Why I broke my 10% rule - Officially an insider into Crypto

When it comes to my eToro account, I normally treat my trading rule as law and not a guideline. Reason is I don’t trust myself.

For Crypto this has become an exception.

But why?

In the past 6 months I have become an insider to the industry. In other words, I have been working full time in the crypto space. This is also why I have less active on eToro both in trading volume and updates.

To me, the bearish tone of the industry is like many critics in the industry is similar to the 2000 dot com bubble. Here where unreasonable valuations and expectations were placed on an industry that was not ready to embrace the industry as yet.

This might be closer to when Gold was $1,800 and dropped till $1,000 per ounce. While this is less of a bubble as prices did not react as egregiously, it was the gold miners that saw the most value. But stock prices fell so low that even at the supressed gold prices, miners were still profitable.

That is slightly easier to spot because of fundamental pricing. For cryptos however, it is less straightforward.

While I have often advocated the model MV = PQ made popular by Burniske (2017), other models such as the demand supply equilibrium model by Mitchnick 2018:

·         D = 𝑋 + 𝐼 &

·         𝑆 = 𝑁 + 𝛾

          𝜌

And the Dynamic Equilibrium model written in the paper Tokenomics: Dynamic Adoption and Valuation, which uses multiple techniques like the stochastic discount factor & geometric Brownian motion, is an interesting thought experiment but is difficult in usage.

I have found myself finding Mitchnick model to be the most accessible combined with the core of each fundamental value of token. (I am not in the position to comment, but in my less valid opinion, I would discount Storage Demand Distribution as it is less in the cases of the tokens/coin I use for my analysis).

But by using this model with modest estimates, I have found that Ethereum’s value is below what would be considered “fundamental” and I dare say, a deep discount. Same with XRP but to a lesser extent.

There are risk factors which I would consider my thesis to be wrong, but given the market dominance of ETH vis-à-vis other tokens, the community built behind the Ethereum foundation, sharding improving TPS and potentially fixing the scalability problem, and Casper moving to a proof-of-stake consensus algorithm, it is hard to phantom the current prices of Ethereum.

While some say that Ethereum is dropping due to the drop in the number of ICOs, this is true, but not to the extent which the market is reacting to. Once again drawing from Burniske latest work, (https://medium.com/@robbiemitchnick/a-fundamental-valuation-framework-for-cryptoassets-e101f1206901t) we can see that although Hash rates have reduced, they were marginally and certainly not indicative of the price drop.

Arguments against

Like all my long form thesises, there are risk factors that I look out for that may prove me wrong,

While I know some argue the purposes of permissioned blockchains over Ethereum and I can attest to that. It does have use cases which expand outside private networks.

1% - 2% of market related to the largest decentralized smart contract system

Cost of mining at what level does it not make sense to keep the 7 TPS level necessary.

Those combined use cases, which I then use to establish part of the Demand side of the Equation then formulates my fundamental analysis.

At current time, at Ethereum under $200, we are well below my valuation targets of conservatively around $400.

For those reasons I have stayed Long ETH and will look to add to this position in the near future.

XRP Thesis: Trade finance disruptor of the future?

There are many reasons why people are so excited about Cryptos.

 Instead of looking at stores of value, let us look at Use Cases instead or the practical applications of a crypto currency. This way, it is easier to manage expectations into the future.

The leader at this point is Ethereum with it smart contracts via the Virtual Machine. Its clear Use Cases include rental contracts, insurance, sports betting etc. However, my crypto of choice is XRP because of its clear use case in disrupting a 1.6 Trillion dollar industry. Trade Finance.

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R3 via its distributed ledger platform Corda is able to process accounts receivable purchase transactions and letters of credit. For anyone familiar with trade finance the traditional processing of this work tends to be arduous.

Although Corda in itself is not a crypto but a “blockchain inspired” system.  But there were statements that Corda will support digital currencies “later.” The SBI group which is both part of the XRP consortium and the R3 consortium alluded that there may be synergistic areas, this could be one of them. 

Small problem, there is a lawsuit between R3 and Ripple. I will not go into the full details of the lawsuit, but needless to say, it is messy.

However, the proof-of-concept is certainly place for the potential for such a platform to be developed.

XRP is already used by banks, and it has been rumored to be restarting its Codius program (Ripple’s smart contract platform).

Given the stakeholders within Ripple themselves, I would be surprised if they are not tackling this potentially disruptive technology head-on.

The below reasons are why I believe Ripple will be the first to tackle the trade finance problem. I will use R3 and Ripple interchangeably because I believe the strategic thrusts of the two companies is to tackle the trade finance issue.

So when it comes to finding an edge, I like to refer to traditional economics. Here I refer to one of Warren Buffetts most recommended books, Adam Smith and the Wealth of Nations. 

Based on the concepts of Adam Smith, here is why I believe Ripple will succeed.

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1) Division of Labour /Specialization

The point of Satoshi Nakamoto paper was for no one entity to have complete dominion of the system. However this creates an unfocused network.

While most other Cryptocurrencies do have own development teams, they are often fragmented and have a tendency to be decentralized.

One team may be trying to tackle the rental contract Use Case, while others are doing Sports Betting. And within each team there are different sales staff, developers , testers, administrators etc..

Ripple has a singularly large team with multiple offices in locations all over the world. This ensures a concentrated effort towards a goal or multiple goals.

If Adam Smith has anything to say about efficiency of division of labour, he would most likely say Ripple has the most competitive edge here.

2) Productivity

Trade finance is that it is arduous and systematic, the ideal candidate for Automation. However, it requires advance knowledge of each various part of the value chain.

This requires a team who is an expert in each area so they can work systematically. This includes understanding the legal implications of trade finance and could be why R3 released the following paper:

Source: https://elaineou.com/

So now that R3 is no longer on friendly terms, is the Ripple team able to either 1) patch things up with R3 or 2) develop their own technology.

I believe the answer to be yes. This again because of the consortiums on both ends of the equations. The management will act in the best interest of the consortium.

3) Invisible Hand

The invisible hand mean that everyone will act in the interest of themselves, this in turn will benefit the community.

My belief is that Ripple has the economic means to support and attract the best developers and coders in financial terms. This best talent would likely mean the fastest to the use case.

Moat

Warren Buffett discusses when value investing, having a moat. One could call this a competitive advantage.

Does XRP have such a moat? Can such idea work on other platforms with smart contract enabled features such as NEO and ETH? Yes, in theory but banks will unlikely use it.

Charley Cooper, managing director of R3, once quoted that ETH has “issues around privacy controls, scalability, immutability of transactions, and consensus mechanisms for validating transactions”.

If this is true, then the moat will hold true till we see a new contender.

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But What If I Am Wrong?

So say I am completely wrong and this is not the business direction Ripple is headed towards. The downside risk to XRP is still limited.

Fastest Execution

XRP is already used by banks. Not just for the added privacy but for XRP speed of transfer.

Meaning there is use of XRP in its base form, so there is already some value there. Marketing efforts to use XRP have also been ramping up, Ripple offering rebates for financial institutions that are the first in their markets to process and promote commercial payments on RippleNet.

SWIFT, the current payments gateway for banks, is trying to compete with XRP by creating its own Cryptocurrency which may be better than XRP. But it is still in the Proof-Of-Concept phase.

55 Billion in Escrow

In order to reduce uncertainty as well as maintaining ongoing XRP distribution, Ripple has committed to placing 55 billion XRP into a cryptographically-secured escrow.

By securing this, “investors can now mathematically verify the maximum supply of XRP that can enter the market”.

This stability brought about by Ripple themselves means that even though upside is capped, downside is also somewhat capped.

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Summary

Given that XRP is over 70% owned by banks, and some of the consortiums money will be tied up, I doubt the volatility especially to the downside will be taken well by the invested banks.

So what we have is a cryptocurrency with a potentially massive use case, if successful. Even if unsuccessful, the downside is limited. 

Long Ethereum Thesis - (Part 3) Managing Active Trading

This thesis a super long term play and I am thinking of getting involved in this via Brick and Motor mining so this is a big play for me.

On the eToro network, here is how I will be playing this by drawing inspiration from some of the most successful trend followers.

Source:http://turtletrader.com/images/trend-com-big2.jpg

The Value of Ethereum is currently linked to an extremely positive sentiment.

Bubble?

One of my recent readings was titled "Extraordinary Popular Delusions and the Madness of Crowds" and it covered financial bubbles. While I do see Cryptos as potentially being a bubble it does form an interesting topic of conversation in terms of how it is likely to react to an open market situation.

A study by Meb Faber titled "What if (Sir Issac) Newton was a Trendfollower?" shows that even during periods of Bubbles, the use of Trend following strategies provides for a better returns with lower drawdowns than buy-and-hold strategies.

So which trend following strategy is best used?

I don't have a good frame of refence given the short nature of Cryptos but we do know they are an

- upward moving

- unlikely to return to reviously known lows
- possibly fueled by credit in the future

These are characteristics where perhaps the turtles provide the best frame of reference.

Looking forward by looking back

The turtles for those who do not know is a bunch of famous traders who used a leveraged strategy to bring profits back in the day. They had the distinct advantage of having a market somewhat similar to what the Cryptos are.

I believe we can use their framework. Taking from the book "Following the Trend" we will take a modified long only approach as i did notice for instruments such as bonds, it has been unfavourable to trade both long and short due to the single tradrectory. Also modifactions were neccessary due to using CFDs as opposed to Futures contracts, hence the calculation of vol and risk is different.

I will employ a short only on BTC, and only selectively.

• Long entries are only allowed if the 50-day moving average is above the 100-day moving average.

• If today’s closing price is the highest close in the past 50 days, 

• Position sizing is volatility adjusted according to the ATR-based formula. Risk per trade will be 0.5%-1%

• A long position is closed when it has moved three ATR units down from its highest closing price since the position was opened.

Accuracy is expected to be low, around 30-40% but returns if the call is correct will be much larger than risk capital taken.

Long Ethereum Thesis - (Part 2) Bubble or Not

Source: https://pbs.twimg.com/media/CO3fihqUAAA2VMS.jpg

Proof of work vs. Proof of Stake

Proof of work is how transactions get processed on Crypto networks. Ethereum CEO plans on moving away from this to a proof of stake.

I will not go into this in detail but this is one of the reasons why i prefer Ethereum over other cryptos.

Briefly, miners currently use large amounts of computing power to solve problems. Once the problem is solved, they are rewarded.

In the future, Ether will owned by a validator who will use their own Ether to validate transactions. I.e. Individuals who have more access to coinage are more likely to get more fees.

They will then a nominal interest on this. My understanding is it is 2%-15%.

This should encourage a gradual accumulation of coins and a potential bubble could form. If leverage becomes accessible then this will be even more the case.

This creates a fixed income type product. Its nominal value may never diminsh due to the cap in coinage.

Because of this, a reinforcing cylce(ala Sorros) could apply here.

Possible Risks and Exit Theses

Of course, these things may not apply if forces more powerful than us determine that it is not to be.

So here are a few exit points where I will no longer be holding on to the thesis. This lis is of course not exhaustive and I will be constantly be looking out for reasons that I am wrong. 

• Etherum uses proof of work, and price does not seem to be gradually increasing due to the low amount of interest
• Bitcoin sudden adaptation of alt coins in their network
• Hard forks due to global disagreements
• Too much Ethereum in the hands of too few(due to the risk of forks)

Long Ethereum Thesis - (Part 1) Long ETH short BTC?

I have often accused Crypto currencies of being bubble territory. This has not changed, especially for Bitcoin.

As Warren Buffet says about gold, it looks nice but have no real value.

Ray Dalio, one of my absolute heros in trading buys gold because of historical context.

Cryptos do not have any real value or historical context.

So I have been skeptical. Until now.

Source: hhttps://i1.wp.com/coinspondent.de/wrdprss_XXX/wp-content/uploads/2016/10/Bitcoin-vs-Ethereum-1.png?fit=672%2C372&ssl=1

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Bitcoin to me, had a value-add no different from Western Union and to a certain extent Visa and MasterCard.

It was a way to transfer value between parties effectively and at little cost.

These are two industries have significant distprutive value but not a lot.

Bitcoin works as a base means of transferance currency. That is all.

Advantage 1: Smart Contracts

Ethereum has ability to produce smart contracts. The business model allows for contracts and conditional transference.

A common example, is the vending machine. You put in the money, it is irrevocable and it will produce a can of soda in exchange.

The ability to define properties and produce payment is staggering.

There are already applications to gambling, airline insurance and even stock markets.

I can see potential even in the alibaba.com space or trade finance, it is could be a major disruptor.

Disrupting these areas are much more lucrative.

Advantage 2: Decentralized Independent Cryptos

Ethereum has a mover advantage over its competitors.

It has the DAO (Decentralized Autonomus Organization) which allow for other cryptos to form off of the ethereum network.

Dai for instance, another crypto currency based on the value of SDRs (Special Drawing Rights) is on the Ethereum network.

Augur, an online prediction site is being developed utilizes the Ethereum network.

These are coins on their own, but run off the Ethereum blockchain.

Advantage 3: Friendly to users

The Ethereum Virtual Machine (EVM) allows all programming languages to use the network, meaning it is also accesible.

Advantage 4: First mover

In the above 3 advantages, they are the first to move into this and are currently the largest.

Dash, Litecoin, Ripple etc are not as developed in these areas.

With so many projects in the pipline, i do not see other cryptos affecting these advantages.

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Even today as I publish this post, BTC rose 5% while ETH did practically nothing. It is apparent that Bitcoin is still the favoured child amongst Cryptos and is quite possibly in a bubble. However its long term value to me is  questionable.

In Ethereum, there could quite possibly change the world as we know it and they are ahead of the pack. Till this vision is realized I will be long.

Stay tuned for Part 2 & 3 where i go into further depth on my thesis and how I will manage this actively.

2 months later: USDCHF finally paid off

Finally it paid off, well some of it

I took off a majority of my position on Friday at the 0.9760 level due to structural resistance. While it did drop after, I beleive there is more strength to go.

Part 1: CHF Weakness via Central Bank Intervention

I wrote on my wall that I did not think the SNB would like the dollar to be too strong against the dollar and levels for the EURCHF were close to the previous floor that was set by the SNB.

Since then both crosses have seen CHF weakness.

The EUR though, continues to soar. I believe in the long term, this faith is misplaced, but for now, let us leave it as that.

Part 2: USD Strength yet to recover

The reason why I am taking this direction is because a weak US dollar affect practically everyone. As the reserve currency of the world, there are implactions. 

Sentiment is weak for America because of the turmoil in the Whitehouse and I do not expect it to get better, but global implacations will be there. Moving too quickly too fast will cause some problems.

https://static.seekingalpha.com/uploads/2017/2/7/1693591-14865128824778109_origin.png

Oil for instance, involves the US Dollar, the higher the oil price in conjunction with the dollar the more one will make in their home currency.

This does not affect shale oil producers who have their expenses in US dollars and revenue in US dollars. But in a place like Russia where Revenue is in US dollars but expenses are in Rubbles, there is a large effect against the companies.

Now the same senario is terrible for countries who are dependent on oil. Oil prices have already recovered slightly on the back on the weaker US dollar, but this double whammy effect needs to be taken into consideration in the broad global market.


The DXY though has yet to bounce to a level where i am willing to say, "the dollar is going weaker from here". When that happens i will take out my other position. It helps that the USDCHF has a positive carry so i will get paid a small amount per day to keep the position open, this way i can afford to be patient.

Is Winter Coming? Being Wrong vs. Not Yet

I use this euphemism as an example because so many things in my thesis are correct yet last week's comments from Yellen were "dovish" the market rallied and the USD strength fell and the SPX recovered.

SPX

Recap of thesis:

- PE multiples are high

- Earnings are likely to diminish

- Interest rates are heading up, risk premia for equities should be higher hence P/E should fall

For my SPX theory, I had reckon that the market is expensive and should not be so high. Nothing has changed. Yet, the market has continued to head higher.

We have had a threat of a POTUS impeachment, higher interest rates and the a "failed" Trump trade. Yet the stock market has not corrected.

Perhaps this is the ETF market has continued to pushed the market higher. A 2% correction was seen as a buy-the-dip opportunity. Either way, this market still wants to go higher.

If winter comes, it may be August, and this is where most traders are not at their desks and where the most unexpected usually happens, but if nothing happens here I will stop out of the trade.

Perhaps a 2500 mark is a good place to double down for a short correction, but at most I expect a 1.5% - 2% correction unless we see a big market moving reaction.

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USDCHF -

For the CHF the thesis was as follows:

- SNB does not want the CHF to be too strong

- The dollar index should correct somewhat

For the first part it still holds true, both on the USDCHF basis and the EURCHF basis.

While the EUR has strengthened against the CHF it is still below the 1.20 level which was previously the floor for the SNB. There is still some way to go before the SNB is happy again.

The USD may not seem like as big a deal to most as trading between EUR members is more prominent, but the US does make up 21% of exports.

Last week's print in the import export number should be evidence to the need to adjust.

So in view of this the CHF should still weaken. Against the EUR and the USD.

However, the dollar index is falling like a rock.

USD smile theory dictates the dollar should strengthen on global markets being either very weak or very strong. Right now the indices are higher, indicating the market should be strong. Pundits and economic "experts" however, have contradicted this by saying the Trump reflation trade is over, hence the weak dollar.

Both side however, would be supportive of the smile theory with a strong dollar. This has not happened.

Right now the DXY and Dollar index have reversed to levels seen before the Trump trade. A recovery of any type has yet to be seen. If this was any other level, I would say this may never recover but these levels are significant.

USDCHF also has a significant support level at 0.945 or 0.95 level, if it beats this I will exit. But right now I do not see this being a threat.

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The SPX has not worked out for me, in the words of the SNB, I have been "overwhelmed by the market". I am hoping for a slight correction off the 2500 level and i will exit at a loss. Hopefully managing this as best as I can. Unless there an altering news event then this is how the thesis has changed will hold.

The USDCHF is looking good despite the large drawdown, i do fully expect this to recover. I have no reasons to believe it will be otherwise.

My reflections: I just tried auditioning for 2 prop firms (Part 2)

1st Target for eToro: All-Weather

My All-Weather strategy has not been used simply because ETF leverage is very expensive. I did not know this until I tried to make my first trade.

Also more instruments have been added to eToro, I need to incorporate them in. But I need some money to do that research, data isn't always free.

But once this research is done, I am likely to use this exclusively on the eToro network.

2nd Target: Macro

I aim to get back to scratch back to a breakeven year at 0% from there I will look to employ All-Weather exclusively.

Risk vs. Effort return

The reason why I am taking this direction is because i am seeing that traders on the eToro network are looking for good returns, i.e. in the ballpark of 10%+ per year. 

The amount of effort and energy required to allow for consistent performance(like how i was trading for the prop firm) is not scalable on the eToro platform. i.e. i can make 1000% with $500 but not with $500,000. The reasons are varied but generally it is non-scable.

10% though is a lot, especially considering where interest rates are at the moment. Can this be achieved with the all-weather, I believe so, but with some leverage. 

The all-weather i meant to be a fire-and-forget strategy because it concentrates on the long-term cycles. While demographics, politics and other factors may influence its performance, most of it will be noise to the strategy. 

It makes for an interesting almost "one-size-fits-all" strategy because it is easy to understand and requires less effort to manage, allowing me to spend my time earning eToro income on the side. 

eToro: Where does it fit in my mission

For those seeking better returns above 5-10% can find other means of improving their returns, but if it is by copying, it requires a certain amount of effort and luck. This not just on the copiers part but the person being copied.

Element of luck is something that I scorn when looking at finance because this is perciesely why i started on eToro in the first place. It is undeniable, but i would like to avoid that element as much as possible.

I started on this eToro journey to help people who do not understand finance, not help those who are willing to put in the work. Help in a nieve manner but a sincere manner. Right now this is as sincere as its gets.

What is effort

The other route of effort, that is something that can be learnt from various sources but requires work. Something most people won't be able to do, and most will blow out. There is a reason why 95% of traders fail.

Most education providers are scam artist (see: https://www.tradingschools.org/), no matter how much you research you are not going to find reliable reviews because so many are incentised via marketing. Trading schools is really the only one I would trust.

Even then, for the highly rated providers expect return less than 20%.

The myth of riches is something that cannot be removed from the image of traders.

So 10% for a copied fire-and-forget fund is actually pretty good. 

What about my high percentage FX trading setup?

I may move my macro FX trading system is still something i believe in and i can still run it. But i will move it to another platform. This is really for my own personal highly leveraged returns, with small amounts, but eToro strength is in its ease of use and social aspects so i will use it for those purposes.

USD/CHF - Ugly performance, but I am growing

Well, the account number certainly do not say so, I am down for the year quite a bit.

.

I certainly feel like an ugly duckling because of how far down I am this year. But this like all the forays we take in life are into different areas of life, there are ups and downs and we learn from them

Now this is not to say I am not going to be profitable for the year, it certainly is something that I am still aiming for. But changes need to be made.

But today, I feel slightly better about the ugly performance because of an interview on Macro Voices, a podcast mainly targeted at sophisticated investors.

On the podcast, the first guest, Alex Gurevichin the CIO at HonTe Investments made a call on the show, to short CHF against a long USD. The exact same trade I am in, and it is also for the same reasons I am in this trade.

(see transcript here: https://www.macrovoices.com/podcast-transcripts/283-alex-gurevich-zero-evidence-the-secular-bull-market-in-bonds-is-over)

To me this is a sign that I am growing, which is all I can ask for right now

My reflections: Auditioning for 2 professional proprietary trading firms (Part 1)

Sorry all.

I have not been very active over the past 3 months, the reason being I have been trying out for 2 different prop firms and it has consumed most of my time. One with a global mandate (trade any instrument on the platform, very similar to eToro) and the other futures.

I signed non-disclosures so I cannot say exactly what I did, but I can talk about what I learnt from my experiences.

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Games we cannot play: Market timing - A lesson in Oil

I have been an avid supporter of Macro type trading because it is based on principles we can understand. And if we are wrong or when the market has overwhelmed us, we can understand why.

But alas 1H2017 was miserable for me on eToro. So is macro usable by retail traders?

This certainty is something I have taken pride in through my research, but yet I have found timing is always a problem with this type of trading.

An example of this was OIL where I shorted at $46.97, well before the OPEC meeting, it went up to $51 and in between I tried to trade it and got completely wrecked. But was my thesis wrong? Looking at price now, no.

I have learnt over the course of the last few weeks, modern macro traders use options to try and elevate this concern. As retail traders, perhaps an approach could be martingale, it negates the requirement to be correct on completely correct on timing but IF wrong, must exit immediately.

I have been very critical of this method because many eToro traders blow up after using this method but if used correctly, I suddenly find it has its merits.

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Games we cannot: Know your role - Outright futures are difficult to play

One of the firms I was trading for used DOMs or Depth of Market, this shows you the order book and you can take positions based on the order book. This method of trading is highly profitable but at the moment is not available to retail traders.

It is not for our purposes but what I have found is that it is profitable on a daily basis. Scalping profits daily.

It is not accessible by retail traders and even for Gold and Oil provide a very different set of data which if one does not have access to puts one at a huge disadvantage.

Looking at Oil, Gold and even indices, is it even fair for us to try and trade these instruments intraday? Probably not. These instruments we have to stay away from in intraday basis, here I will either do daily or weekly candles only.

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We all lose

Even at the prop funds where I was trailing for. Psychology of losing is so important.

There will be periods of not making money, but it does not mean you are bad, just conditions maybe have changed or some other reason. 

Part 2 coming soon.

Short idea update: The SPX500 rise continues

I was trading interest rates futures yesterday when the FOMC minutes were going to be released.

It was not outside what I expected. June interest rates were on the table and the taper was going to begin. I sold my VXX position knowing I could lose whatever profits I had at the time. 

And the market rallied.

My thesis continues to hold true but has become even more reflexive. Short-term interest rates are going up and consumer spending I expect to decrease means that the US will have to rely on exports. This cannot happen given the policies put in place.

Credit is already high so increasing credit does not seem feasible for growth.

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The conditions that remain for not having a potential rate hike are as follows:

1) Jobs creations - less than 75k

2) Inflation - more than 2% as per CPE data

3) Growth slow - move into recessionary area

4) Disorderly decline of stock market - more than 10%

If not I expect there to be a continuous hike to the 3% area.

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Short-term rates and interest rates are looking to increase yet we are seeing a stock market rally. There is something wrong here.

Growth expectations are still high, in the last budget launched by Trump we see that there is an indefinite projection of 2-3% growth. This could be why markets are rallying, but it is based on demographics is simply a unicorn. 

Last week's drop in the SPX due to "Trump impeachment" was more likely due to funds flow to Europe. I see this from the market shrugging off the news, spreads on the German Bonds, the strength in Euro, and dollar weakness.

Trump impeachment was probably media hype, although extremely serious.

My position is quite down now and I must be more active on the position now. I will be adding a bit more to my SPX position trying to recoup some of the losses and increase profit if there is a large fall in prices.

What about OIL?

Am I going to short oil before OPEC? I am not sure anymore.

I was stopped out at Breakeven after my entry at $46.97. This is not a bad thing given how much price has come back.

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Game Theory

This is probably a good example of game theory(a popular economic principle) in action. Do they try and "burn bridges" with the shale oil producers by making prices cheap but at the expense of depleting assets? Or reach an equilibrium where the benefit is shared between shale and OPEC.

What is also another question is this new piece of data that is found via a deep dive into oil. OPEC can say one thing but do the exact opposite. Production cuts, but export more.

See this link: http://oilprice.com/Latest-Energy-News/World-News/Non-Compliant-Iraq-Now-Claims-OPEC-Deal-Is-To-Cut-Exports.html

 How does that work? If so do cuts even mean anything fundamentally?

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Weakness in demand

Most of the recent oil movement has been due to sentiment, however real demand is dry. Storage capacity has increased and stockpiles are large. Shale producers are getting more productive at a cheaper rate.

Source: https://images.hedgeye.com/media_assets/0065/5293/OPEC_cartoon_04.24.2015.png

According to CFTC data, speculative longs have been significantly unwound. This could mean there has been the correction priced into the market. 

These two points mean that the position is no longer as reflexive as it once was.

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OPEC

The OPEC meeting is on the 25th of May, and cut or not, the announcement itself regardless of outcome will have some impact. Many analysts are expecting the cut to continue or even get larger. 

This may be a case of "buy the news, sell the fact" like what we saw with the second round of the French elections. So this run to the upside could be met by a sudden correction, or alternatively met with a disastrous end if cuts do not happen at the meeting.

But then again if OPEC need not actually do what they say does a cut matter?

Fundamentally I must be a bear on this. Given the amount of increase in storage capacity, inventories and alternatives to oil, there is very little backing oil other than sentiment and speculation.

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Trade management:

As always, 1-2% per macro bet will be taken. Because the backdrop is so soft, I will be short here but it is a matter of timing. 

Going in before the OPEC meeting could have a sentiment shift towards the upside towards $60 a barrel even though fundamentally this is a commodity in trouble. 

Going in after could mean I miss a big move.

My best bet is to watch the price action on the day of OPEC, if price moves to the upside regardless of the news, it means I will need to wait for an entry on the daily chart.

if it moves down immediately after the then I will enter. However, this depends on the sentiment out of the OPEC meeting, so far the general notion has been quite positive.

Actual levels must be determined later as it is still too early to tell. A swing trade type scenario would be ideal but we will have to wait.

We are currently bouncing off the 200SMA which structurally has always been a strong support/resistance.

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3% a month Thesis? - Black Swans are rare in a Fragile Market

I have recently picked up Nassim Taleb's book Anti-Fragile. For copiers & followers, you will know that I am a huge fan of this man.

Black Swans is often where I live. And here instead I am taking the opposite view. Why? Monthly income.

As much as I love macro trading, in terms of frequency, it is not quite enough to live life. In 2016, according to Eurkahedge analytics, global macro style funds only made 3.77% in 2016. YTD 2017 only stands at 1.27%.

This is not a stat which is palatable to the eToro community. But who am I to beat professional managers? The answer lies in market structure and leverage.

If I can play in the space where retail traders mostly fail in a more controlled manner perhaps I can be successful. 

These certain advantages also are available which may be why this thesis should work for my copiers.

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Fundamental Structure:

We are in a fragile market which is not used to shocks. Thus, volatility is generally low across asset classes. The Market Structure have evolved to a point where it does not allow for it. With High-Frequency Trading Algorithms and dark pools means that overbought and oversold conditions are quickly reverted to a mean.

Using eToro being a Level 2 / STP (Straight Through Processing) allows us to take advantage of a great amount of relative liquidity in a low volatility market.

This system is temporal; I do not think it will exist 10 years into the future. It is a temporary arbitrage. It is also only available because I have a small amount of capital, scaling this system up will likely fail.

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The details:

There are three flushes of liquidity in a day, they are during the Asian Open, the European Open and the US open.

If the early part of these sessions produces a breakout, it should retrace to the mean quickly. High-Frequency Traders, Dark Pools and the like will sell (buy) overbought (oversold) conditions using RSI, MACD or MA which are programmable. It should then return to the mean quite quickly.

How can I trade these? Using MACD/RSI/MAs are probably arbitraged away and I probably can't be fast enough to get in. But what is not programmable quite yet? Chart Patterns.

It is difficult to program what a bullish engulfing candle is, but it is not hard to see how such a pattern could equate to a crossover of the MACD histogram. We can take advantage of this till it programmers finds a way to take advantage of these.

During my test, I was able to find a sweet spot at a 10 pip TP level while SL was 15 pips. This had an 80%+ success rate.

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System failure:

The system fails during economic news or sentiment which doesn't allow the market to remain in its low volatility state. So it is key to avoid these timings. This system is not predictive of the news.

It also fails during low volatility periods 2hrs prior to entering the trade. Lower than 19 pips.

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How I test my system:

Painstakingly. I will do a YouTube video to show how I do it.

 picture of my excel test results

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Currency Used:

Only USDJPY due to lower spreads and also high trading volume. This should result in a lower standard deviation from the mean.

I have tried it with GBPUSD, but it has not worked out. For one the high spreads are a concern, the second if the runners tend to be quite frequent due to the European session. The spreads are no fault of eToro I understand this is the service that they offer. So, for now, USDJPY seems to be the most workable on eToro.

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When am I going to start:

I started today, making barely breakeven because I wanted to test the change to my risk score. I will scale accordingly because I rather my risk score remains lower.

If all goes well, I shall start properly tomorrow.

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EURUSD - Angry Rant: Where did I go wrong?

  

But I went from up 3% to losing 1.1%.

so that is a total of +4.1% in total drawdown. Thos accounting for my losing month in April. In realized values though, I lost 1.1%

If this thesis worked out for me, I would be easily up over 10% and risked 1%. 

But where did I go wrong? Where are my learning lessons here?

1) Differentiation between results and sentiment.

The initial upside that I made was due to sentiment pricing. This was good enough to provide a 1:3 risk reward return.

My shock was when the markets reacted positively to the first round results as the potential mispricing was great. If it had happened in the second round, I would be at less of a shock because the outcome is clear.

However, the market acted as if it was done and dusted in the first. This is evidence in the price yesterday because the EURUSD fell even though Macron won.

I could have taken profit but I did not want to due to the potential of the event. This was the source of my mistake. I wanted to lean into profits, but now I find it is not advantageous especially on eToro.

After listening to a political commentator and Ray Dalio himself, I do not think my assessment of the environment was wrong perhaps only in the structure and playing out of this. 

And I need to emphasize this, I understand why Le Pen was "never" going to win, I understand that Macron was the most likely candidate, I am NOT saying that French people are stupid. 

ALL THESE POINTS ARE NOT RELEVANT!! (Angry and frustrated)

The EU must fail in its current form if nothing if done to change the Maastricht Treaty. It is the entire point of credit cycles and it is only a matter of when and which event. 

Given the factors available at the time, if it is at all possible that a dissolution is possible, no matter how small, I will take that bet 100% of the time. 

The entire point is the risk: reward. Macro trading involves more often than not taking a contrarian point of view. 

Whether it is France or Germany or some other EU nation with the same amount of impact. I will take it.

2) Is greed good?

Should I have taken money off the table after the first signs of failure? I was attempting to do what most macro traders do and add positions to winners. 

But this brings me to the next lesson.

   

3) Etoro(and most of the general population) has a preference to stable.

While I believe my 15-20% target, given a recession or 12% if there is none, is not far away and I can get to there given a few good calls, If this black swan event happened, I may have reached it already. 

But it has not and I have lost many of my copiers and more than half of my AUM.

But this does not upset me because like I said, I have been around the investment banking industry and I understand the patience of investors. Studies have shown that this patience extends for only 6 months. This is worse when it is as easy as it is on eToro to copy and exit.

My only problem with the stable income approach is the black swans. This is where I tend to live. I love understanding them, structuring and trading them.

Most traders who revel in the stable income approach avoid these because black swans rarely happens and when it does, the results are catastrophic. Often we risk 10% to return 1%. 

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Quick Lesson in history

Most people have not been around to see bids/offers disappear from the market and rely on stop-loss levels not realizing that when the SP500 crashed in 2008 it was a result in this, the next bid was 10% lower than the current price.

It happens in currencies as well, when the SNB decided to remove the floor of the exchange rate peg, many got wiped out. Including my old broker who went into insolvency, Alpari UK. 

Do not be mistaken, stop loss is a great tool. 

Flash crashes happen this way. They are rare, one every ten thousand or so trading days. 

I spend a lot of time trying to understand the market as much as possible. Now that I do, I can't stand ignorant behavior that I have seen from some traders.

Do they rarely happen? Yes. But that is why they are called "black swan events". But one is enough to wipe your account(more than 25%), please reconsider your methods.

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4) The financial markets is not brick & motor

The financial markets are skewered towards the fat tail. I.e. the probability of you losing 20% in the stock market in a single day is much much higher than winning the same amount. 

  Most people expect a simple income stream.

It is possible, but exploitation of this is using an advantage which may not be constant, ability to go in and out to clear trades.

With this in mind, I have spent a significant amount of last month trying to figure a new system out, I am happy with my sample testing bur I have not written my full thesis yet. I am calling it the "no fees to copiers: An etoro exploitation of "mediocristan". 

Stay Tuned for more.

Oil OPEC Thesis

The market is quite bullish on oil after all oil has fallen very far very fast. From a technical analysis point of view, we can understand why some want to go long.

But looking at Quandl CFTC futures data shows that Money Managers are Long oil but producers are short. Producers being short means that the insiders of the oil industry know something that speculators do not.

Source: https://www.quandl.com/data/CFTC/CL_F_L_ALL-Commitment-of-Traders-Crude-Oil-Light-Sweet-Futures-Only-Legacy-Format-067651

The recent run up to above $50 could have been an artificial propping of the price due to Saudi Aramco increasing the price of oil in order to increase NAV of the bonds. However since their bonds have been recently priced, I suspect it was them that which kept the oil prices high.

All one needs to do is look at the Saudi Balance sheet to understand how dependent the OPEC countries are on the production of oil. I do not think they can keep production low. As the lowest cost producer of oil, there is no reason for them to not crush oil prices and meet their debt obligations.

If this is true, the next OPEC meeting in late May is likely to see production back up. I.E. I think they will not keep supply agreement.

Ideal Expression Bear Put/Call options spread - It will provide limited downside but also limited upside, but due to the high leverage available it might be better. One will have to look at the Theta Value to decide which expression is better.

Getting this entry using eToro is going to hard, but the date for OPEC is set. I went in today because I was initially expecting a bounce of some kind of support level. But two breaks in major supports was seen so there was no point in waiting for a bounce that may never come. So I entered the trade today.

I went in at $47 it is now at $46. My stop loss is breakeven.

GBPUSD: Quick Thesis

USD:

The USD has gotten a wacking from the global markets recently. I believe this is partially due to the funds flowing back into the EU and out of the US.

Hence the mediocre SP500 performance despite generally good earnings.

But the USD has not fundamentally weakened, so I think it will appreciate back to the upside.

  

GBP:

The UK announced the Flash Election despite many claims from PM May that this will not happen. It is an important lesson to understand what level of trust we should place in politicians.

This caused a rally in the pound.

However, does this make much sense? Yes it does, the pound has been undervalued. The positive PMI results, housing prices and inflation are all generally positive. A consolidation of power will allow PM May to negotiate a better Brexit, and the polls are in her favour.

Having said that, this move seems a bit too much too fast.

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Entry:

At the time I entered the position, the EURUSD and other crosses were strengthening but was not affecting the GBPUSD cross much. Hence I saw a potential pullback on the GBPUSD.

2nd Entry:

I was of course slightly wrong, going in at 1.2808. Luckily I only entered half a regular position for my system. This was so as the trading range is unusually tight and so I was not confident on fully committing.

The next logical and pretty strong resistance point is the 1.30 mark, once the price retraces the 10EMA with volume, I will enter the next half of the position with a SL to 1.30.

Levels:

TP 1 - 1.2734

TP 2 - 1.2596

SL - 1.3050

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Considerations:

I have two major concerns with regards to this entry. They are

French Elections:

As people know, I was really intent on trading the French Elections because I thought there was an underpricing for a potential Le Pen win.

I still think so.

But it might affect the GBP. My thought is it should affect the GBP negatively.

France remaining in the EU means the two largest players can negotiate Brexit. Of course, they would like to punish the UK as much as possible to deter any further leaving the EU.

But I will not know how the GBP will react till after the election. I would like to have closer stops to prevent this.

  

Extreme Long Term Bonds:

Treasury secretary Mnuchin announced that they are considering long-term bonds, beyond the current 30-year limit.

If this were to happen I expect the debt to increase in the US. I used to think the US economy was going to be in trouble due to the end of the long-term credit cycle.

This tenure means that the long-term credit cycle is likely to continue.

This is not shocking because Japan is going through this and has been for a while. But it does mean that the long-term view has to change.

I will write more in my SPX500 update.

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Right now, this is not looking in my favour. But I like the idea and I think this move is too much too fast, I suspect it will come down before going back up.

A potential Catalyst is the FOMC meeting later, while i do not think they will raise rates today. It is highly possible. 

French Election Thesis Part 4: Secret Sauce, Agruements against myself & Conclusion

The undecided: Where the underdog could will win

With many voters undecided and i suspect many staying at home for the second round, it then becomes a differential in voter turnout. This is heavily in Le Pen favour.

A motivated unhappy is very powerful, especially if they know voting will help the cause. The previlaged in France will be the "unmotivated". Where there are no reprecusions to not vote, unlike Singapore and Australia, France has no such law/rule.

The last presidential election only 80% participating.

A motivated 40% can beat an unmotivated 60% simply via voter turnout diffentiential. Privileged few are known to be the ones who do not turn up.

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Agruements against my thesis:

I can on the lookout for reasons why my thesis will fail. I have evaluated 3 very solid counteraguments.

So here are my critical responses at to why Le Pen cannot win the second round.

Q: look at her father, he lost badly in the second round

A: Yes her father was hated, and his reputation as the devil caused him to lose a landslide victory in his presidential run.

But if you think Marine Le-Pen kicked her father out of the National Front and did not have her father advising her, you have to be crazy. She cleaned up the image after taking control and i am sure all of it is policitcally motivated. To think otherwise is Naive.

Q: Why would French people want Frexit? They are essentially what Europe stands for

A:  Look at the last 2 referedums in France, 1992 and 2005. Neither were large in margin though both were calling for increased intergration into the EU. They did not then, what about now?

Even if Le Pen wins, she still has to call for a vote, and that may or may not be successful

Q: But look at the media and what they are saying

A: The media and the polls are based around certain assumptions.

Once again look back at the old Referradums, people in Paris were generally in favour of increase intergration. Much like how Trump cannot win San Francisco or New York, there places are consider progressive and pro-establishment.

A city does not speak for the country.

The people who are woefully unhappy are based outside of Paris in the smaller towns.

Q: Her policies are ridiculous and anti-economic

A: Have you seen Melanchon policies? They are absolutely nuts.

But he has surged in the polls. Simply because people are unhappy. They want change. It preceeds logic.

It is why i will increase my risk is Melanchon supports Le Pen in the second round or vice versa.

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Conclusion

This is not a binary event, hence why i have a decision tree based on probable outcomees.

Trading plan around event: EURUSD only

Current position = 2% risked of my total account

If Le Pen gets into the second round = + 0.5% risk

If Macron gets into the second round = +0% risk

if Fillon gets into the second round = + 0.5% risk

if Le Pen and Melenchon fail to make second round = Exit all

if Mélenchon backs Le Pen in the second round = +1%  

if Mélenchon backs another party = reduce risk to 1.0%

Is it right or good for the world? Le Pen, Trump and Brexit proved something. Globalisation benefits the few. Xenophobia is a very real thing. Fear and terrorism certainly is a thing as well.

Globalisation. If you are a Marxist then no, this is a bad thing, if you follow Adam Smith's thinking then no, it is great.

My hope for a better future is that there will be a EU 2.0, one with integrated government and policies instead of stagnant and separate identities. If not the EU cannot compete with China and America. This was the whole point of the single market.

But alas, the greater good sacrificed for temporal gains was never in our nature.

We are traders, we can only oberserve the market, being stressed angry over the world does not help us. Whether we like it or not, the outcome is the same.

We cannot work hard, hustle and expect better trading results, it is why most fail, just pick your battles wisely.

Stay safe everyone!

French Election Thesis Part 3: A real possibility

Although I have had numerous debates about this, including with another trader from France. I fail to see why the market is underpricing this event.

Maybe because of what happened with Trump and Brexit, the market has a short-term memory, or maybe I have an information recency bias.

This is where I fall onto the main principle of which my trading is based. Credit & Business cycles.

It is not a case of right vs. wrong. It is a case of transference of power between the common and the elites.

It does not have its history in something so infant as the financial markets, but it is based on history. As a Christian, I see this pattern so strongly in the book of Judges and even why the split between Catholics and Protestants as linked to this theory.

What does this have to do with the French elections? Well, Hollande, the outgoing president is woefully unpopular. Most french presidents are, but he is the most unpopular president in France in the since the 1960s.

And why? Unemployment at over 10% for a long time, youth unemployment at 23%. Terrorist attacks, numerous. To top it all of the economy is not doing well. He is also labeled as indecisive.

When times are bad, and the common folk is not doing as well as the elites, a transference of power takes place. Between the elite/establishment and the common/anti-establishment.

France is in a bad place and they are with a left winged president. A logical move is to take a step towards the establishment back towards the right. 

This is the crux of my thesis.

Source: http://fm.cnbc.com/applications/cnbc.com/resources/img/editorial/2017/04/18/104409352-3ED3-SB-French-041817.600x400.jpg?v=1492513121

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Fillon: Abuse of power

Fillon is not generally in the conversation because of a certain scandal.

Dubbed the "Penelopegate", the scandal involving Fillon wife and child who were paid for doing nothing.

Nepotism is the pinnacle of the elitist taking advantage of their power.

 One of President Hollande great accomplishments was attempting to tamper with the 35 hour work week. This caused riots.

The French have short hours and they will not take to Nepotism lightly.

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What about the middle?

One step towards Right but not completely Right is centerist Macron. He was the economic adviser to Hollande, so does that really establish that change will be made? Unlikely. He is the status-quo.

Some experts say that this is because he is not left winged. His government will be different. He is not establishment(right winged) either.

Macron was Hollande's former economic minister, one of the very points that make Hollande so unpopular, the economy not doing well, plus the current government has backed this man not scream that this is more of the same.

People who have backed him include the former PM, the environment minister and the junior minister for sports and youth. The cherry on the cake, Hollande himself.

With Hollande being so unpopular, why would the people vote for essentially the same?

This is where the polls and experts simply boggle me, why would people vote for the same? Yet he is ahead in the polls.

He is the HEAVY favorite to win the entire campaign.

My belief is the media has much to play to this. His youthful (let us be frank) good looks, charm and excellent standing at the debates has hyped this man. Interviews with overseas French expats who are against Le Pen would want for a status quo so they can continue their current lives.

Attention is no doubt on this hero as the alternative to the French people from an evil Front National and failed political parties.

But these appeal to the privileged in France. Not to the common man who owns a farm, a woodworking business, a small café in a village.

A free independent centralist who is neither left nor right.

However, it begs the question is it enough to win?

The last referendum which promoted EU integration. Paris was a heavy "yes" with over 70% still the referendum did not pass.

If Trump and Brexit are not lessons on this enough. The Privileged few are not the target here, but is it enough?

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Now towards the right: Communist Crazy Economics

A step more towards the right of the political spectrum makes little sense. But it is what the people want or believe.

Just to be clear if either Melanchon or Le Pen win the election, my thesis will be a success. If either player moves to the second round I will be correct.

While I think Melanchon is playing the social media platform well, with his holograms, YouTube channel and tacky games. His economic policies make so little sense. It only would if one prefers a Marxist style economy.

A reduction from an already uncompetitive 35 hour work week to a 32 hour week with extreme fiscal spending. High tax on the rich, who in my opinion will simply leave the country, these are extreme measures.

While I do not think they will fly, it is possible this is what the people want. He is especially compelling due to the amount of power his party has in the senate and the possibility that he might be able to deliver on his promises.

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The final logical choice: Far Right?

One of the reasons why I think Le Pen is more likely to win is because she taps into anger and frustrated people of France. Nothing is a stronger motivational force. This same power is available to Melancon because of how angry & unhappy the people are.

Talking about terrorism, uncontrolled globalization, xenophobia to a point where jobs are being taken. These are all the issues that Hollande was hated for. 

In having someone like Le Pen, you have a candidate who is directly opposite the current president. If people want change, this is the most direct way of achieving it.

She may not even be

Le Pen's vote towards protectionism is, in my opinion, a step backward in a progressive society, but it can work.

Hence, I would prefer Le Pen to make the second round. But either her or Melenachon supports the view.

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Both are logical choices and certainly have a chance to win, based on my opinions, Le Pen seems the better of the two. 

The last part of my thesis will come out Monday, if Le Pen or Melanchon get in.

Update: Now that the Paris attacks have happened. The liklihood has since increased for Le Pen to win

French Election Thesis Part 2: The End of a Union

I try not to trade events like these because I do not know or pretend to know outcomes.

Yet now, I find myself trading this.

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EU: A Point of collapse

What made me when to trade this was because I believe in the collapse of the EU. It started with rebel economist Prof. Steve Keen who has a great YouTube channel. I was listening to his comments about Brexit and it got me interested.

This was followed up with a trip to the library where I counted: 4 books on why the EU will fail and 1 about the EU as a whole. None on the how it is benefiting the region.

Indeed if the consensus is taken amongst writers and academics, the conclusion is the EU must fail. But like all macro trades, it needs was a timeframe/catalyst to be realized. While not always certain, playing all possible scenarios gives me limited downside with much upside benefit.

Regardless if this call is correct, I will assume the EU will fail if not here, in another condition

Brexit was a blow to the EU, but certainly not the nail-in-the-coffin. Frexit plus Brexit though, this might be good enough.

Source: https://d24g2nq85gnwal.cloudfront.net/images/authors/euro1.png

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French Elections: The Underpriced event

As I mentioned in my previous thesis, most of the attention went to Trump and the US. This, however, meant attention was taken away from the France. I expected fear to come back into the market and bring the EUR down. It did. Until Tuesday.

The snap election announcement made me lose half of my initial profits. But I am still profitable up about 70 pips down from close to 200 pips.

But to me, nothing has changed yet. The USD has weakened somewhat, but looking at the index like the DXY or USDOLLAR index is not really a fair comparison given the weightings it has to the GBP and EUR. The USDJPY has weakened, but somewhat less impacted vis-a-vis the other crosses.

The EUR, on the other hand, seems to be strong, and the equivalent Volatility index is low. Meaning, if I am correct, there are increased long positions in the EUR possibly explaining the EUR rally yesterday.

Quandl latest data is showing they are about square as at last print last week but this week's print will be telling.

It is no surprise that speculators are long, given all the guidance given via the big banks

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Dinosar Event

I said this on my eToro wall, this is a position whereby, the upside is limited because the market is expecting a Macron victory, while the downside is catastrophic because it means the end of the Euro.

So my conclusion if I were to "read tea leaves" if that the market event is underpriced, most ignoring the downside possibility.

This fallacy in the market is not uncommon, this where normal distribution models who are based themselves historical information fail. A 5% chance that a catastrophic event was to happen is simply ignored due to expert consensus and information.

Is the French elections a 5% probability? I think it is closer to 60%.

More on part 3

French Election Thesis Part 1 - UK Flash Election?

So today my SL for my position was grazed. It was yesterday evening as well. It still hovers around this area as I write this article.

For the ease of non-followers of myself here it is:

Entry - 1.0795

Initial SL - 1.0730

I was initially trying to trade smaller positions yesterday on my private account to scalp some pips. I try not to do it because of how depleting trading this way is, and how it takes away from my ability to do objective research/evaluation of my thesis.

It has thus lead to some intense frustration.

I didn't want to write this thesis because of the other things I must do. But the recent price movements has caused me to rethink this. Articulating my words on this blog gives me a better understanding of my views and how to handle the nervous energy that surrounds being wrong.

Source: http://i2.mirror.co.uk/incoming/article8468319.ece/ALTERNATES/s615/JS95412977-1.jpg

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Market Pricing - Reflexivity vs. Efficient Markets

I have talked about this point numerous times, you can either have the opinion that 1) market pricing is correct and all information is correctly priced or 2) that the market is wrong and not all information is priced in.

Most of my copiers and readers know, i adapt the latter.

As of yesterday, I was still confident in my thesis, but as where we sit today, I am no longer so.

So, what has changed? Theresa May has called for a snap election even after saying numerous times publicly that she will not. This threatened the USD and strengthened the EUR somewhat.

But why does this make sense? What do traders see out of it? This is where one of the most intense parts of trading the way I do comes in. Fighting with my beliefs. When I make a statement of having a position I do my best to find reasons to contradict my thesis.

This keeps me honest and allows me to get out if i am wrong on my beliefs.

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Flash elections so what?

Truth be told, I don't see any catalyst that would cause such the reaction we saw yesterday. The EURUSD moved 90 over points upwards in a single day due to Theresa May's announcement of a flash election.

Does the snap election bring stability to Britain or to repeal Brexit? Slim chance of a maybe.

Does the snap election remove any uncertainty from the French Election? No.

What about the hawkish FED? Does it make the FED move dovish? No.

Last night was brutal. No answers for a market reaction with no fundamental backing.

The headline news & twitter simply did not help. Mostly technical analyst puffing up their feathers saying how they were right because of a cloud cover here, or a reverse head and shoulders or technical reaction.

I am not hating on them, but if you do not publish your trades in a public verifiable arena, i 

1) tend to believe that you are not as good as one says she/he is

2) tend not to believe in the style in the long run. Simply because there have not been constant outperformers in this space despite many (AND I MEAN MANY) adopting this style. 

3) Those who get lucky and by pure probability make money over the long run, but most do not consistently profit especially if they are managing large amounts of capital.

So yesterday was probably a market that was waiting for excuse to go higher, a self-reinforcing cycle that simply happened. But it creates a more significant mispricing.

It was not forseeable nor the reaction identifiable

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So now what?

I am tempted to add more to my position simply because my thesis continues to hold true. Even if I am wrong, i won't "lose" more than 1-2% of my account.

Although i have already lost that in terms of where i was at the peak of this trade, and now.

Right now i need to play the probabilities, the French election is still this weekend.

The only event that could cause me to "lose" is a Macron and Fillon 2nd round.

If either La Pen or Melenchon were to make it to the second round, the Frexit is still on the table.

Why am I so adamant about Frexit? Well, I guess I should post this is where part 2 comes in.

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