My EURUSD and other things

[anon46773462]

CONFESSIONS OF A DAY TRADER - a fictional account (?)

You know that feeling? When you look at your charts and that gift of a trade just leaps out at you? It cannot be wrong! It just cannot fail! Everything points to this market falling 80 pips! And the good thing is no one else has noticed it yet!

The plastic under my finger on the mouse left button winces and creaks as I whack in my order. And a few milliseconds later, as sure as ever, my true, loyal and wonderful broker shows it there on my screen – a good price! I am so smart! There it is, before any of those clever bank guys in the city have even yawned over their Times newspapers and first coffees. They sure will be sore as hell when they get to their offices and have to explain to their bosses why they missed today’s golden opportunity! I decide to wander off for my first coffee of the morning with a somewhat involuntary smirk on my face – well, ok, not so involuntary, in fact rather smug if I’m honest with myself!

So an hour later I wander back to my screen to see whether it has reached my target yet and ….what?..it hasn’t moved a single pip! What is the matter with these guys? Do they think it is a National Holiday today or something?.. First panic - it isn’t a National Holiday today is it? Quick check……sigh of relief, no, it is a normal trading day – except it isn’t normal because none of those city guys are earning their big salaries and trading this obvious move of mine yet!!

The day passes, London ends, NY opening……NY closing. The best we’ve seen all day is about -20 pips up and +20 pips down and…… where are we right now? at my bedtime? Yep, MINUS ONE PIP!!!

Well I am not going to close this cert trade for a loss of one pip, that’s for sure!!! Besides, those Asian guys, they know a good trade when they see one! They do things differently! They are smart and they have the money! They , if anyone, will see this gift of a trade, if anyone. I will leave the trade open overnight……those guys will help!

Dawn breaks, the birds are singing and eating sunflower seeds off the birdtable as I open my PC. A thrill of expectation trembles through my nerves as I watch the chart opening ……………….

What?..never!!.. my trade is still open and sitting at MINUS 15 pips! What is wrong with those Asian guys?? Have they got their Ichimugus stuck up the Heikin Asses today or what!! Why don’t they get their dumb brains out of their cloud Kumo lands and see this trade of the week staring at them??? Although, I confess to myself, it isn’t shining quite like gold anymore…… but anyway, let’s see what this morning brings……

Happily the London guys know a thing or two, they are the cream, hell, I even worked in London myself in my early days, I knew some of these guys. And sure enough I allow myself another, ”I told you so” type grin as they, sure enough, bring it back down from -15 pips to breakeven. Well, not exactly, it is actually sitting there as -1 pip….and staying there…………….and staying there……and staying there. Teasing me with that little red minus symbol!

Its that damn broker of mine! It is all his fault! It has been at MINUS 1 to 5 pips all morning! That guy in my broker’s office that they employ full-time just to turn that knob that has my name on it every time it gets near breakeven……if I ever find out who he is there will be trouble. I am going to change my broker! I am not gonna let this guy ruin my trading career!

Lunchtime comes and goes. I see my wife outside enjoying her gardening in the sunshine. Its alright for her, she doesn’t have to do the worrying about our finances. She admits she has no idea about those ”complicated” things. But it didn’t help this morning at breakfast when she casually remarked that her idea of investing in that property fund advertised by our bank has now made over 15% this year, and that we haven’t even had to look at it, let alone do anything………….(I remember (but don’t mention) that I had said at the time, in my superior fashion, being a trader and all that, that it was just another scam to earn fees for the bank)……

But I am uneasy, I’m beginning to doubt my own resolve. Maybe I was wrong, maybe for some reason this was not such a certain trade, maybe I should just dump it for minus a pip or two? afterall there is always another trade! Having thought it, I couldn’t shake, I had to get out of that position……

So with a dented ego and a fear of failure I go back to my screen to salvage what I can……What? MINUS 35 pips??? How? Why? What? Who? What’s happened? I scramble through news pages…nothing! nothing nowhere!!!

Thankfully, the market starts to drops back as NY gets going and is now only -5 pips. Thank goodness, I can close out without any major damage! I smack the mouse and there it is closed! What a relief!

I am looking at a 15min bar chart, suddenly the price has dropped back even further to my original entry level. I feel the first traces of anger and tension in my chest, I could have got out at breakeven. Some dumb spokesman has just said something about interest rates, the price drops some more….hell, I could have even closed out with a small profit by now if I’d waited a few minutes!

Then it happens, the price collapses, and within the same 15 min bar, the trade that I had been the first guy in the world to spot 30 odd hours earlier crashes straight through what was my target level………

I am getting very good at imitating Red Indian war dances and I promptly rehearse one of my best versions of it around the workroom. The vocals are even more pronounced than usual. My wife walks past the door carrying some flowers she has cut from the flower beds. She barely glances at me, she has seen it all before. ”Would you like a cup of tea?” is all I hear through the red, orange, and brown colours of my frustration and bitterness.

But as a day trader and an eternal optimist, I have to reassure myself: “There is always tomorrow”, I eventually tell myself, once I’ve calmed down a bit, that is. Tomorrow I will get it back - and some more. Afterall, I’m a day trader………………………. 15% in a property fund indeed! I’ll show her what I can really do - tomorrow, that is………………………….yes, that’s it, afterall, I’m a day trader, aren’t I?

[anon46773462]

I changed my title here yet again. The only trading I really want to focus on here is the EURUSD, So other European matters will come under “other things”!

In fact the “other things” will probably exceed the EURUSD things, but no matter.

A new thread by @Falstaff about various generations got me reflecting back over the years to my early trading times. I used to collect old works about trading and stock markets and one of the most influential of those was one that everyone is surely aware of: “Reminiscences of a Stock Operator” by Edward LeFevre, about the legendary Jesse Livermore.

If one does a search here of this name, one will see that it has been mentioned in many posts over at least the last 10 years, including many famous quotes from this work. But I did not find here an actual study of this entire book and the wisdoms contained in it.

Although it was many years ago that I read it, I found much of it relevant and formative still at that time - and I am sure it is still as relevant today. So I have decided to revisit that classic and post here what I see as still relevant to a forex trader today.

[anon46773462]

PART 1 Just for starters, I remember this was something that hit me right from the very start when I began on Chapter 1.

It was this very thought that got me going on technical analysis - and I have never stopped since. It raises the question what is the usefulness of fundamental analysis or sentiment or any other “ment” or “ism” when it comes to placing an actual trade for real? One of the prime gurus on this site often expresses the idea that prices either go up or they go down. We only have to know which of these two alternatives to go with.

This is what Jesse says:

"Those quotations did not represent prices of stocks to me, so many dollars per share. They were numbers. Of course, they meant something. They were always changing. It was all I had to be interested in the changes. Why did they change? I didn’t know. I didn’t care. I didn’t think about that. I simply saw that they changed. That is how I first came to be interested in the behaviour of prices. "

That is something we should all be aware of - in what exactly, do we place our trust and what do we base our decisions on…

“Why did they change? I didn’t know. I didn’t care. I didn’t think about that. I simply saw that they changed.”

In the same vein, we read that:

“Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore. It doesn’t go into explanations. I didn’t ask the tape why when I was fourteen, and I don’t ask it to-day, at forty. The reason for what a certain stock does to-day may not be known for two or three days, or weeks, or months. But what the dickens does that matter? Your business with the tape is now not tomorrow. The reason can wait. But you must act instantly or be left. Time and again I see this happen”

Food for thought here, and some self-inspection. "What do I base my decisions on?"…

[frandlost]

@anon46773462 , I have this book but I haven’t read it yet… I am committed now to do so based on your post. Two other books that I have read I found tremendously informative where Making it in the Market, and the Wall Street Gang, both by Richard Ney.

Great thread! Lol!

KC

[anon46773462]

I have this book but I haven’t read it yet… I am committed now to do so based on your post.

That’s good to know! I am sure there is still a lot to glean from this book and I want to work through the entire text (24 chapters if I remember rightly!)

[anon46773462]

We are seeing quite a strong recovery on EURUSD today. We fell short of the weekly 200SMA by about 20 pips, at least for now. I haven’t traded at all today and after this bounce I don’t feel so bad about prematurely closing that last trade overnight. I could have maybe improved it by another 20 pips but, having drawn up short of that SMA I suspect I would have ended up closing it around the same level anyway!

It’s been a good week in a good month, but we still have 3 days of October next week…

It’s now time for a weekend break and some more reading from Jesse Livermore. Remember to change those clocks this weekend!

[anon46773462]

PART 2: Chapter I cont.

Although this book, ”Reminiscences of a stock broker” was written in 1923, it clearly covered the market environment and trading characteristics throughout the period around the turn of the century 1895-1923. In other words, exactly a hundred years ago from what most of us here have been doing during our trading lives:

”I didn’t ask the tape why when I was fourteen, and I don’t ask it to-day, at forty.”

Although we might think that nowadays the world is an entirely different place than it was then and that modern trading is a totally different ball-game, it is astounding how similar the trading environment and approach of Jesse Livermore was then compared with our modern charting and technical analysis today.

To start with we have to note that Jesse was not a typical stock market investor. He did not have any money to invest anywhere when he started work at the age of fourteen as a quotation-board boy in a stockbrokerage office. His job was just to write up the prices on the big board in the firm’s client area as they came off the ticker tape!

He knew nothing about individual stocks or even about the stock market itself, he was just totally fascinated by the numbers that were coming through the ticker tape. The traditional stock investor in those days would no more have sat all day next to that ticker than an investor would today. Watching prices as they happened was the realm of the speculative short term trader and the brokers/professionals just as it is today. It was also the realm of the bucket shops where Jesse started his trading career - but we can talk about that in the next post………

Jesse Livermore did not have charts showing prices evolving over various time frames like we have today, but he carried out mentally the same type of analyses of price characteristics as we implement on our charts. One of his most stunningly familiar observations, derived just from price observation, was:

”Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and will happen again. I’ve never forgotten that.”

Is that not exactly the basis for studying and observing chart patterns today? Do we not still anticipate that price will most probably perform in a certain manner after, for example, a head and shoulders, double bottom, or a flag, or any other pattern analysis, etc?

Jesse was also astonishingly modern in his understanding of price in that he realised right from the start that historic price behaviour often repeated itself and therefore by looking back one could anticipate forward. Again, is that not precisely the core principle underlying why we base trading decisions on our chart analysis?

” I noticed that in advances as well as declines, stock prices were apt to show certain habits, so to speak. There was no end of parallel cases and these made precedents to guide me. I was only fourteen, but after I had taken hundreds of observations in my mind I found myself testing their accuracy, comparing the behaviour of stocks to-day with other days. It was not long before I was anticipating movements in prices. My only guide, as I say, was their past performances”

What we can also observe from this is that Jesse really worked at his studies with a passion that perhaps also bordered on obsession! Clearly, trading demands an enormous input of personal effort, it clearly always has done!

As a last comment for this post, it is amusing to see that Jesse also touches upon, almost as an aside, the importance of risk management parameters in our technical analysis when he says of his studies:

”the tape is your telescope. You can depend upon it seven out of ten cases.”

Is that not quite an acceptable success ratio!

Along the same lines he also noted, as we should today, that the prime concern in trading is not individual trades but:

“Of course I had my ups and downs, but was a winner on balance.”

[anon58863749]

Great effort @anon46773462. It’s really refreshing now. I read this book in the early time of my stock trading.

[anon58863749]

The real dilemma of most of the traders.

Source: Investing.com

[anon46773462]

Haha! That’s brilliant!

Just goes to show that it is not always just the indicators that are lagging the market!

[anon46773462]

PART 3: Young Jesse Livermore and the bucket shops

Right from the start of the book we read that Jesse started his trading career at a very young age, only 14 years of age. We have also seen that his early passion for trading was aroused as a consequence of his natural interest in numbers and mental arithmetic.

”That is how I first came to be interested in the behaviour of prices. I had a very good memory for figures. I could remember in detail how the prices had acted on the previous day, just before they went up or down. My fondness for mental arithmetic came in very handy.”

But it was not just the numbers, i.e. prices, that interested him. What really caught his attention was the behaviour of these numbers prior to significant subsequent price moves. We already know that he spent hours every day studying these price patterns and keeping copious details and notes of them (i.e. he kept a detailed journal!). It was the result of this diligent and persistent study that led him to realise that he could anticipate future price movements on the basis of these patterns.

But this alone was not how he became such a famous trader. This only became possible because of the existence of the bucket shops in various main towns across the US. The structure and operations of these bucket shops are startlingly similar to our present day brokers – and so are many of the problems and concerns related to them!!

Although these bucket shops were legitimate, they were not in any way regulated and they made their own rules concerning margins and commissions. But their basis of operation was exactly the same as the brokers that we trade with today. Customers did not physically buy or sell any actual shares, they simply registered a bet with the clerk in the bucket shop office based on the last price coming from the ticker tape. When they wanted to close the position they simply gave their betting slip back to the clerk who wrote on it the last price from the tape and, if it was a winner, the customer took it to the cashier to collect their winnings.

”As a matter of fact, mine was the ideal way to operate in a bucket shop, where all that a trader does is to bet on fluctuations as they are printed by the ticker on the tape. ”

”You gave your money to a clerk and told him what you wished to buy or sell. He looked at the tape or the quotation board and took the price from there the last one, of course. He also put down the time on the ticket so that it almost read like a regular broker’s report that is, that they had bought or sold for you so many shares of such a stock at such a price at such a time on such a day and how much money they received from you. When you wished to close your trade you went to the clerk the same or another, it depended on the shop and you told him. He took the last price or if the stock had not been active he waited for the next quotation that came out on the tape. He wrote that price and the time on your ticket, O.K.'d it and gave it back to you, and then you went to the cashier and got whatever cash it called for. Of course, when the market went against you and the price went beyond the limit set by your margin, your trade automatically closed itself and your ticket became one more scrap of paper. ”

These bucket shops offered the same benefits to those with limited capital as our modern brokers do to us. One could take a position/exposure in various shares without actually buying or selling them at all, and only needing to put up a certain amount of cash as margin according to the requirements of the bucket shop concerned (which was a fraction of the sum that would be required to buy the real thing).

But, in the same way, these bucket shops made much of their profits from their customers’ losses. The margins were extremely tight and once a share price had dropped to a level where the losses equalled the margin paid the positions were automatically closed. There was no margin call as such.

”Of course, the bucket shops never ask for more margin. The thinner the shoestring the better for them, for their profit lies in your being wiped.”

Basically, the bucket shop environment was equivalent to scalping short term timeframes and most customers lost most of the time. But Jesse had developed a method that actually worked in this environment and he consistently won - and used his winnings to keep increasing his position size. He only saw his profits as additional margin. He also clearly pondered the same question that many of us still do today, was he trading or just gambling:

”I was only twenty when I first accumulated ten thousand dollars in cash. And you ought to have heard my mother. You’d have thought that ten thousand dollars in cash was more than anybody carried around except old John D., and she used to tell me to be satisfied and go into some regular business. I had a hard time convincing her that I was not gambling, but making money by figuring. But all she could see was that ten thousand dollars was a lot of money and all I could see was more margin. ”

Eventually, though, he ran into an unexpected problem - he was starting to take significant profits away from the bucket shops and they didn’t like it! Jesse’s early success led to him being gradually banned from all the bucket shops because he was eating into their profits. One large bucket shop owner explained to Jesse why he was banning him by pointing to the customers in his office and saying:

”Take a look at 'em, kid. There’s three hundred of ‘em! Three hundred suckers! They feed me and my family. See? Three hundred suckers! Then you come in, and in two days you cop more than I get out of the three hundred in two weeks. That ain’t business, kid not for me! I ain’t got nothin’ agin you. You’re welcome to what you’ve got. But you don’t get any more. There ain’t any here for you!"

And so eventually Jesse Livermore had to face the fact that he would have to start trading the real markets via a true stockbroking office - and he decided to move to New York…………

But although Jesse was extremely successful in his early days, it was not all easy going. He gained and lost and gained and lost again, almost everything. There were two big problems:

1. He explains many times that he was young – and his trading was often reckless and thoughtless and then he lost money.

2. He discovered in NY, when trading the real markets, that his bucket shop scalping method did not work at all in that environment.

So what happened in NY? – that comes next……………

[Falstaff]

The real dilemma of most of the traders.

Surprising how “real” the words on that chart are !

Drawn by someone who has “been there” - methinks.

[Falstaff]

This only became possible because of the existence of the bucket shops in various main towns across the US. The structure and operations of these bucket shops are startlingly similar to our present day brokers – and so are many of the problems and concerns related to them!!

When you first mentioned this book - I thought how similar things are nowadays to his experiences.

When I read this book “Way back” we could only access real time charts by significant monthly payments, and the “bucket shops” were not there - Spreadbetting was about as close as we could get, so it was just a “Novelty” read to me at that time.

I’ve been looking for my copy and no doubt it will turn up - but in the meantime - Thank you for your extracts and analysis.

[anon58863749]

Surprising how “real” the words on that chart are !

Yes … But a bitter Truth.

[anon46773462]

When you first mentioned this book - I thought how similar things are nowadays to his experiences.

Yes, the more I read it, the more I notice the similarities!

I think this is partly due to having been here on BP for some years and seen all the issues that repeatedly raise their heads.

Issues like short term v. long term trades, overtrading, reckless trading, ignoring one’s own rules, unfair broker practices, trading on tips (signals!) or other people’s advice…just to mention a few.

I will work through the whole book here and hope that it will be of interest to at least some others!

If it succeeds then mavbe could pick another book, who knows!

[anon58863749]

I will work through the whole book here and hope that it will be of interest to at least some others!

If it succeeds then mavbe could pick another book, who knows!

It would be a great work. But what I have noticed from your posts and the recent commentary on the book that you do have a very thoughtful and good analytical approach.

Also you do have the ability to summarize your thoughts in a better manner, just like a born writer. You have also worked in a dealing room of an institution.

So, my question is why don’t you write a blog or book (something like this) on the basis of your personal experiences? Just a thought

[anon46773462]

So, my question is why don’t you write a blog or book (something like this) on the basis of your personal experiences? Just a thought

What? And have to reveal all my mistakes and errors in public?

Thanks for your encouraging comments, though, I appreciate them very much!

I kind of treat this thread a bit like a blog so that it doesn’t disturb anyone else! My “achilles’ heel” is that I don’t stay with any one thing very long and am always developing things even once they are working fine! For example, I have already changed this thread’s title at least three times, haha! But that has mainly been due to Euro-based markets not being overly interesting in recent months…and I change the look of my charts almost weekly!

The nice thing about forums is that it is interactive and one can get to know others fairly well without even meeting them. I think a blog must be quite dull when all it gets are maybe a few readers’ comments?

Forums are more like newspapers and I like that. What we write today is soon “old news” and gets buried and rarely revisited - unless, of course, it is a trading method or approach which develops its own followers, and I wouldn’t want that kind of commitment.

I think it is great to be able to write down one’s thoughts and ideas - and even nicer if there is some response to them.

I did write one trading pdf here and I am working on another regarding longer-term trading - but, by definition, that takes a long time to produce, even to create images for it, let alone trade examples!

In the meantime, Jesse has the spotlights…

[peterma]

Hi Manx,

Edwin Lefevre was a journalist and a good friend of Jesse Livermore, perhaps one of the very few who got close to the man.

When the book was published it was supposed to be fiction (written in the 1st person) but many people soon realized that it was really Livermore’s thoughts and words - that was in 1923 and 1924.

But Livermore was a very complex person, back in those days mental health issues were scorned, help was non existent, except within close family.

Poor old Livermore had difficulties there also, but finally it was his son who encouraged his dad to write his first book - that work started at the end of 1939.

This was to be Jesse’s challenge, the market had long since lost that role, he could win and lose a fortune almost at will.

Livermore poured his heart into this new challenge, perhaps this is what is needed to lift the spectre of depression, Jesse Jr hoped so.

His work was published in in March 1940 and entitled “How to trade in stocks”.

Typical of Jesse, simple and to the point.

Alas, there was a war on, peoples’ attention were focused elsewhere, the stock market was bottom of the list.

The book flopped (in terms of sales numbers), eight months later Jesse was killed by depression - a truly tragic end to a remarkable mind.

[peterma]

This book is an eye opener, one that I have read many times.

At the end Jesse includes his very notes in pencil and red ink - he called it the “Livermore Key” (if memory serves me right).

The different colours of ink are price levels where price ‘reacted’, also the ‘pivotal’ points (not pivots as known today) are recorded.

These price points were the paths of least resistance.

Perhaps I may use your thread to copy and paste some of my own notes back over 5 years ago:

So if you asked Mr Livermore, are you bullish on GBP at present, he would answer:-

_ "I say that the market is currently in an upward trend or a downward trend or a sideways trend - or I tell them that the line of least resistance is currently up or down … that is all I say._

To those that say successful traders are born, that they have innate talent that cannot be learned -

_" I believe anyone who is intelligent, conscientious and willing to put in the necessary time, can be successful on Wall Street. As long as they realize the market is a business like any other business - they have a good chance to prosper." _

[peterma]

Don’t want to hijack the thread so maybe just one more post about Jesse Livermore (someone close to my heart).

I mentioned that he lost and won many times, here is a little clip of one of those.

Btw - he was an avid reader of news, first thing each morning the financial papers were read in complete quiet - no intrusions, he needed to focus on the FA picture.