread and caused a Russian default, LCTM experienced losses of up to $2bn and this is what
the S&P500 looked like in August 1998:
I will agree with Turbo when he says that markets use crises or news to buy/sell stocks, and indeed the main business media channels have been manipulated since Jesse Levermore’s days to get people to buy stocks when a company is trying to get rid of them… Indeed, some news is brushed over (example: compare the 2005 London bombings impact on the FTSE100 (for example) to that of the 2015 Paris ones - quite remarkable in terms of the difference) depending on whether the market is looking for an ‘excuse’ to move in a certain direction.
However, there truly are historical events that catch a market by surprise, and let us not forget that machine trading has a lot to answer for, indeed that was the case in the 2010 flash-crash, and panic-selling can be an algorithmic failure more than a human fear situation…
I would like to finish by saying this: Turbo, do not apologise at all, you are a great asset to these threads, so please keep coming back and enlightening us with your views!!
That’s a very interesting post - thanks for that.
It inspires me to ask you how you feel about the growing impact of semi- and fully automated trading. I guess this is not yet so very prevalent in stocks (or maybe it is?) but it does seem to be influential in forex.
I have read some Fed reports on the anticipated impact of robot trading on price movements so it must be a realistic concern. How do you think this might start to change the influence of human nature on markets if machines are simply following and reacting to price movement. Obviously they are programmed by humans but their actions are purely mechanical and, I guess, mathematical/logical.
I could also imagine that the huge growth in China’s economy over recent years, combined with its increased financing of western government debt and its financial interests in western commercial buisnesses would increase the sensitivity of western stock markets to movements in Asian economies?
I am only asking, I have no personal expertise in these areas whatsoever!
awesome post Pip, really made me think about some stuff aswell.
by the way, you changed your picture, i barely recognised its you on post, i thought “huh theres someone new posting here, how did i not see him before?” only then i saw its you hehe
im sorry for my late reply to this, had 2 bad days yesterday and the night towards yesterday as you can see on the gold fluctuations. am right now fuly invested in gold and oil and copper and in order to not get kicked out of all positions i had to get rid of all of my gold contracts in a bad moment (thanks shanghai and hong-kong a$$holes).
yes i completely agree, markets are beeing catched at surprises. but what i observed is that these “surprises” which start a recession or heavy difficulties always occure at the end of a boom cicle, like when the indexes are on all time hights.
Checkout the latest crisis of 2008/2009, it happened exactly that at the very top things got revealed and people started panicing. checkout the dot.com bubble burst, at a all time high…
is it only me, or do crisises only occure then when they are “needed”? when there is no potential for further upwards movements?
while, lets say i saw stuff, or better to say: observed… a tsunami one of the most developed country pushing it back 10 years easily, comparable with a war, in that very same country… in the middle ofa 7/8 years cicle (not at low stockreadings, not at high (tops) stock readings) and only a few months later the stocks hitting all time highs again…
its such a huuuggeee thing we are talking about right now, something peoplehave published hundrets of books with each 500-1000 pages trying to explain stuff. we can talk for years over it and still get not much further then what we know now. or at least what i think that i know,if its right or wrong only the markets can tell once the time comes for this.
I once made a post somewhere about the ammunition ofthe global central banks as crisis management tool and that the ammunition warehouse is empty and needs to be refilled soon as the actual cicle is about to end and we despirately NEED a crisis (crisises is something natural that has to happen from time to time and they are healthy to the economy, in fact one funny thing my professor told me in uni in a course i cant remember anymore which it was, but i remember what he said and i will never forget that= the chinese word for crisis when written is combination of 2 chinsese words “problem + chance”).
news change, cicles change, crisises come and go, but what i think i learned is that there is one constant in the equation which always stays the same… and that is the Human Behaviour of greed and fear what truly makes the markets go round. from observing my own life and the life of my parents (my entire family never worket for a paycheck since 3 generations, we always run some sort of our own business sometimes good sometimes bad) is that there truly exist cicles.
from my own point of view from what i observed on myself and people around me i can give you one explanation of a cicle which hits everyones life:
you finish college and you learned to live with 500/month youre happy
You find a job and now you get 200/month and you feel like you earn a lot and youre happy
2 years later
you/your mind/your spending habbits addopted now to 2000/month and you feel like its ok
-2 more years later
you/your mind/your spending habbits changed further, you want a bigger flat, a better car… 2000/month isnt enough anymore and you feel like you need more
you start doing extra money next by, with forex or another job or doing something private like giving music lessions to people in their houses and thereby you invest your own time, you take off from “my time” and add to “work time”
-1 year later you feel like you have no life even thou now you do 3000/month
-1 year later you feel like you need something else which consumes less of your “my time” and skip the private music lessions at peoples home and try to develop a business (or you go into forex trading) next too your work so in a year you can stop working for paycheck and be your own boss earn more work less
-1 year later you realize your business isnt running goo, you have debts and the paycheck of 2000/month is the only thing that keep you allife financially but now you need to cutoff those 2000/month to pay for your debts from a year ago
now: you relearning how to life with 500/month again like you did before you started working for your paycheck.
thats one cicle i have seen so many times around me in real life you would never believe it how many times this happens. and the funny thing is this one cicle i gave now as example happens magnificall to fall inbetween those 7 cicles of bust and boom we see in global economies.
You know why i know we are about to face a crisis soon again? i own a business and its running good,i cant complain. 3 years ago all friends of me who aswell had/still have businesses when you asked them “hows business goind?” everyone replied “good i cant complain”… now, whoever you ask gives the same answare “not so good, not enough growth”… then i ask: “you making less turnover?” the answare usually is: “no the turnover is 3% bigger then last years, but the bils kill me, pay this pay that pay bla bla and you end up with nothing!”
its the end of the cicle, they earn the same as 3 years ago, but now, its not enough anymore, as their spendings went above what they are earning… now everyone is looking for new investment opportunities, new businesses to open… in a time where “whatever you open you go broke” simply because we are at a high. everything is developed theres no place for new commers, all seats are taken.
now they need to relearn how to life with what they earned 3 years ago and be happy with it.
its humans that make this world go round, even thou we dont feel it anymore through this huge amounts of technic we are using nowadays. and i believe that if you want to suceed in stocks you need to look at what the humans are doing and not the machines.
with the asia crisis you did not disagree with me, i know it made effects in the west aswell but the effects in the west were nothing compared to what effect the asia crisi made in asia itself, there it lasted years, in the s&p500 it lasted a month and was barely a retraction and a good opportunity to buy into the uptrend.
