Month: March 2014

Bearish On Japan – EWJ As A Play

Forex Kong 12 Comments

Looking at the Nikkei “pump job” this morning, as well JPY getting hammered,coupled with the sales tax implementation and latest string of “terrible data” out of Japan I’m about as bearish on Japan as one could be.

It doesn’t look like Japan is going to be able to do much more “stimulus wise” until maybe even July.

Get this……the government is also now telling residents previously living a short 20 km from the Fukushima Plant that it’s SAFE to go back home. SAFE?!

Unreal.

For those into stocks one could consider short plays on “EWJ” or even a couple ( tiny tiny! ) longer dated put options “short” late tomorrow or even mid-week.

As for us currency guys..the Japanese Yen continues to wallow, as the BOJ continues to do all it can to keep this boat afloat. I’m still waiting for a more substancial signal / move before trying “yet again” to get long JPY ( short of a few trades already initiated ).

Look for continued news / headlines and likely larger moves DOWN in the Nikkei Japanese Stock Market up around 15,000.

 

Japan To Raise Sales Tax – Consumers To Slow

Forex Kong 11 Comments

Brilliance out of Japan as we see the country’s standard “sales tax” raised from 5% to a staggering 8% here for the beginning of April.

This is very likely going to cause a considerable downturn in consumer spending for the coming quarter as the BOJ finds itself “ounce again” in a very precarious position.

In April 1997, when the government last raised the sales tax, to 5% from 3%, consumption took a dive and along with the effects of the Asian financial crisis, pushed Japan into deflation and a recession that lasted more than 18 months.

Now after 16 months of printing money like there’s no tomorrow, an increase in sales tax hardly sounds like part of a “cohesive plan” but this is not at all uncommon in Japanese central planning.

It’s one step forward ( if you consider rampant currency devaluation a step forward ) and two steps back as consumers tighten their belts and plan to cut back on spending.

We’ll keep a watchful eye on the Nikkei as always, along with those pesky JPY pairs that still refuse to budge.

 

 

The Psychology Of Trading – Emotions Take Control

Forex Kong 2 Comments

When you consider the “psychology of trading” what we are really looking at is “plain old human emotion” – and one’s ability to control it.

This is without a doubt, the absolute most difficult aspect of trading you’ll need to conquer in order to be successful as without emotional control, fear and greed will wreak havoc on your mind and your account.

New traders often overlook this.

Caught up in the technical aspects of “timing entries” or “learning a new indicator” it’s very normal for new traders to operate on a “hey I think I’ve got this figured out” type basis, scoring a winning trade even, or seeing “another light come on” as another technical aspect falls into place.

This is all well and good, but I can tell you with certainty – there is “no short-term trade strategy” capable of beating the markets consistently without the one element that generally keeps both fear and greed in check.

Proper money management.

If you want to get your emotions under control, get your money management under control.

To start….trade MUCH smaller than you are currently.

Let me ask you……if you had a handful of change….perhaps 5 dollars worth of nickels lets say – would you really be that “emotionally distraught” if you lost one? How bout two?

Let’s say you even lost 3 or 4 – but then during the same week, you found a couple new ones behind the couch or in a pair of jeans? Would you really be that broken up?

There it is. You’ve got to start looking at your total account balance, and the amount you are flat-out “able to lose” in a given trade / trade plan without crying about it, essentially “removing” fear from the equation.

Consider you’ve already lost the money “before you even enter the trade” as another great way to put fear on its ear. Done. I’m in with a 100 pip stop, If I’m wrong I’m wrong….and I will lose $200.00. Ok mom! Good night. See you in the morning. Done.

Now….if you get this far and then find out that you are consistently losing on your trades, you’ll have to get back to the drawing board on your actual strategy as….it’s not “fear” that’s got the best of you. If you’ve been caught offside, and am now deep underwater well….I’ll bet you where trading to large right?

And….. if you can honestly sit back in your chair any given day and say “I have no freakin idea what the hell is going on out there!” – you stop trading until you do know.

I’ve got a million of these, and could likely write on “forever” but will keep this short enough to stomach in one sitting.

The number one way to get your emotions under control…..is trade smaller, lower expectations of “hitting home runs” and then concentrate on consistency. Small wins, small losses = more time in the game, and more time to observe and further hone your skills.

It’s a long road my friends, but the key is to still have a couple of those nickels left, when you’ve finally put all the puzzle pieces in place.

Then you can start building spaceships.

The Psychology Of Trading – Reader Response #2

Forex Kong 1 Comment

Rob,

I saw fundamental changes / shifts in the market that tipped me off, as well factored in a number of other “broad stroke” indicators – suggesting that markets might stall / move sideways / remain “trendless”.

1. The economic cycle “in general” has become about as stretched as it can stretch (now pushing on to be one of the longest economic cycles in the history of markets!). This has solely been “fueled” by funny money out of Washington.

The Economic Cycle – A Simple Explanation

2. Earnings ( and even more importantly ) “guidance” has been pretty much flat / bad to even “horrible” as U.S companies have done everything they can to show profit, when in reality it’s really about cost cutting / down sizing etc…..( your bottom line might look a bit better too after cutting 300 workers etc….this doesn’t mean “more profits/growth”.

Caterpillar Earnings – What It Means To Me

3. Emerging Markets continue to but up against resistance, and even worse – in the face of a rising dollar ( as suggested via tapering, and now “higher rates” ) will likely “collapse” as they’ve grown so used to the flow of “funny money” coming out of Washington.

Emerging Markets – Update 

4. Proposed reforms in China.

Reflections On China – Where To Next?

Gees…..and the list goes on, with continued unemployment in the U.S, housing going nowhere, Obamacare ( my god ) and continued tensions in the Middle East etc…

All of this most certainly contributed to my “extended holiday” through February and March as these factors ( and many others ) fly in direct opposition to the current mandate from the Fed.

Keep the masses calm. There is no problem. Everything is going as planned. Buy stocks. Go to sleep.

You can’t trade in these types of cross winds. You will be ground to pieces with such conflicting forces pushing and pulling on markets.

Ok enough……

Looks like “part 3” will finally get to the “psychology” of it all….and how a trader can maintain an ounce of sanity through all of this.

For starters……tequilla doesn’t hurt a bit!

 

 

The Psychology Of Trading – Reader Response

Forex Kong 3 Comments

In response to a fantastic line of question from valued reader “Rob” – let’s pull a couple of stops here.

It’s Saturday afternoon…my family and friends have now headed home, and it’s back to business “full-time” for Kong. So what better thing to do than “let loose a bit” after a full two weeks more or less “sitting on the bench”.

After suffering a bit “psychological damage” himself ( alongside the rest of us ), with continued effort actively trading markets these last few months, and in light of one my recent posts “Position Size – When Markets Have No Clue” Rob asks how I may have been able to identify this treacherous market dynamic ( chop ), and manage to keep myself out of harms way.

Excellent question Rob. Absolutely fantastic.

My first tip-off, aside from already having  been very wary of markets going back several months was the complete and total “disregard” markets showed for the taper.

Knowing full well that the fundamental story in the U.S continues to deteriorate , one would have assumed that the “initiation of the taper” would have been the first clue that “the party is over”, and the “free money is ending” right? Apparently not.

Seeing U.S Equities continue to rally in the face of continued negative/poor data “coupled” with the suggestion and “initiation” of tapering told me almost immediately that the puppet still dances and that the Fed was still just as busy behind the curtain.

I never believed they would taper. I still “know” they have done nothing more but generate a media campaign, and if anything are even harder at work propping this ponzi up.

Recognizing this had me immediately trim positions, get to cash , scrap trade plans, get out-of-the-way as…..if I thought the Fed was controlling things when QE was “hip” how do you think I felt seeing things continue to push higher as QE was “supposedly” being cut back.

Bullshit. Total 100% bullshit.

Nothing has changed ( short of a couple of entries / zeros / ones in a couple of computers ) as QE will continue until a scapegoat is found, and an excuse can be made for the bubble bursting – period. Then QE will be doubled.

As well keep in mind that “I too” got caught” getting long the dollar, posting a loss of a % or two regardless of how many times I second guessed / knew in my gut that nothing had really changed.

I too – took the bait.

Then looking at things from a technical perspective, I didn’t get a decent signal from the Kongdictator on even as small a time fram as a 4 H, looking at pairs like USD/JPY trading flat as a pancake for now the entire last 2 months there’s been no question.

Markets have no clue.

I’ll break this into two post….and touch on another point Rob touched on – how this all plays out with traders “psychologically”:

The Psychology Of Trading – Reader Response #2

 

 

 

 

 

Forex Trade Entries – The Wait Is Over

Forex Kong 17 Comments

Call me crazy, as I’ve not really had much to say “forex wise” over the past few weeks but….we’ve finally got a  couple trades shaping up!

I know, I know…its been a long and painful March for anyone not watching their money management like a hawk, as many currencies have done all but what you would have expected. But again….I fell the “shake out” has about run its course.

You’d have to be looking at GBP/AUD as bottoming out here at 1.79 / 1.80 along side all AUD pairs finally exhausting “whatever buying interest” there’s been over the past few weeks.

As “100% backwards” as it may have appeared with all the tough news coming out of China and potential war stirring in The Ukraine, the near term fundamentals in Australia pulled a “temporary trump card” with both AUD as well NZD continuing to push higher.

With some of our favorite candle formations now taking the stage ( hammers and shooting stars ) I’ve got trades setting up “for you” in several currency pairs. ( I’ve been in / adding to these the entire month )

  • Long GBP/AUD “above” current price action ( say 50 pips ) and let price come to you.
  • Short AUD/USD “under” current price action ( say 50 pips ) and let price come to you.
  • Short AUD/JPY “under” current price action ( say even 80 pips ) and let price come to you.

Otherwise it looks to me that the US Dollar is “again” rolling over here, and as we’ve seen most often over the past few months…she falls “along side” risk so…..AUD down, NZD down as well USD down with JPY up, as well EUR and GBP up – as flat out wacky as that may appear to some of you.

Get it on your screen, watch the pairs into next week and see if this doesn’t set up for a trade with some legs.

 

 

Citi Group Fails Stress Tests – Banks Turn Down

Forex Kong Got something to say?

As a general rule of thumb it’s pretty standard procedure to keep your eyes on a given countries financial sector and specifically its banks, as a measure of economic health and stability.

Considering the massive amounts of “funny money” that has been printed and then passed on to the major banks in the United States, one would assume these institutions are literally “stuffed to the nines” and in fantastic shape.

Well…….CITI Group has now “failed” the latest set of stress tests along with 4 other large American banks, apparently not looking “very prepared” for any potential economic fallout / downturn.

I watch the symbol $BKX that lined up “to the minute” with the last 10 day drop in the SP 500 back in late January so……it’s not looking very healthy here after today’s news.

Something for “punch bowl drinkers” to keep an eye on.

I don’t touch the stuff.

 

Rising Interest Rates – Falling Gorillas

Forex Kong 7 Comments

Ya….falling on the ground laughing my ass off.

Gimme a break.

If anyone actually believes that the fed will “raise interest rates” on its own accord – you’ll now need to turn off your computer, head into the bedroom, pack yourself a nice little “overnight bag”, grab your favorite stuffed animal ( a gorilla I can only hope ), call a friend to come pick you up….and head straight down to your local mental institution.

There’s a bed waiting for you there….and I bet you’ll see a number of your friends have already checked in.

This is NEVER going to happen! Let alone “earlier” than what markets have currently been sold.

You’d have to imagine something like a wounded American soldier, shot up, beat down and near death, miles from medical attention with little hope for survival, then taking out his revolver  – and shooting both feet.

That’s Janet Yellen raising interest rates.

Gimme a break.

I suppose you’re trading with “hopes of more stimulus from China” to eh?

Gimme a break.

The “hose job” continues, as the puppet just keeps on dancing.

The Fed will NEVER raise rates on its own accord, and “once again” the media / money transfer machines have got you tied up in knots wondering which way to turn.

Yes yes….things are getting better. Taper on track…..rates to rise sooner than expected….all is going according to plan. Good lord.

Maybe I’ve been on holidays too long as this sounds even “more” ridiculous daily.

 

I’m 6″2 – but getting shorter by the minute.

 

 

 

Pipelines And State Lines – Russia Has Gas

Forex Kong 13 Comments

So the G-8 has now become the G-7 with Russia getting the cold shoulder, and the proposed G-8 meeting for June – cancelled.

Leaders of the so-called Group of Eight announced on Monday they would cancel their planned June meeting in Sochi, Russia, and suspend their participation in the international group, following Russia’s annexation of the Crimean Peninsula from Ukraine and threats toward eastern Ukraine.

Blah,blah,blah…..here’s what this is “really” all about. ( I’m sure you already know this ).

Check out the location of those pipelines, and the amount of gas exported from Russia to a number of European countries, as well take note of the “cultural boundaries” outlined in the smaller graphic in the bottom left corner. Hmmmmm…….

Ukraine_Gas_Pipeline_Forex_Kong

Ukraine_Gas_Pipeline_Forex_Kong

There appears to be a whole lot of land/people there in the states of Eastern Ukraine that could just as easily “swing” Russian no?

Market wise what can be said? Another day grinding away…..short of GBP finding support and AUD looking to top out.

Trades continue to develop, as paint continues to dry.

 

 

 

 

Time And Price – Something Else You Don't Know

Forex Kong 7 Comments

Can you imagine if a single Central Bank decided to buy or sell a single currency in “vast quantity” in a single hour of a single day….what that would do to the price?

Now consider if 5 Central Banks at once “all jumped on board” in a single hour to buy or sell a specific currency. Wow. talk about a huge spike no?

Currency markets don’t work that way as…..it takes weeks if not months for a single Central Bank to move “into a position” or “out of a position” without completely turning the market on its head by the sheer volume / impact of a trade of such size.

Take a look at AUD/USD:

aud_usd_forex_kong_2014-03-24


aud_usd_forex_kong_2014-03-24

While small time retail investors figure “they’ve got things licked” buying AUD up from 88 area back in Feb, we can only assume that the big boys have been quietly selling / building short positions as we now near the wonderful “red line” – the 200 Day Simple Moving Average.

If the past is any indication of the future in “this specific example” ( as I’m not so much about the past ) I encourage you to keep your eyes peeled over the next few days.

Could it be that you are learning to trade like the big boys?

Oh….I thought not.