Updates

Update: 19th February 2016

US inflation was in line with our estimates and was stronger than market expectations. Ideally given the strong employment and growth in the US, this increasing inflation would support the FED increasing rates. However, the market seems to not care about good news. All it wants to do is panic. For the second day in a row, despite excellent fundamental data, risk appetite vanishes and risk aversion takes hold. It makes zero sense and lacks all logic. Despite being correct in forecasting all the data, which should support out trades, the market goes the complete opposite way and there seems to be no method to it. Even the standard correlations are being ignored.

If this persists into next week, will cut all open trades and take a net loss of $10,000 and stay out of the market until some semblance of logic returns, because at the moment there is no benefit in trading in a market that is just full of noise. If people are panicking now, I want to see how they will react when the FED does raise rates a few times this year, which it will….

9 Comments

  1. Thanks for the update! Nice work on the account, despite the difficult circumstances. The last two, three months have been really strange. Fortune will turn eventually 😉

  2. Thanks for the update, and you are right, sometimes the best move is to do no move at all… as Keynes said “Markets can remain irrational longer than you can remain solvent.”

  3. What’s the point of hedging the gold sell position by opening buy positions though? Why not just close some of the sell position instead? Net exposure will be the same and saves you fees.

    1. Very good question.
      1.) You are correct net exposure will be the same: At that point in time. But balance and equity get annihilated if it keeps going against you. By opening a buy, not only did we close multiple profitable positions as it went up and down against us, but we also made sure the account balance and equity stayed the same. This is particularly important over the weekend, as it means we will not wake up to any Nasty shocks on Monday.
      2.) The fees are miniscule compared to closing a position (our positions are $1,000,000) given that I believe gold will return below 1100. I would rather pay $5 dollars and have some extra time, rather than lose $15,000 dollars on a position only to see it turn next week. All the data supports the FED acting this year. Amazing labor employment, better growth than expected and now inflation is showing promise. Had oil not suddenly crashed 10 minutes later, the descent would have continued and we would have likely seen low 1200’s again.
      3.) A good example to the logic would have been our USDJPY positions one week ago that had unrealized losses of 27K. By first turning them neutral to limit draw down and then changing to net positive, we not only reduced these losses, but emerged with a profit from the hedges, effectively turning the situation around. A situation I am sure everyone was more happy with.
      4.) If we find ourselves stuck, we just close all the gold positions and take the same loss (15,000) with the addition of $50 in fees. An amount that does not change the scope or magnitude of the loss but does give us time to managed the situation.
      I feel it the smartest thing to do rather than say right, lets just shut these positions we believe in just because market says NO. Is to stop the damage getting worse, try to minimize the existing damage and then try to emerge with a profit if possible by changing the overall net position to the trend.
      Hope this helps,
      Mohammed

      1. I understand the appeal of the hedge, but from an objective standpoint some of what you say sounds wrong or like rationalizations to me, no offense. You may be right you are protecting the balance, but balance is meningsless in the end. What matters is equity and with the same net exposure, equity will be the same. Why wouldn’t it?

        Every time you open a hedging position worth X you might as well close your original position by an amount worth X. And then every time you close the hedging position, perhaps with profit, the corresponding action for the non-hedging you would be to increase your original position with the same amount. Equity will be exactly the same in both cases (minus the extra fees for the hedger), balance will not.

        The type of hedging you are doing I think is just a matter of convenience, and that can be a good enough reason to hedge. That’s why you might want to hedge 10 stocks with one index future instead of selling all or part of your stocks. Once you feel the market is going your way again you just close the index future and your stock are back in business. You pay a small price for it, but it is convenient. And I think that’s why people hedge gold against gold, as in your case. It is easier to keep the original big position you believe in for the future and just manipulate the exposure with smaller hedging positions. That’s ok by me if it helps in keeping track of things, but at the bottom line, closing a hedge “in profit” just means you changed the net exposure. It doesn’t mean the account earned anything. Equity didn’t change.

        That being said, I appreciate the effort you put into this place and your updates. Keep up the good work!

        (About balance:There are hedging systems like the hour glass system that all aims to increase the balance, like the greenzone ones on HF top ten list. Although I understand the concept, I have yet to see one be profitable).

        1. The idea is to prevent further drawdown in EQUITY until we are sure of the markets direction and THEN to change the positioning so that we are more positive one way or the other. The idea is NOT to keep both the buys and sells open forever. If we did it your way of simply reducing exposure by reducing the values of a position, we would have lost 40% equity on Tuesday last week and everyone here would be flaming me for not taking action when the JPY turned against us. By Balancing it, we initially stopped drawdown in EQUITY, then added more sells when we could see the market was still going against us and within two days closed all the buys and the sells with a net gain in equity of 4% instead of losing 40% a solution that I think was excellent. In short, it kept us safe until a solution was clear to us. Now it may not work like this everytime, but all I care about is that no more equity will be lost due to large moves against us and when the market does have a clear direction we can adjust to take advantage of it. I do not care about the fees at this point. $20 dollars in fees for positions worth $25,000 are not a concern to me. I see they as fees for buying time to consider what action to take next. Yes it is a matter of convenience as I literally have 100 other things going on life. A full time job, a family, a blog to update, lawyers and police to meet thanks to some crooks at certain broker and can not watch this 24/5.

          Thanks for the compliments and thanks for your insights.

          1. There must be some misunderstanding here because we wouldn’t have lost more my way than yours. It would have played out the same way but without hedging. As long as net exposure is the same, it will play out the same.

            When you balanced it by hedging, that is having buy and sell positions that cancelled each other out (if I understand you correctly here when you say balanced, I have not studied your trades in detail) you could have just closed the original position, having no position whatsoever, then opening sells or buys depending on the way you thought it was going short term. It might not always be as convenient but technically it will be the same regarding equity change.

            I feel for you and I don’t want to add to your burden. You do what works best for you.

          2. The key point is that I would not have been around to open those sells at the time. So we would have had no hedge or no sells on usdjpy hence as it kept falling we would have just kept losing and it would have not been possible to recoup. Hence that was the most convenient method. In short had we not done that at the time we would have had 1 million units at buy which would have gone al the way to Sl without the sells which first balanced and cancelled the equity loss and then went into profit we would have totally missed it. When a market is this volatile and you cant watch it 24/7 being away for 4 hours can be a disaster.

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