Tharp's Thoughts Weekly Newsletter
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Article: Walk Away from The Shell Game to Play A More Profitable Game! by Gabriel Grammatidis
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Workshops: Tentative Sneak Peek at 2016 First Quarter Events
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Tip: China Devalues Yuan for Second Straight Day – What to Expect? by D.R. Barton, Jr.
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THIS SEPTEMBER IN BERLIN, GERMANY!
FOREX and FOREX LIVE TRADING workshops
with Gabriel Grammatidis
Learn from one of the most skillful minds in Forex Trading! Gabriel Grammatidis specializes in designing trading systems based on chart analysis for the Forex market. He has worked very closely with Van Tharp, over many years, and is a graduate of the Super Trader Program. Gabriel now wants to reveal some of his best trading systems to you! He has a passion in teaching people about Forex trading, and also seeing them grow in many other aspects of their lives as well.
Hear what some of Gabriel's students have to say about his Forex workshop.
LEARN MORE about FOREX and FOREX LIVE
Feature Article
Walk Away from The Shell Game to Play
A More Profitable Game!
by Gabriel Grammatidis
Click here to resolve formatting problems
Bond legend Bill Gross— “Global financial markets are a shell game.”
In a recent CNBC interview (29th July), bond legend Bill Gross (founder and former CIO of global bond-manager PIMCO) has stated that the Global Financial Markets have been a “shell game” for a long time. With the Central Banks around the world trying to manipulate the markets up through Quantitative Easing (QE) and low interest rates, Gross states that the markets are in a vulnerable position - if manipulation stops prices may drop. Bill has long been known for his prudence in speech so this is quite a remarkable statement. He recommends his clients to stop playing this shell game and move on to other games.
He continues that you could, however, move in the “opposite” direction and trade another more profitable game. As an example, instead of being exposed to too much risk (created by the shell game), Gross states that you could diversify out of the USD by owning the Yen or the Mexican Peso for Euro holders. There are always choices and opportunities as any one currency has relative strength/weakness in relation to other ones.
I thought his recommendation, as the “authority on bonds”, to hold foreign currencies to make money was quite interesting. It is a practical one also because Forex positions help mitigate risks as well. If you would like to listen to the interview, click here. Mohamed El-Erian (former CEO of PIMCO and now Chief Economic Adviser at Allianz insurance) joins his former colleague in talking publicly about his concerns regarding the financial markets. Prices have been pushing higher over the past 7 years based on excess liquidity provided by central banks. He states that these measures (having been the main driver of rising asset prices) seem no longer enough to stimulate the equity and fixed income markets. He continues to state that prices are likely to drop and even recommends taking money out of the public markets by moving into cash.
A More Profitable Game
What if you agree with Gross and El-Erian that the equity and bond markets have increasingly become a shell game? You could do as he suggests—trade and/or invest in the Forex market by picking good trending currencies that have relative strength. Alternatively, at least hedge the currency risk in your portfolio or invest in stocks / bonds of a strong currency.
You could even go to the next step to become an active currency trader. As I have stated in past articles, there already are excellent trading opportunities in Foreign Exchange for many years to come. More and more currencies are now moving into nice, steady and consistent trends. This actually reflects the shell game that Gross refers to so equity and bond traders need to remain alert: should government interventions stop, equities and bonds might experience a sharp drop at the same time. Such a crisis would create the ideal market environment for Foreign Exchange with many trade opportunities in all timeframes! (In this case, you could consider trading currencies … see article “Opportunities in the Current Market Environment”).
I was lucky to have personally met both Bill and Mohamed while I worked at PIMCO and Allianz Global Investors and I have great respect of their opinions. Based on their points outlined above and based on my own experience, I have tailored a set of recommendations for readers of Tharp’s Thoughts:
1. Do not play the current “shell game” of public equity and fixed income markets – be very cautious, move on!
2. Protect your net worth wealth by hedging your currency risk with currency positions! (see article “Hedging Your Unconscious All-In Currency Trade”)
3. Profit from the increased Macro Volatility that we can expect to see for the coming years! (see article “Rich Mans Panic”)
4. Benefit from the many advantages that trading Forex has to offer you! (see article “Top 10 reasons to trade Forex”)
A More Profitable Game - Fractal Price Moves
One of my fundamental market beliefs is that markets are fractal and this is fundamental to the trading systems I teach. The reason for this is that they are all based on human psychology – the way market participants think, feel and act. Therefore they work well in all timeframes I have been looking at so far. One could say that the systems are fractal. They offer traders (and me) incredible flexibility and numerous opportunities across multiple timeframes. They also work at any time around the 24 hour clock and provide good trading signals whether you are:
• a short-term scalper (eg 1 or 5min chart)
• a medium-term swing trader (eg 15 or 60min chart)
• a part-time trader (eg 240min or Daily chart) or
• a long-term investor (eg Weekly or Monthly chart).
Trading Signal Examples in various timeframes
Have a look at some of the trading signals traded during the last Live trading workshops or signals called out in prior articles:
A) Scalp trade (result +4.8R):
Click on the video below to review a recent S1 trade (Busted Breakout):
AUDNZD Long (15min chart, 04.08.2015)
This 6 minute video shows, among other things, how to profit from a momentum move for a 4.75R win. Click image below or here to view.
B) Swing trade (result: +2.7R):
Signal during Live trading workshop on S3 (3TMA):
CADCHF Short (60min chart, 14.10.2014)
C) Investment (trade open running: currently at +3.2R):
Signal during Live trading workshop on S1 (Busted Breakout):
GBPAUD Long (Monthly chart, 14.10.2014)
View larger image
Please note: this monthly trade in GBPAUD (long) is still open running (currently +3.2R) and well on its’ way to target at 2.4000. Potential R-result of +4.2R.
Whether you consider yourself a scalper, a swing trader, an investor or some mix of these (as I am), the fractal nature of markets allows you to benefit regardless of your holding timeframe.
Learn to read the psychology of the markets and get proficient in trading a few Forex systems to help you find plentiful profitable trades in the FX market.
Start evolving in your trading expertise before the shell game is over!
Hoping to hear from you.
Good trading,
Gabriel Grammatidis About the Author: Gabriel Grammatidis is a successful full-time trader and graduate of the Super Trader program. He has extensive experience trading Forex and shares his knowledge at his Forex and Live Forex Trading workshops, held regularly at VTI. Gabriel can be reached at gabriel "at" vantharp.com.
Workshops
Combo Discounts available for all back-to-back workshops!
See our workshop page for details.
Trading Tip
China Devalues Yuan for Second Straight Day – What to Expect?
by D. R. Barton, Jr.
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A sea change is happening in global financial markets, so I’m scrapping my original tip idea and presenting some of the most compelling data that I can find about China’s currency devaluation. At the risk of understatement—this is a really big deal.
As you may know, the Chinese government closely controls the value of its currency, setting a daily rate for the yuan versus the dollar. Then, in China’s domestic market, traders are allowed to move the currency 2% up or down for the day. Then the rate is reset the next day, and the government peg may or may not follow the previous day’s trading.
The first devaluation on Monday (Aug 10) evening around 10 p.m. Eastern Daylight Time (EDT) sent the global markets reeling as traders and analysts tried to make sense of the drastic move:
View Larger Image
All during the trading day here in the U.S., the financial world tried to make sense of this next shot in the “currency wars.”
The Really Unexpected
Then tonight (Tuesday evening, U.S. time) as I was finishing a late dinner at my hotel room desk, my screens started lighting up at 9:20 p.m. EDT – China had devalued for a second straight day. You can tell that this was much more troubling to the markets that yesterday’s move by simply looking at the chart:
View Larger Image
This Is Real Shot Across the Global Economy’s Bow
There are two things to keep front-of-mind as this striking action plays out:
- What this says about the fragile state of China’s economy.
- What countries and companies will be immediately and directly affected.
Many analysts, traders and institutions have been doubting China’s too-good-to-be-true growth numbers for some time. This has been especially true about the ever so steady GDP numbers that couldn’t be corroborated by province aggregation or underlying growth drivers like electrical consumption. This drastic currency devaluation speaks volumes about the true nature of the Chinese economy. Reverberations could grow dire quite quickly. This has the potential to be the straw to the proverbial global-economy’s back. If there was a trigger that could finally lead to a 10% correction (or more), this has all the hallmarks.
A quick “tell” will be if countries and companies that benefit from Chinese exports continue to do well, and those that depend on exporting to China continue to be hurt. Partial lists include:
Who benefits from cheaper exports from China:
- Lenovo
- Chinese Engineering Machinery Corp.
- Chinese manufacturers in general (textiles, cars, etc.)
Who gets hurt by more expensive exports to China:
- Raw material exporting countries like Australia
- Asian trading partners like Hong Kong and South Korea
- Mining companies across the commodity spectrum
- Luxury retailers with large Chinese sales like BMW and Apple
In short watch for Australian currency stabilization plus shares of miners like BHP Billiton and Rio Tinto to stabilize in the next couple of trading sessions. If they don’t, deeper trouble is brewing. It’s a good time to check your stops on long term holdings and look for companies like Apple for swing trades on the coming volatility.
Central banks will do what they can to keep this aging bull wheezing forward.
Please let me know your thoughts and opinions on the article. Send your comments to drbarton “at” vantharp.com – I always enjoy hearing from you!
Great Trading,
D. R.
About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured analyst on Fox Business’ Varney & Co. TV show (catch him most Thursdays between 12:30 and 12:45), on Bloomberg Radio Taking Stock and MarketWatch’s Money Life Show. He is also a frequent guest analyst on CNBC’s Closing Bell, WTOP News Radio in Washington, D.C., and has been a guest on China Central Television — America and Canada’s Business News Network. His articles have appeared on SmartMoney.com MarketWatch.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at "vantharp.com".
NEW! Swing Trading Systems E-Learning Course
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This new e-learning course includes Ken Long's Swing Trading Workshop, 5 swing trading systems and a bonus workshop featuring Van Tharp on Tharp Think principles. The course also includes extensive downloadable files to support your learning.
You can complete this course at your own pace, from the comfort of your own home or office, and access the materials as many times as you wish during your 1 year subscription period.
Take a look at this video from Ken to learn more about this course.
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