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.

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.

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.

Doing nothing IS having a position. Always remember that.

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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Creating an environment of easy and affordable debt to boost economic growth has been pursued for many years now and has contributed to many of the misallocations of wealth in the economy. There ha…

Source: The Orchestration of Debt-Based Expansions

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.