Humble beginnings for a Grandiose Plan

Hello! And welcome...to what I hope shall prove to be, over time, a blog that is both entertaining and profitable to my readers - if I ever gain any.

The aim: Basically, to prove that it is possible to make a living trading on your own account using common multi-asset class internet trading portals. I'm a macro trader and my main asset focus will be FX, with a sprinkling of equity indices and commodities thrown in. Nothing exotic or complicated.

My background: I have been trading on a largely professional basis since 2003 - not a very long career relative to any great trader but long enough to have experienced several traumatic events and made many many mistakes. It's not that I now think I know it all but that I believe the next step in my learning curve is to expose my thinking to the critical public. I am still in a trading seat - if I'd been an instant trading legend or even ridiculously lucky, I would instead be on my (imaginary) speedboat in the Med - maybe that will be the outcome in a year's time.

My method: I will endeavour to explain my thinking as much as possible - and highlight entry, target and approx stop-levels in advance. On the off chance I gain some interest and following, I will not give exact stop levels for a trade but the approximate level - call it trader's paranoia. My overall logic is very macro but I will be focussed on technicals for timing - something that is key on a leveraged account. I would prefer to miss a trade than enter a poor trade. My general rule will be to only enter trades that provide a reward to risk ratio of at least 3 to 1 (though all rules made to be broken). Any web-based trading or spread-betting portal that enables leverage shall suffice (though my advice would be that spread-betting providers give the advantage of being tax-free if you ever achieve the holy grail of being profitable). Let us assume that I have a portfolio size of "x" - 100% of "x" would provide me an enjoyable living for a year, annual returns of 200% of "x" would make me extremely happy (or happier to be correct!) and maybe even provide real outlines to my speedboat. To start with, all trades will risk roughly 2% unless specified - giving me 50 failed shots without a hit before I'm done.

So: The plan was to run this blog in line with the calendar year but circumstances have delayed this opening post - this is no problem however as I would have entered no trades yet anyways wanting to assess the year's opening price-action and await for decent liquidity to return to markets - unfortunately I fear the latter issue may be something I am waiting in vain for so will carry on regardless. The volatility already seen in currency markets in the first few days of 2009 has been scary - in the future, I will provide more facts / statistics to make my point but this post is already long and only just starting. Today will skim over my views without detail.

What will be my opening trades?
Well, the circumstances that delayed the start of my blogging career were good ones - I was skiing in France. Wonderful as that was, I won't dwell on it. As a London-based trader, what I could not help focussing on for the whole trip was how expensive Europe now is for us Londoners. EURGBP has gone too far - end of chat (there are endless anecdotes involving Irish in Northern Ireland and French in the UK - no need to repeat here). Now, this doesn't mean it can't go much further, as the oft-quoted Keynes says: "The market can stay irrational longer than you can stay solvent."
However, the first few days price-action of the New Year seem to imply a bottom is finally in place for GBP - and in fact we have rallied very hard already against the currencies I most want to buy it against. What are these currencies?
Well my GBP-bullishness is longer-term. I know the UK has problems; in fact it has endless problems; but we all know that - they are the most-publicised and hyped and mis-quoted problems in the world (I think). GBP has priced it all in...and more. Everywhere has problems. The UK (like the US - more below) is just ahead of the curve in dealing with these problems since they were unhideably (not a real word I know!) big.
And longer-term, I think EUR is absolutely screwed. I won't get carried away today but I think Trichet has got it horribly wrong - I want to call him an idiot but he's just too damn articulate to allow me to. In the worst case scenario, EUR will break-up (perhaps led by Ireland devaluing / pulling-out / being kicked out). And they are very much behind the curve. So fine, they are not printing cash yet like everyone else and they are maintaining higher rates - but at some point their ostrich-like behaviour will end, and they will suffer (regrettably) for so much longer due to socialist and out-dated labour laws througout Europe. I'm tempted to agree with Milton Friedman that the Euro will not survive its first recession. I'm looking to sell EURGBP around 0.9400 with stop around 0.9700, risking 3 big figs and looking for the pair to eventually absolutely collapse. If it goes through 0.9700, the pair will surely not only retest the highs, but also break parity and I will get better levels to re-enter.
Longer-term, Japan is bankrupt. I know it benefits during deleveraging. And I'm sure there is much more deleveraging to come in the future. But JPY is stupid up here. Japan has terrible demographics, a pension system it can't afford, no resources and is too expensive. I don't like selling it against anything else yet but GBP has taken the pain and most importantly, the all-time low in GBPJPY at 129.35ish (from 1994) has held perfectly. A double-bottom and a strong bounce - I like. Too strong in fact, and I will wait for a move back towards 134ish level before I buy with a stop below that all-time low. Over the next 10 years, GBPJPY is going to 550 at some point! I will be looking to catch most of that move over the coming years and will job it about appropriately. I'm hoping that at some point the Japanese MoF might intervene to protect my downside but no sign so far.
Finally: CHF. Switzerland has always been expensive. But that's not the reason I particularly hate the currency now. CHF is doomed. Of what FX traders call G10 currencies, Switzerland is the most dependant on exports. In a world where global trade is collapsing. And what do they export? Financial services and watches. The former aren't too popular at the moment, and no-one can afford the latter. Ok, so chocolate is recession-proof but that's a bit-part. Not only that, but it is a bit like Iceland in that Switzerland has no hope of bailing out its two main banks if they get in trouble - and I think all banks are in trouble (for a later post). Ok, so it's not quite as bad as Iceland, but relative to FX reserves, there is still a lot of bank leverage and a lot of private-sector debt. At some point, the cows will come home to roost (in this topsy-turvy world). Also, I think the private-wealth arm of Switzerland will take a major beating. I wonder how many more Madoff-like frauds will be uncovered in the year ahead...and Swiss-managed money will have exposure to all of them (even if nothing shall hopefully compare in scale!). GBPCHF is at all time lows. I'm looking to buy around 1.5900 with a stop around 1.5350 - will discuss targets in the future but roughly 15 - 20 big figs higher will do for a start! If it goes through 1.5350, it means new lows will be forged as GBP will surely be going through a further bashing.

What else do I like? USD. Simply put: it is not quantitive easing until it works, i.e. until the velocity of money picks up - and that is still collapsing. And there is much more deleveraging to come and USD remains the world's reserve currency. I love USD for a few months at least! Obama will provide a stupidly big stimulus, everyone will rightly want to be long US stocks against other shorts and money will poor in. Until quantitive easing kicks in - then we'll reassess. But we'll wait til we're sure that deflation has been beaten before jumping on that bandwagon. I'm looking for a small dip in USD to sell EURUSD around 1.3900 level with a stop around 1.4400. And in USDCHF, I'm looking to buy around 1.0750ish with a stop around 1.0350. I think USD will break the 2008 highs against both at some point in the months ahead.

Finally, and hurriedly, as this first post is too mammoth, I'm buying stocks. I'm risking 2% each on the SPX, Dow Jones Index, Nasdaq 100 and FTSE. I do believe that new money being put to work will sustain for a few weeks. I'm looking to buy the March contract in each at roughly 890, 8650, 1215 and 4380 respectively. With stops around 850, 8300, 1150 and 4300 respectively. These stops should provide adequate room to cope with random noise-based volatility. I hope. Levels were largely based on Fib-retracements, trendlines and recent lows - no time for detail now.

And that's it for the first blog. I hope further ones will be shorter and more interesting. Good luck to me - and good luck to you if you ever follow this post in the future. Bring it on!