While the above EURUSD trades are just plain standard, this gold trade today (9/18) is a bit sketchier. I like the underlying premise (described below) but have not had much success in GC binaries so far: Long GC 1139.9 @ 9:16 for 41.5, expiry 09/18 @ 1:30. See image 1 Arrow 1 - Entry - got in a 5 minute pullback, which isn't much on other time frames (and might have screwed me) Arrow 2 - 1:30 - expires OTM - lose 41.5/contract Here's the rationale: 1. Interest rates dropped dramatically on the Fed news the day before - expect that to continue (see image 2 for 10-yr treasuries) - bonds shot up on the 10yr 2. GC and ZN correlate very strongly over the past several years. Like, generally very strongly. This makes sense to me, though the relationship could certainly change in true inflationary environments. Gold correlates inversely with interest rates (and thus positively w/ bond prices) - when rates go up, gold is less attractive: a. People want bonds more than gold, with the higher interest rate offered b. People in disinflation/deflationary environments, like we're currently in, are going to perceive rising rates as actually GOOD for the economy - we want inflation right now (moderated/disinflation) - inflation isn't the concern, deflation and Fed holding low rates (due to a poor economy) is the real concern. Note: This relationship can and probably will change in the years coming as inflation becomes a legitimate fear; as of right now it's not a legitimate fear beyond conspiracy theories. 3. GC and the dollar correlate inversely - See image 4. This is a more iffy relationship right now, but the dollar as stated was tanking, so it's more bias towards long gold. 4. So gold has already been trending up the past several days - it gets a huge catalyst by the Fed - we need to be looking to only get long GC Result: Lost 41.5/spread as the GC move fizzled out. Summary: Not many regrets on this trade, either, though as stated I haven't performed well in Gold trades.
09/17 - USDJPY long - USDJPY is a proxy for the ES, and when they diverge significantly, I tend to bet on their convergence. In this case, the ES was shooting up (image 2) after the Fed announcement and USDJPY was tanking on a weak dollar (but not a strong yen is the idea). 09/17 - Long USDJPY 120.40 @ 14:56, expiry 09/18 @ 7am Bought the binary for 45.5, ended up losing as the ES tanked after-hours (see image 2) and there was just no convergence: 1. See image 1 - Long @ arrow 1 with the strike the horizontal line above @ 120.40 45.5 means I need to be right a little over 50% of the time. 2. See image 2 - ES was rallying very hard while (as you see in image 2) USDJPY was tanking - this is a huge divergence here. The correlation between ES and USDJPY is very strong, see image 3. So I'm betting that: a. ES is strong to flat on the Fed announcement (was wrong) b. USDJPY shoots back up to catch up with the ES up movement (was wrong, but I think mostly because the ES just tanked and USDJPY continued to tank after that movement) Aftermath: Lose 45.5/spread on the trade Summary: This has been an iffy trade: yes USDJPY and ES correlate strongly and when they divergence significantly, they tend to converge. But I'm still new to this trade and it's just been about a break-even trade so far, not exactly sure why lol...
Pre-market ES trade long - as noted in prior posts, given my macro outlook I''m only getting long the ES these days. These have been my most solid trades, I think im 60%+ on ES and I like the idea of focusing on ES longs in the current macro environment. Yes, I'm sure people made a killing getting short in that 3-day 10% drop (like Taleb's fund) but that's not what I focus on. 09/16 - Long ES 1971 @ 8:07, expiry 09/16 @ 4:15 Cost: 46/spread 1. NKD (Japan) and Europe equities are up pretty big during the night - they tend to lead the ES pre-market (see image 2 for NKD) 2. VIX has dropped out pre-market dramatically and IMO isn't showing any signs of reversing back up - as we all know the VIX correlates inversely w/ ES (image 3) 3. Long ES - See arrow 1 for entry in Image 1, horizontal line is the 1971 strike I need to be above @ 4:15. Aftermath: Make 54/spread on the trade after the market closes. As stated, this is just an average trade for me on the ES, been very good w/ the ES. Note: The times I haven't done good on the ES is when it's tanking, and I try to catch the bottoms, justifying that "I can just give a higher Risk-reward to make up for the times that I'm wrong. Which I disagree with, but still sometimes slip up an do anyways. Risk-reward upped naturally means probability will go down to some extent, and I need to stick to trends on whatever time frame I'm trading. Conclusion: Solid trade here, pretty standard
On Correlations: The way I see it, there are two types of movements among highly correlating (positive or negative) assets: 1. Contemporaneous - the most common - assets move in tandem, whether one is up and the other down (for negative) or they both go up at the same time (positive). This is still very useful to see what the different markets are doing in tandem here...it confirms moves. For instance, as discussed 3 posts up, Gold and treasuries currently correlate very positively strong. So if treasuries spike dramatically and gold is spiking dramatically, IMO the move is more likely to be real. Contemporaneous movements can be further broken down: a. Short-term spikes - momentum - usually on news announcements and/or heavy trading b. More stable/long-term trends - by long term I mean for the time frame being looked at. For instance, if both gold and treasuries are grinding up on the 15-minute chart, it makes it more likely that the move is "real" and we're looking to get long more actively in these assets. Another example is VIX and ES - they seem to move in tandem (some would argue the VIX leads though), if the VIX drops out and the ES is grinding up, it's confirmation that we're seeing a sustained upmove in the ES. 2. Leading/lagging movements - When one asset leads another. This has been a main focus on about half my trades over the past few months, admittedly with limited success. An example (shown above) is treasuries spiking up, the dollar tanking, and so assuming gold will follow up in suit based on the asset correlations here. Unfortunately, it's not turning out to be that simple...I've had limited success with trading the USDCAD based on oil's previous movements, and have had limited success with trading Gold based on other asset's prior movements... So if anyone else on here trades asset correlations I could use some input in this regard...
11/30 - Short EURUSD 1.0580 @ 9:51, expiry 11/30 @ 3pm Cost: -51.25/spread (max gain 51.25 on 48.75 risked) 1. Contemporaneous indications show a risk-off mode - ZN rallying, ES tanking after the 9:30 stock opening. ---> I don't short the ES in the current market environment - not an option ---> ZN is rallying hard - deflation/disinflation scenarios mean bonds go up (rates down) in risk off mode ----> See attached ZN and ES charts, (2) below 2. EURUSD is trending down on all time frames - 15m, 1h, 1d - looks like the ideal product to get short in risk off mode. ----> See attached EURUSD images Result: Made 51.25/spread on the short...see Final Image for result (horizontal arrow is the strike price 1.0580) - Pretty standard w/ trend trade - Contemporaneous confirmation of initial entry - i.e. we're in risk off mode and people seem to be in flight to dollars (and out of the Euro)
11/30 - Long ES 2087 @ 12:36, Expiry 11/30 @ 4:15 Cost: 33.25/spread - max gain about $65 (2:1 RR) 1. This contradicts the EURUSD short trade put on earlier in the day (ES is risk on long, EURUSD in this case is risk off short)...but I am bullish on the ES as usual and volatility hasn't been kicking up. 2. VIX is trending down over the last 10-15 days pretty steadily, so I'm partially fading volatility getting long in the dropout on the ES. (See attached VX image) 3. Just kind of figured the ES had dropped out to the regression/pullback point, the dropout wasn't particularly severe, so I took a longer-shot 2:1 risk-reward trade. Result: - Lost 32.5/spread, see final ES image - I like the overall trade, no qualms as the ES has been a good product. I also agree with the 2:1 Risk-reward here to justify the lower probability of the price spiking back up (but if it does, it's likely to rally pretty hard).
12/1 - Long GC 1068.5 @ 10:23, Expiry 12/1 @ 1:30 Cost: 42.5/spread, so about 1.4:1 Risk reward (need to be right about 40-45% of the time) 1. ZN had an absolutely MASSIVE rally - like, massive and fast (see attached image). In the past, GC had been correlating very strongly with ZN to the point where it's a proxy for treasuries. However, that had changed, and I didn't take note of it, see results below. 2. DX meanwhile has a huge tank, so dollar down --> leads gold up 3. GC is showing some strong price action and momentum up after a large move down - see results for a further discussion of this original analysis. Results: Lost 42.5/spread on GC, as it expired under 1068.5 (1) - See GC-ZN image - correlations are all over the place, that old reliable "treasury up, gold up" has broken down. Need to be more adaptive here with correlations and making sure leading correlations are actually going to be leading relationships. In this case, the relationship just isn't there anymore. (2) DX was still solid play - dollar correlating strongly inversely with GC, so no qualms here. (3) I don't really like GC long (with the exception of (1) and (2) above maybe overriding the downward daily trend in GC. I don't like fighting the tide, actually, I like swimming with the tide so this trade was pretty iffy. Summary: It's an okay trade, a very good one if zn had still been correlating strongly with GC, but that's not the case anymore , so I need to adjust to the changing market relationships better.
12/2 - Long ES 2100 strike @ 9:55, Expiry 12/2 @ 4:15 Cost: $49/spread (so a 50/50) 1. ES has been trending up on the hourly at a steady pace, w/ the VIX trending down and the Nikkei up overnight pretty decently (see images) 2. I like the shallow pullback to the regression zone (1 standard dev from the mean move average price), looks like another solid ES setup. Result: Lost $49/spread as Es tanked out. ---> Nothing to do here, this is a standard ES long (only) trade in a pullback in light volatility --> volatility is below 20 and trending down, yield curves are up and consumer discretionary/tech is moving the market up (rather than consumer staples being strong relatively) so just keep getting long on light pullbacks in the ES. --> See final ES image for result.
12/03 - Long EURUSD 1.0870 strike @ 11:02, expiry 12/03 @ 1:00pm Cost: 47.25/spread (need to be right about 50% of the time) 1. Not a macro trade, based solely on the huge spike up on the EURUSD and assuming continued momentum up given that jump. 2. See 5m chart - don't usually trade the 5m chart but when there's huge momentum/very strong trends, I will trade in the trend's direction based on the 5-minute. Result: Made $52/spread ---> Solid, easy trade, though I should have upped the Risk-reward in momentum...usually in momentum I'm looking for 1.5:1+ RR