How to stop procrastinating with one phrase.

Yesterday I shared what I’ve learnt over the last 7 years of trading.

There’s honestly so much more, but I’m not here to do a biography, partly because Jaegermeister would have caused periods of severe amnesia – it would be rather disjointed.

There was one element that I spoke about yesterday that I’ve been trying to employ for a few years now, with some success, but abject failure in other areas, purely because of willpower & poor time management, but I think I will get there in the end.

‘Practice choosing discomfort.’

I think I mentioned ‘front loading pain’ yesterday in the piece I wrote.

That’s it.

The brain works by finding the most ‘comfortable’ route to completing tasks.

There’s been so many times where I’ve done 2/3 of the easier tasks on a to-do list, felt accomplished, then thought that because I had completed those then the bigger task needn’t be done…

Then the next day comes…

And you repeat…

Until your deadline hits and you’re in a worried and rushed mess.

Do the hard tasks first.

In trading for example, many don’t write down their thoughts on the market at the starts of the week, the key levels etc. It’s almost like pre-planning is ancillary and they can’t be bothered.

Arguably that’s the most important part because when the time comes to deal, you’re prepared and do not second guess yourself.

The feeling you get when you frontload pain is the anticipation of going into a cold shower; so the best way to get used to the feeling is to have a cold shower for a month in the mornings.

Then apply the same feelings from that to everyday tasks.

It really does work.

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7 years of trading: what have I learnt?

Today I learnt two things.

Mixing sweet potato and normal potato is one of the greatest things ever.

And secondly, Heikin Ashi candles are almost a cheat code for how I trade one of my strategies.

I’d never thought to really change my chart configuration from standard candlesticks before.

The furthest I’ve ventured is to use a line chart for simple, unbiased highs and lows.

But Heikin Ashi has given me a totally different perspective that I’m obviously going to have to test with over the next few weeks, but instantly makes sense as to why it would work with my strategy.

But this is just one example of what I have learnt after 7 years (the first two were just pissing about in all reality though, thinking I’d cracked it but being a million miles away multiple times).

You genuinely learn something new everyday when trading…

You know that saying ‘in the long run we’re all dead’?

I want to change it to ‘in the long run we’re all dead comfortable’.

Looking back, I’ve noticed that any short term discomfort has been lessened each time, the longer that I have traded.

I’ve learnt to embrace the discomfort of a loss or taking a position because I understand that the short run is entirely irrelevant to conducive trading.

What’s more important is that this has probably translated into life.

Planning for a few months and years at a time has become enjoyable, and even though there might be hiccups along the way, it smooths out when you have one eye on 6 months, 1 year, 3 years etc.

You learn to adapt; I don’t think I would have developed this resilience without facing millions of other people daily looking to tear me a new one with the click of a few buttons and a horizontal line drawn across their screens.

More practically, trading makes you aware of risk – it’s everywhere and in everything you do. I always think back to my favourite paper ‘Prospect Theory‘ when making a decision based on the future and remember that I’m most probably going to be irrational and so I keep that in mind.

The reason I never sports bet is because the odds aren’t in my favour, firstly because the bookies are just as crooked as market making retail firms, but secondly because I don’t have an edge.

By participating in sports betting, in the long run I won’t make anything. So what’s the point? Sometimes not trying something if you know you’re crap can save you time and energy – especially if you focus on the things you are good at instead.

Having studied economics at university, I can tell you one thing.

90% of it is absolute rubbish and doesn’t apply whatsoever to the real world, how markets move or how people actually act, whether rationally or irrationally.

Econometrics was useful – but having to look at market dynamics everyday and update my fundamental view every few weeks is what taught me real economics.

For example, you note that some fundamental activities bear more weight sometimes than others – then others this will be flipped. See the US Dollar currently weakening even with the base rate increasing.

My economics professors would have told me that the dollar should rally…

I don’t think I’ll be doing this forever, but I am so glad I did because trading is one of the hardest things you can do and it’ll teach you so much about yourself – more than the majority of other ‘jobs’ (or degenerate capitalist addictions – however you want to frame it).

I’d actually recommend everyone to try it just to see how hard it is, and if you want to, I’m more than willing to help you begin, but prepare to be humbled time and time again.

‘Volume in FX is redundant because it’s decentralised.’ Bollocks.

I hear this time and time again.

‘Why would you be analysing volume? It doesn’t matter in FX.’

This is just completely wrong for most cases.

First let’s get some things out of the way – trades volume and tick volume (which we will look at) are two slightly different things.

Traded volume shows actual order size in any given price spread period.

Tick volume shows the amount of different price movements in a given price spread – or how many times price moves up or down.

It’s been noted many times that FX futures traders have been at a disadvantage to spot traders – one is exchange based and you face centralised volumes and the other as explained above isn’t, its over the counter.

When looking over an hourly time-period, with data comparisons of traded volume in futures markets and tick volume from EBS inputted, you can input variables into a Pearson product moment equation to solve R and find a correlation between datasets.

It was found that (on an hourly basis), USDJPY’s tick volume vs traded correlation volume is 0.918, EURUSD 0.936, GBPUSD 0.979 and EURCHF 0.94.

These correlations are pretty high when you consider that for years, people have said that you can’t derive valid conclusions as to volume on the OTC market!

You do have to assume a few things though – you’re not trading via a market maker, and that the correlation can change.

But in the end, I see absolutely no reason as to why you can’t use volume when trading FX, and actually, I think it’s under-utilised.

The elephant in the room that no politician talks about

It puzzles me as to the various conversations surrounding house prices.

Last night on Question Time, structural engineer Roma Agrawal (and the others, so it doesn’t sound like I’m picking on her) mentioned that a solution to the nation’s housing issues is to build more houses.

Build more houses? All I see are houses being built.

The issue purely lies in property speculation and is not an issue of building activity. In fact, we have an oversupply of housing in the UK. In 2014, there were 28 million dwellings in the UK and only 27.7 million households. London’s dwellings increased more than the number of households between 2001 and 2015.

Of course it’s multifactorial, with social housing stock being low and there being a culture of property (land) being the ultimate investment for Brits, but no politician has mentioned the longer term trend.

The Lady of Threadneedle Street.

I’ve banged on about this on Twitter a million times but I want to have something here that expresses my views about this explicitly and more comprehensively than however many characters Twitter allows you to.

Here is the UK house price index.

United Kingdom House Price Index

And here is the UK 10 year bond yield over the same period (read as a proxy for interest rates).

Historical Data Chart

Can we not see a correlation here? Is it just me that’s going crazy or do I not understand something?

It is absolutely insane – when you have low rates, where are you going to put your money? Into investments that are likely to yield more than the base rate. If it’s assumed that the base rate is going to decrease year on year then why would you be partial to simply saving? Why wouldn’t you enter the property market?

Here’s a chart of UK savings from 1952.

United Kingdom Household Saving Ratio

If you draw a line of best fit from 1980 to now, it shows progressively lower highs and lower lows. A trader would call that a downtrend. It makes sense since interest rates have been falling progressively since then. And where has that savings potential gone? Into property at progressively higher prices.

Back to the headline: why do politicians not want to acknowledge this?

Well firstly, it’s a global phenomenon. The same thing has happened across the world where property is seen as a speculative investment rather than an object of utility. If we look at most of Europe, they have an entirely different culture of investment – and especially do not consider housing as being a speculative asset as much as we do.

Here is a chart of Germany’s personal savings ratio.

Germany Personal Savings Ratio

What we can deduce here is that even since they’ve has the Euro and the real base rate has been negative, they still have a savings rate almost double of ours (UK chart is household savings ratio, the German is personal but should average out to be the same).

German homeownership was 51% this year – ours was 63%.

But this is due to Germans actually increasing in homeownership – their rate was 41% in 2004 – the increase most probably caused through ultra low rates and ECB’s penchant for asset purchases post crisis; ours has gone the other way – in 2003, our homeownership rate was almost 71%.

A final chart shows wage growth in the UK.

United Kingdom Average Weekly Earnings Growth

Compare again with house price increases – those who own hard assets end up seeing property price appreciation, charge higher rents which means the capability for firms to pay people decreases. It’s all about slimmer margins. What’s more, those who have a skinny and seemingly stagnant pay packet can’t buy since their outlay is on rent, and property prices keep going up.

Politicians don’t want to speak about this because it would also call into question the independence of the Bank of England.

The Bank’s QE programme is government debt cancelling – private interests love QE. The government loves QE; it cancels their debt after all. When the bank buys a government bond, it effectively pays interest to the Treasury until maturity. Which government doesn’t like that while being able to service the big banks and hand out tax breaks to their mates?

That’s for another day.

The final bit is that they actually probably don’t want to slump into irrelevancy and make it seem like it’s none of their faults – how will they include a huge manifesto push if there is no issue with regards to housing? What an awful situation that would be if everything were fine.

The solution to house price rises is to prevent this speculation; tax the value of land. This would create a society that looks to invest productively rather than sitting on land and seeing it grow just because everyone else and their nan are buying.

At the end of the day though, this is a central bank problem. It has happened again and again. In the 90s, loose Keynesian policy where interest rates didn’t match the credit requirements of the economy, led to margin being taken out to buy these super amazing dot com stocks that ended up being absolute turds. Loose interest rate policy gives rise to that great term irrational exuberance.

Debt based expansions lead to huge mis-allocations of resources in the economy, and Mr Can’t Do, Governor at the Bank of England, has come from Canada and caused the same issues here as he did there.

I still laugh when no politician mentioned the base rate cut in August 2016 but blame the fall in GBP entirely on Brexit as if exchange rate dynamics suddenly flew out of the window.

As Michael Caine said ‘you’re only meant to blow the bloody doors off,’ but the BoE has caused another bubble where the doors, windows, Laura Ashley furniture, dog, cat and roof are going to be blown off or away when we finally unravel this mess.houses

 

 

 

 

The impact of neoliberalism on post-colonial Africa in the 20th century

Ric Yeboah

The decolonisation of Africa in the 1950s and 1960s was seen as the great opportunity for the continent to finally realise its potential independently. Spurred by the sustained demands for self-determination by leading nationalists such as Jomo Kenyatta and Kwame Nkrumah, many countries throughout Africa would take back their sovereignty from their European possessors. For the first time in more than a century, Africans had once again acquired control of their resource-rich continent, and could now build upon their individual liberation movements and fulfil their ambitions to not only compete with, but overtake their former oppressors. However, merely twenty years after independence several African countries encountered severe economic complications. Thus, asAfrica’s principal development partner,the World Bank, alongside its partner organisation theInternational Monetary Fund (IMF)stepped in by supplying loans to cash-strapped African economies throughStructural Adjustment Programmes (SAPs). However,the SAPs – and the programme’s specific…

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The young are voting for Marine Le Pen more than any other age group. Why?

With the election just around the corner, I think it’s time to reflect on the next stage of the populist movement. We’ve had it in the U.K. with the referendum, the US with Trump’s win (God help us), and Italy with the downfall of Renzi.
In the link above I described the rise of populism and why Trump won. That is specific to the US. However now I feel that a more pressing issue for the future of the EU and Eurozone is on the horizon with the French election.

If you have been following my articles recently, you’d know how much I dislike the Eurozone. Have a read of that article before proceeding if you haven’t already.

So with what you’ve just read in mind, let’s take a look at this first point.

Marine Le Pen, the far right National Front leader, has most support from the youth according to polls.


Many after the UK referendum said that the old had decided the future of the UK – this time, the young in France are fuelling the populist movement. The National Front are obviously abhorrent, but this is not the point here. The point is to understand the rise in right wing thinking. And amongst this age group, it’s very easy to discern.


Note the trough between 1998 and 2004. That is the year 2002. Franchise introduced the Euro on Jan 1, 2002. Since then, youth unemployment has increased steadily year on year. 

Youth employment tends to be more low skilled. This means that companies that can produce for a lower cost base elsewhere within the EU will relocate and take advantage of the single market opportunities of free trade and transfer pricing far more easily than age groups where you are more likely to have higher skilled workers. 

Alongside this, having fixed monetary policy across varied economies means that there is no way for countries to remain competitive via exchange rate devaluation. This gives rise to labour market supply shocks, such as the one we are experiencing in the French youth market where demand for this age group is highly elastic.

The problems in France remains structural. Here’s what Moody’s had to say when they downgraded France’s credit status last year.

 “The current economic recovery in France has already proven to be significantly slower — and Moody’s believes that it will remain so — compared with the recoveries observed over the past few decades. In part, this is due to the erosion of competitiveness and loss of growth potential following the global financial crisis. It is becoming increasingly clear, in the rating agency’s view, that these problems will continue to constrain growth long after the cyclical recovery from the crisis is completed. In Moody’s opinion, France’s potential annual growth rate is at most 1.5% over the medium term. France faces material economic challenges, such as a high rate of structural unemployment, relatively weak corporate profit margins, and a loss of global export market share that have their roots in long-standing rigidities in its labour and product markets.”

Moody’s, 2016

I am highly critical of Quantitative Easing’s effects, but I’m not so critical of the ability of a state who can govern its own monetary policy long term. The chart for U.K. youth unemployment is below.


We do not necessarily have a structural unemployment problem since we are able to have the relative (to EZ countries) flexibility to absorb demand and supply shocks caused by downturns. This is why we have recovered pretty quickly post 2008. I know there are certain measures that may muddy these stats such as zero hour contracts and part time work, however this would not cause the huge disparity between the UK’s youth unemployment levels and France’s.

When we talk about populism, we must not disregard certain racist agendas. At the same time, we must maintain an understanding of why thinking changes. Nothing happens ‘just because’; you can always find a root cause.

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Guest Post: David Belle about Risk Management

A guestpost I wrote for this-is-forex.com.

Check Miad’s site out. Great stuff. Link below.

Speculators Trading

Risk management is key to trading. Without risk management, you can have the best strategy in the world, slowly grind down an account due to poor risk management.
There are several key principles that I follow with managing risk & managing a position while in a trade.
Firstly, I do not believe in cutting your winners short when your stop is managed with the correct risk parameters. If you take a quantitative based approach to the markets, where you look at your stats over a good sample size, you should have 100% faith in these stats as long as they are robust (have significance with little error/bias) and the conclusion is a positive expectancy. The second you begin to cut losers short, you are applying human impact to your robotic approach. How do you know that your trade would have hit your stop? By cutting it short you are affecting…

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What is even going on? $SPX $VIX $VVIX


I tweeted this last night – SPX in blue, VIX in red and the VVIX in green.

Price velocity of the SPX has been rising while the VVIX and VIX have been falling over Q4 of 2016.

Here is one suggestion:

You’d have expected the VIX to rise due to an increase in the US base rate, which would cause volatility increases but this hasn’t happened. An introduction of the risk free rate should lead to a flight from higher risk assets to holding cash in an account (technically). This hasn’t happened.

What’s more is that the SKEW hit 6 year highs in January. This is the evaluative measure of tail end risk in out of the money options. Short term hedging ends up costing more, which prices a risk event short term. View the tweet from Chris Lemieux here:

I’m bored of saying that something is coming but it’s best to be aware of a few different events and when there is a feeling of complacency then there could be an issue.