Welcome…

ScottWelcome to The Capitalist Trader, where I discuss markets money and math, while promoting reason and liberty. I’m Scott, better known around the interwebz as Capitalist, and I’ll be your host.

If this is your first time at The Capitalist Trader, you may want to read about the site and maybe even a little about me and my mission.  Have a question or a comment? Head over to the Contact tab.

I’ve traded several different markets including equities, fixed income, and options since the 1980’s (yep, I’m old).  Since 2004 however, I’ve concentrated on the foreign exchange, or Forex, markets. Many of the trading resources you’ll find on the site relate specifically to Forex.

So come on in, make yourself comfortable and…keep pipping up!

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Another job switch

Greetings!

The trading account showed another small profit, coming in at 0.23% this week. In other news, I’m again changing jobs. The one I’ve had over the past months is too stressful and time consuming, so this change should give me more time and energy to work on the site. Yay!

That’s it for now. Until next week…keep pipping up!

NOTE:  As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

 

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No, really…fade weekly strength

Greetings, and I promise I’m not on crack!

But it may seem that way, as I experience yet another flip-flop on the weekly bar price action research. Initially, I found that fading weekly strength was statistically more profitable. Then, upon reviewing the research, I thought that I had gotten the interpretation backwards, as I reported in this post. However, over the past week, in preparation for writing up the research report, I couldn’t figure out why I had thought that the original conclusion was wrong.

Confusing!

And the silliest part is that most of the confusion stemmed from some color coding I used in MS Excel for the signals and the results. So was I using green vs. red to indicate a bullish or bearish signal bar, or did the color coding indicate the resulting price action of the following weekly bar? Maybe instead of looking at the color of the numbers, I should have been looking at the actual values themselves. Oops. Yeah.

So anyway, upon reviewing the research again (and getting rid of the confusing color coding), I see that my original conclusion was indeed correct. Fading weekly strength, especially in the case of specific price action patterns, is the way to go. Again, this corresponds with much of the research I’ve done in the past, showing a tendency for forex markets to revert to the mean over all time frames.

In other news, the account performance was essentially flat again this week with a tiny profit of 0.1%. Also, I’ve designed the cover for the upcoming research report, and am continuing to work on getting that out.

So I’ll get off the crack while you continue to…keep pipping up!

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

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This I believe…

Greetings!

My trading account performance was pretty flat this week, with a loss of 0.17%.  So it looks like I’ve stemmed the tide of red caused by my research interpretation error. Zippy!

In site news, I’m working on two projects. The first is an $8 Research Report on the statistical research I did on weekly bar patterns, and which price action signals are the most effective from week to week. Secondly, I’ve completed an outline for one of the pages in the new Education tab, in which I’ll lay out my overall approach to trading the Forex markets.

Not to keep everyone in suspense, the argument basically goes like this:

Fundamental analysis works…

…but not right away…

…so price is not value…

…therefore timing is critical.

On the actual page, of course, I’ll flesh out these ideas and include a description of the optimal trade setup. I’ll also show how the trading tools I’ve developed (the Fundamental Potential Index, Tick Density, and the new Price Action Strength Indicator) all fit into the approach.

So I’ll get back to that, and you can…keep pipping up!

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

 

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Stupid trader tricks

Greetings!

For this week’s stupid trader trick, I’ll make a sign error, causing me to completely misinterpret my research by 180 degrees, buy when I should sell, and vice-versa. Yay!

Yeah, so that’s what I’ve been doing for the past two weeks actually. The research I described in this post does NOT indicate that fading end-of-week strength is the way to go. Upon reviewing the research after a second straight weekly loss of 1%, I found that I had introduced a negative sign into one of my MS Excel formulas for no apparent reason. This caused me to get the interpretation backwards.

Mea culpa, mea culpa!

So, in fact, the research actually supports trading in the direction of end-of-week momentum, specifically when certain bar patterns are present. While this doesn’t correspond to the overall “reversion to the mean” tendency that I’ve seen in other research, it does correspond to the conclusions in the Tick Density research report, which also looks only at a week to week time frame.

I’ve corrected this now, and this week’s pending trades are all pointing in the right direction. As of the time of this post, none of my three pending trades have filled, however. So we’ll see how this week goes.

So don’t trade backwards like me, and you’re sure to…keep pipping up!

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

 

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Happy cable flash crash!

Greetings all!

Hmmm, the trading gods must be having a bit of a laugh this week. In last week’s post, I gave an example of how I calculate my equity curve; an example which began with a 1% loss during the first week. So I guess the trading gods thought it would be funny to duplicate that example in real life. Very funny.

So anyway, yes, the account’s nominal equity value (NEV) is down to 99% at the end of the first live week of the new consolidated account. Most of this was due to a long position in a GBP pair being stopped out during the bizarre flash crash of the British Pound.

Happily though, I’ve taken the annoying “under construction” graphic down from the My Trading tab, and the actual equity curve chart is up there now. So go check it out!

Until next time…keep pipping up!

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

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The “My Trading” tab is back!

Greetings all!

Some months ago, I removed the “My Trading” tab from the site because it was just too confusing to look at and too time consuming to maintain. The old version tracked several different FX trading accounts that I was running; one for each strategy. So there was an account for carry trading, another one for pure fundamentally based trading, one for my tick density signals, and so on. Very unwieldy!

So over the past week, I’ve consolidated all of those accounts into one, and am currently developing a consolidated trading plan which incorporates all of my various research-backed trading tools into a single approach. That’s the account I’ll be tracking on the new “My Trading” tab.

I’ll be tracking the performance on a compounded weekly return basis, net of deposits and withdrawals. Huh?  Ok, so here’s what that means.

The account starts at a nominal equity value (NEV) of 100% at the beginning of the first week, which was the week ended 10/1/2016. For each week, the profit is equal to:

Ending Value – Starting Value – Deposits + Withdrawals

Obviously, a negative number is a loss. The return for the week is:

Profit/Starting Value

To get the new NEV, I just multiply the prior week’s ending nominal equity value by:

(100% + Return)

This approach eliminates the confusion caused by using actual dollar amounts and having to constantly adjust for deposits and withdrawals. It shows what a theoretical account would have returned over time without any deposits or withdrawals.

Here’s an example.

Suppose I actually start the account with $1000. The initial NEV is 100%. During the first week, I don’t make any deposits or withdrawals, and the ending value is $990. My profit is:

$990 – $1000 – $0 + $0, or a $10 loss.

The return is -10/1000 = -1%.

The new NEV is 100% x (100% – 1%) = 99%

During the next week, I deposit $100 and the account value at the end of the week is $1080. My actual profit is:

$1080 – $990 – $100 + $0 = -$10 (another $10 loss! boo!) 

The return is -10/990 = -1.01%.

The new NEV is 99% x (100% – 1.01%) = 98%

So even though the actual account value increased by $90, the NEV decreased from 99% to 98%, reflecting the actual trading loss on the initial value for the week. Continuing, let’s say I have a good week, but I have to withdraw more than I made due to unexpected expenses or something. So I withdraw $200, and the account value at the end of the week is $960. The actual trading profit is:

$960 – $1080 – $0 + $200 = $80 (yay me!) 

The return is 80/1080 = 7.41%.

The new NEV is 98% x (100% + 7.41%) = 105.26%

So this time, the actual dollar value of the account went down, but the NEV went from 98% up to 105.26%, reflecting the actual stellar trading performance for the week.

So now, compare this to a theoretical account with no deposits or withdrawals, starting with the same $1000. A 1% loss after the first week would have brought the account to $990. A 1.01% loss in the second week would have brought the account to $980. Finally, a 7.41% return on that $980 in the third week would have brought the account to $1052.62, or 105.26% of its original value of $1000.

As you can see, we come out with the same percentage return over time. The advantage of just tracking percentage returns like this is that we eliminate the confusion of adjusting dollar amounts for deposits and withdrawals (and things like carry interest and dividends as well).

So that’s how the chart on the new “My Trading” tab is constructed. Right now, I’m still in the first week, so there’s no chart up yet. I’ll put it up next week.

So until then…keep pipping up!

 
NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

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Fade end-of-week strength

Greetings all!

Earlier this month, I concluded a research project that involved weekly bar pattern statistics.  I’ll be writing an $8 Research Report on this one soon, but the bottom line was that end-of-week momentum tends to be reversed during the following week.

This corresponds to a general conclusion that I reached from a lot of my earlier FX research; that the FX market has a tendency to revert to the mean over all time scales (as opposed to say, the equity markets which have a long term trending tendency). This makes sense because of the relative value nature of FX, and the fundamental economic pressures that are created when prices move in one direction for too long.

That’s my brief update for this week, so until next time…keep pipping up!

 
NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

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Not in a Turkish prison

Greetings!

No, I’m not in a Turkish prison as a result of my last post…whew! However, I can understand why some may have thought so; I’ve been away from the blog for a while. So here’s an update on what’s been going on for the past several weeks along with my plans for the site.

The pervasive issue is that I never seem to have enough time or money. My two current jobs, while lucrative, take up well over 60 hours/week. Also, about a month ago, I began having severe car problems, so I had to deal with getting rid of my old car and buying a brand new one, incurring a nice new fat monthly car payment. In order to put enough money down, I dumped all of my positions in equities and crypto-currencies. To add insult to injury, even though I’ve barely used my RuneScape account for months (again, due to lack of time), I was suddenly banned for using bots. Huh??

All of this was very annoying and disconcerting, and had two ill effects. First, writing took a back seat. There’s no way for me to come up with a well-researched post each week, much less work on my ebook about fundamental analysis. Secondly, my trading suffered as well. Although my positions were making money, I had to dump them to come up with cash. This sort of thing happens every few years it seems, so I continue to be a very under-capitalized capitalist.

So…what to do?

In an odd coincidence during all this, I happened to be listening to an NPR station in my car one day, and the host had a blogger on as a guest. I don’t remember the show or who the guest was, but the gist was that this blogger had achieved success despite ignoring the common wisdom about posting often and consistently. This person tended to post infrequent yet very content-rich posts. Since that model fits my current circumstances, this was encouraging.

So my first step will be to adopt that approach as well. However, I’ll continue to provide brief weekly updates about my trading results and my progress toward the next major high-content post.

Secondly, I’m putting the ebook on hold for now. Instead, I’ll be adding an “Education” tab to the site where I can publish the information a small piece at a time.

Those two steps address the time problem, but that still leaves money. So I’ll continue my plans to monetize the site via ads and a pay-wall section. Once I get enough subscribers for that content, I’ll be able to cut back on one of my other jobs, leaving more time to provide better content, thus creating a virtuous cycle. At least that’s the theory! We’ll see how it goes.

 
So until next week…keep pipping up!

 
NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

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A failed coup and a lost opportunity

Greetings all!

 

TurkeyAs a former U.S. military officer, I’m generally not in favor of military coups. One of the first things that officer training emphasizes is that the military is subservient to civilian authority. The military is governed; it does not govern.

So for me to come down on the side of a military coup, there’s got to be a very compelling reason. Such a reason exists in Turkey today, and can be summed up in one name; Recep Tayyip Erdogan. As I’ve written in this space before, this guy needs to go.

Let’s look at a very brief historical overview of the Islamic world and Turkey’s place in it.

The religion of Islam started in the early 7th century, in what is now Saudi Arabia. After the death of its founder, Muhammad, the new faith saw a succession of four stewards, known as caliphs. As I understand it, certain Muslims, the Shia, considered the fourth of these, Ali, to be the only legitimate successor to Muhammad, resulting in the Sunni-Shia split. At any rate, the area governed by these four caliphs comprised the Rashidun Caliphate.

In the nearly one and a half millennia since then, the world has seen the rise and fall of several other caliphates. The first of these, the Umayyad Caliphate, extended its power throughout the Middle East, North Africa, and up into Europe. It was only at the decisive battle of Tours in 732 AD that Charles Martel halted its expansion. The Abbasid Caliphate took over the reigns shortly thereafter, and lasted until the early 16th century. Not to be outdone in the field of superstitiously motivated barbarism, the Christian world had a blast launching crusade after crusade during this time. Yay for fights and knights and tights and stuff!!

OttomanThere were some other competing caliphates during all this, but the next big entry onto the stage was the Ottoman Empire in 1517. I don’t know why they named it after a comfy footstool, but there you have it. Anyway, these guys found themselves on the losing side of World War I, and the allies partitioned the empire soon after.

Of course, many Turks were dissatisfied by the allied occupation of their country, and fought a war of independence led by Mustafa Kemal Atatürk. Guess what? They won! So the Republic of Turkey was born in 1923 with Atatürk as its first president. He proceeded to implement a series of reforms which abolished the institution of the caliphate, modernized Turkey, and created a secular democracy based not on religious fundamentalism, but on the rational recognition of individual rights. He was sort of the George Washington of Turkey. Yay for Atatürk!

Since then, Turkey has been mostly awesome. They kind of sat out World War II, but threw in with the Allies in the final year. Then during the cold war, they became a member of NATO, and along with Iran, helped form a southern bulwark against Soviet expansion. There have been problems too of course. Turkey has been at odds with Greece over the island of Cyprus for years. They’ve also got a substantial Kurdish separatist minority which causes internal tensions.

Then, finally, we have the coups.

The Turkish military, since the time of Atatürk, has been one of the most trusted institutions in the country. It sees itself as the guardian of Atatürk’s secular democratic reforms, and whenever the military sees a threat to Turkey’s secular identity or the stability of the country, it will not hesitate to take the reigns of power, albeit temporarily. This has happened in 1960, 1971, and 1980.

Then, in May of 2014, I called shenanigans. I won’t rehash the craziness called Erdogan again in this post, but suffice it to say that this guy seems to fancy himself as a modern day Ottoman emperor. He has increasingly seized more power for himself, created an autocracy in Turkey, and moved the country away from secularism back toward the dark ages of the caliphates. Also, he’s nuts. So a couple of years ago, I predicted that his actions would push Turkey to a breaking point and that there would be chaos someday soon.

NooseWell, it took a couple of years, but I was right. During the past week,we saw yet a fourth attempted coup in Turkey. Unfortunately, it failed. From what little I can gather so far, the attempt was launched by lower level officers, wasn’t coordinated with the rest of the military, and wasn’t well planned. Oh well, better luck next time guys. Except you’ll soon be hanging from a rope. Such are the fruits of failure, so I guess there won’t be a next time…for you.

But for Turkey, I think there will be a next time. Sure, Erdogan will use this incident as an excuse to seize even more power. But ultimately the people and the guardians of Atatürk’s legacy won’t let this stand. Someday, this guy will go, whether voluntarily or not. And then Turkey can get back onto the path of growth, prosperity and peace.

So until then, I’m still holding my Turkish Lira (were you wondering when I’d get around to the currency trading aspect of this?). So keep your eyes open for signs of that next coup, and as always…keep pipping up!

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

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Taking stock…some opportunities in equities

Greetings all!

Since this space is primarily focused on forex trading (when I’m not waxing philosophical), it’s not often that I discuss the more mundane world of the equities markets. But lately I’ve been adding more positions to my Fidelity account, so I thought I’d mention those here. First of all though, let’s dispense with the legal niceties…

Neither this post nor capitalisttrader.com in general recommends any investment. As always, do your own due diligence. The information below is for general informational purposes only, and is not to be construed as a recommendation, offer, or inducement to buy any of the securities mentioned. I may have positions in any or all of the securities mentioned below. In partcular, master limited partnerships (MLP’s) are investments with complex tax consequences. Always check with a qualified tax advisor when considering such investments. Finally, there’s no crying allowed in trading.

Back in this post, I mentioned that I had started a position in an ETF which holds global silver mining companies. I’m still holding that with a tidy profit, and have begun building positions based on a couple of other ideas as well. One cool thing that I just discovered is that Fidelity has added a nice little notepad feature for account holders. This is a place where you can jot down ideas tied to specific symbols or keywords. So that was part of the impetus that drove me to begin building these new positions (which was, I’m sure, the idea all along). So without further ado, on to the investments!

The first opportunity I see is long term growth in the liquified natural gas (LNG) industry. I often wrote about this in my articles for The Motley Fool, and here are some of the main drivers I see:

  • Supplies of LNG via shipping lanes, unlike static gas pipelines, can’t be easily shut off to an entire region like Europe by a bullying aggressor nation (yes, I’m looking at you, Russia).
  • Asian demand for LNG is driven by the lack of pipeline infrastructure, Japan’s move away from nuclear power, and China’s attempts to clean up its smog-bound cities.
  • North America has substantial quantities of natural gas, much of which is just flared off at the wellheads. This is the closest thing I can think of to just burning money. The prices for natural gas overseas, especially in Asia, are much higher than they are in the U.S.
  • The recently completed expansion of the Panama Canal makes it a lot easier to get LNG from the U.S. gulf coast to Asia.

So with all this in mind, I’m beginning to build positions in companies that produce and ship LNG. My two initial purchases were Cheniere Energy Partners (CQP) and Golar LNG Partners (GMLP). The first is building liquefaction facilities on the gulf coast, while Golar operates LNG ships. Also, I’m looking for tax-advantaged high current yield, so I like master limited partnerships (another topic I often wrote about for The Motley Fool). These MLP’s are generally found in the energy production and distribution industry.

Another big long-term opportunity I see is a massive new paradigm in industry brought about by 3-D printing technology. I think this will bring a new wave in the way we live on par with the impact of the internet. I haven’t bought anything here yet, but I’m looking at two companies that I made quite bit of money on a few years ago; 3D Systems (DDD) and Stratasys (SSYS). Not sure what I’ll be doing here yet, but I’m exploring both pure equity holdings as well as some options strategies.

So that’s the update on my recent forays into the equity markets. It’s nice to have some extra income to invest again! Until next time…keep pipping up!

 

NOTE: As always, comments are closed due to WordPress spambots. However, to comment on this or any other post, just go to my Forex Factory journal.

 

 

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