Walk Away from The Shell Game to Play A More Profitable Game!

by Gabriel Grammatidis

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 anyone 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 the 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 for 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:

Do not play the current “shell game” of public equity and fixed income markets – be very cautious, move on!
Protect your net worth wealth by hedging your currency risk with currency positions! (see the article “Hedging Your Unconscious All-In Currency Trade”)
Profit from the increased Macro Volatility that we can expect to see for the coming years! (see the article “Rich Mans Panic”)
Benefit from the many advantages that trading Forex has to offer you! (see the 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 here to review a recent S1 trade (Busted Breakout): This 6-minute video shows, among other things, how to profit from a momentum move for a 4.75R win.

AUDNZD Long (15min chart, 04.08.2015)


B) Swing trade (result: +2.7R):

Signal during the Live trading workshop on S3 (3TMA):

CADCHF Short (60min chart, 14.10.2014)

C) Investment (trade open running: currently at +3.2R):

Signal during the Live trading workshop on S1 (Busted Breakout):

GBPAUD Long (Monthly chart, 14.10.2014)

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