Schadenfreude
Schadenfreude can be described as deriving pleasure from the misfortune of others. This German word has no real direct comparison or translation in the English language. We could extend this word and it's meaning to trading. As traders we fully accept that, to all intents and purposes, our industry and profession is a 'zero sum game'; for us to win there must be losers. The fit survive the unfit decay..well obviously not in the case of failed banks, they're simply rescued with mega bailouts and the bill 'stiffed' onto us, the untermensch, another German word that has no direct English correlation.
UK pensions have been trashed by circa 12-14% during the recent sell off, no doubt investment schemes have also suffered badly. All other 'normal' investments have been trashed over recent years and this latest main markets' correction will prevent recovery for some time. However, you can be sure that pension fund and investment fund managers will still take their 'mismanagement' fees. They don't go short, they buy and hold, similar to a huge swathe of hedge funds who don't actually hedge they invest and only profit when the markets rise. If you choose to hand over your investment decisions to a third party then during market sell offs you'll be hurt.
The individual trader has no chance of a bailout, or a personal QE programme, our accounts are self governed 'pension pots', only we don't have to hand over 20% fees. In times of market crisis it's therefore crucial that we take (wherever and whenever possible) advantage of this volatility in order to potentially boost our account value. If the global economy does go to 'hell in a handcart' no doubt that handcart will be leased, put into a basket of other handcart leases, bundled up and sold as a handcart subprime security asset, that the Fed then takes as an asset swap when the handcart lease business fails, but that's not our problem singularly, it's collective. Our responsibility as professionals is to see this volatility and crisis as an opportunity to make more money from the forex market. If that means we have more and standard pensioners have less in times of crisis then that's unfortunate, but the pensioner hasn't suffered the cuts and bruises we have in order to become proficient and profitable.
But how can you profit from FX in this kind of market, it's relatively straight forward to see how traders can profit from, for example, treasuries in such times, but FX? Do we have to be more aggressive, up our lot size, see this as a once in a decade/twice in a lifetime opportunity that we'll always regret if we didn't take advantage of it?
Here's the thing, with FX we actually don't have to do a thing, that's right, we don't have to "chase the market and feel the rush". If we had an edge that worked in calmer markets, that has been rigorously back and forward tested, that has positive expectancy and has delivered regular profits over a reasonable length of time, then the probability is that the edge will continue to work, perhaps even more efficiently with certain adjustments, the market will come to us. You could/should adjust your take profit targets in such volatile times, perhaps widen your stop, go up or down a time frame, but essentially if you have developed a working edge, based on those oft mentioned crucial 3Ms, then the increased volatility experienced over the past two weeks, which will undoubtedly re-appear in waves over coming weeks and months, should not corrupt your trading principles. As such you could put forward an argument that Forex is absolutely without question the best security sector to trade during volatile periods.
We're used to change as FX traders, there are very few securities that constantly react to news events or data publication in the way FX pairs do. We are in fact constantly primed for change, our whole trading philosophy is centred on the unexpected, particularly once we've accepted the phenomena that we have no idea or control over what price will do next. Ironically we are perhaps the best equipped traders ready to exploit market volatility because of the very unpredictable sector we choose to trade in.
I've had to develop a technique and edge over recent years that still permits me to trade without compromising my responsibilities as a financial content and features writer. Therefore I swing trade major FX pairs. As part of my overall brief I also refine trading techniques on many time frames from scalping to position trade strategies, some of which, with FXCC's assistance, we'll eventually offer to our customer base. These techniques are 'played out' on EUR/USD, EUR/JPY, GBP/USD and AUS/USD. In terms of correlation and liquidity these pairs provide ample scope for comparison and research, ergo the spreads, the fills and slips are all considered good.
I regularly monitor these techniques (which are indicator, pattern recognition based and taken off key levels) to discover any changes and what (if any) fine tuning and adjustments need to take place to accommodate seismic market events, it's similar to being a lab technician, and monitoring statistical results. Having taken time out this morning to evaluate the various techniques, (ten currently under observation) they've all stood up well to the recent volatility bar the micro adjustments mentioned earlier of; stop, limits, time frames etc.
The win rate is circa 60%, roughly one loser for every two winners which historically is, in the opinion of many experienced traders, an excellent return. Does this 'lab conditions experiment' prove that FX as a trading sector is always tradable, whatever the conditions? Well the untradable CHF over recent weeks has surely scuppered that theory. However, what is fair and reasonable to state is that given our exposure to constant change, our willingness to accept randomness in the market, our ability to adapt, and the constant liquidity of the major FX pairs we're in as good a place as any other traders to make the most of the current conditions. As a consequence, when calmer times inevitably re-appear, as dedicated FX traders we can quickly and readily adapt to profit from the new and different conditions.
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