When you trade through a political storm hold your head up high and don't be afraid of the dark
Please accept my apologies in advance for altering a lyric of "You'll Never Walk Alone" a show tune from the 1945 Rodgers and Hammerstein musical Carousel. In the musical, Nettie Fowler, the cousin of the female protagonist Julie Jordan, sings "You'll Never Walk Alone" to comfort Julie when her husband, Billy Bigelow, the male lead, kills himself in order to avoid capture during a failed robbery. It is repeated in the final scene to encourage a graduation class of which Louise (Billy and Julie's daughter) is a member. Billy watches this ceremony during his return to Earth.
Apparently the song is also sung at association football club grounds around the world, where it is performed by a massed chorus of supporters on match-day. This tradition began in the UK in the early 1960s, apparently by some mid premier league table team in the north west of England that plays their home games in red..
Trading FX over the past few months has been challenging to say the least. Whatever the new normal/status quo was (after the 2008-2009 crisis) many of us would like it back, and quickly. Shortly after the various: tarp rescues, the bailouts, the rounds of QE etc. initiated by the ECB, the Fed and the UK's BoE not only did we experience what could now be considered a significant bear market rally in equities and commodities, but the currency markets were 'stable'. Stable in as much as the massive shocks we've experienced of late were not something we all had to cope with on a regular basis. Yes we had NFP day, interest rate setting policies to contend with, the Swiss central bank occasionally getting all 'weird' on us, but all things considered and in general terms it was the best of recent times.
The devastation of Japan's earthquake and tsunami earlier in the year has been followed by the Eurozone sovereign debt crises, the ratings downgrades of banks and countries, most notably the USA, the raising of the USA's debt ceiling, the Swiss intervention to peg their currency to the euro, the Japanese intervention to peg their currency to just about anything, the bond market gyrations, the debt to GDP ratios of Greece, Italy, Japan..etc..in short we appear to have experienced, or been on the edge of, an event horizon each week since Jan-Feb 2011. As for "safe havens" in these times, forget about it..
Metals have performed well, however, gold, silver and copper have experienced massive coronary moments during recent months. That.."ssshhh..don't tell anyone" safe haven of the Swiss franc has been rumbled, the previously conservative gnomes have been busily printing like Ben Bernanke on Pro-Plus pills to weaken the franc. The real comedy moment came by way of the SNB buying up weaker currencies to make theirs "look bad". Calls to Robert Mugabe were only rumours. The zloty lost its slot, then wise sages were giving the nod in the direction of Krone, fine if you don't mind the fifteen pip spread and to be fair if you're a dedicated position trader why would you? Nope, it's safe to say there's been little in the way of 'safety' available, in fact many hedge fund managers would have produced impressive returns by sitting on their hands as opposed to fighting with the market. Calls to their investors saying they were flat would have been cause for celebration in many investment management circles.
Post the financial crisis trading the main 4/5 pairs was a dream for trend traders, and speaking from personal experience practically every indicator based strategy I 'toyed' with worked well, I even took money out the market with a 'random robot'. No laughing at the back of the class, it was an EA I was working up. I was looking to 'perfect' taking random trades; a set amount of trades a day, on any of the main currency pairs. To be frank Reggie the Random Robot was intended to prove a point; that effective MM and a healthy trading mind were the two Ms that dominated ahead of method. I was proved right. Similarly I took trades on 'hunches', if it looked right and felt right I'd take a euro-dollar trade off the one hour with the minimal of 'rules'; if price hit R1 or S1 I'd take a trade with a R:R of 1:2, the results were the usual 2:1 winners curse that seems to continually stalk me. Hardly a "curse" but you get the point, moving up and past two winners and one loser per three trades belongs in the land of unicorns where you'll uncover the Holy Grail under lumps of overgrown moss protected by the fairies.
So how do you contend with the 'stuff' that's been happening of late, how have you coped? No doubt we've all either; changed, adapted, or ripped up our plan and worked to a new blueprint. What have I done? Well I've simply traded less, much less and altered my parameters, but only very slightly. I avoid putting traders in boxes, but by the accepted terms I'm a swing trader only trading the Eurodollar, occasionally taking the trade if the same set up occurs on EUR/JPY as well as EUR/USD. I take trades 'off' the 2 HR whilst using the 1HR and 3 HR for extra confirmation. Fortunately my edge dictates that I (more times than not) avoid consolidation, so during these turbulent times I've avoided most of the false signals. I've kept my stop strategy the same, the highest high (HH) or lowest low (LL) of the session, or swing point. The only other alteration has been my take profit targets. Were previously I'd have been more adventurous and confident in the trend strength I've aimed for less pips which ironically (or 'probabilistically') has often worked in my favour. So what has this proved? Well other than the fact that the same strategy and overall edge I've employed for circa four years 'works', it also works under any conditions in as much as working can only return the (on average) 2:1 performance ratio mentioned earlier.
I've learned lessons during this period. Perhaps the one major personal lesson has been to simply "keep on doing the doing". What 'works' will mostly accommodate itself to any market conditions. I didn't scramble around for a new strategy, I didn't duck down to trading off the 15min TFs in the vain belief that the violent ranges would return more profit, I simply stuck with what had worked previously. I've found the past few months no more stressful than previous months.
I often take the market temperature of other traders, either by talking on forums or email. Unsurprisingly those who I've considered proficient and profitable have simply walked through the storm, it's been the inexperienced who have suffered badly and wanted to broadcast their suffering at every opportunity. The spikes are not the market, "it's the broker messing with the charts!" Their stops, normally a hair's breath from: pivot, resistance, support, or the 200 ma have "been getting hit by the broker stop hunting, this never happened before.." Whilst plenty of experienced retail traders have admittedly been less profitable this year, if we move past this current series of crises then perhaps a new normal will re-surface. Back to the musical;
"When you walk through the storm hold your head up high and don't be afraid of the dark, at the end of the storm there's a golden sky and the sweet silver song of the lark.."
