Top Currency Trader

Currency Trading ArticlesBill Lipschutz – Views on Risk Control

Although Bill Lipschutz is one of the largest currency traders in the market, he has had his fair share of losses. One of them involved his personal account, in which he lost $250,000, which he had taken five years to build, in a matter of days due to the Granville reversal.
Looking back, while he had had great confidence as a trader, and had strictly followed the trading methods acquired through his time at Salomon Brothers, he became devastated by this single occurrence. He had been disappointed more with the way he traded than with the money that he had lost.
After this experience, Bill decided not trade his personal accounts and investment his money in a money market account ran by the government for increased stability. Also, he began to adopt greater risk control strategies. These would include not placing the entire capital into one single trade, or even trades which are highly correlated. Also, analyze the risk / reward ratio at the current point in time and not at the point when the trade was placed. Most importantly, it is crucial that the trader knows where he is in the market at any one time.
In addition, if a trader faces a losing streak, his judgment may be distorted due to loss of confidence, which is a natural reaction after a major string of losses. In this sense, it would be best that the trader first works to restore his confidence by cutting back on trading sizes before moving in on full swing again.
Bill Lipschutz – Does experience really matter in currency trading?Trading in the world’s largest financial market, Bill Lipschutz has remained relatively unknown. As over US$1 trillion is traded in the currency market each day, Bill is one of the major traders taking positions of billions of dollars each day.
Amazingly though, Bill had not always envisioned himself as a currency trader. A graduate with a degree in architecture from Cornell, Bill had his first experience in trading by investing $12,000 worth of capital inherited from his grandmother. Upon graduation with an MBA in tow, Bill got a job with Salomon Brothers. At the time, he had already been trading stock options on his own, and read as much about it as he could, in addition to watching the daily stock tape.
Without much experience in trading currencies, Bill had been assigned to a new department called Foreign Exchange. As everyone in the department did not have much experience in the area, the entire team went for dinner with international bankers three or four times each week. Simultaneously, Bill was also asked to trade the currency option contracts which had just been introduced by the Philadelphia Stock Exchange.
In Bill’s opinion, he had managed to be a success in all this without much experience simply because he understood that foreign exchange was about relationships. His relationships with various brokers in the market had helped him to establish greater liquidity at times when liquidity was needed. In addition, these relationships had worked well for him in acquiring essential market information.
In foreign exchange, Bill has observed that traders who did well were those who had a source of information and were accepted by the interbank circle. In essence, this information flow provides Bill with an edge needed for success. Essentially, his links with the inner circle provides him with insights and opinions from various major players, and thus provides him with a feel on what the market wants.

Gary Bielfeldt – Advice for the novice currency trader
One of the most remarkable traders, Gary started out with only $1000 as capital at a single corn contract, the smallest contract denomination at the time. Later, through a high risk trade, he doubled his capital when he believed that soybean contracts were going to jump. While this trade had turned out well, Gary could have lost everything too on this trade alone. However, after this success, Gary began to grow his capital consistently throughout the years. Today, Gary is a major player in T-bond futures, the largest futures market in the world.
As for the trader who is just starting out, Gary believes that novices should not take high risks for their initial trades. With their small start-up capital, they risk getting a huge portion of their investments wiped out should they make mistakes that are more likely for novices. Once this happens, they would then have to work real hard to regain their losses.
Therefore, at this stage, novices should be selective on the amount of risks that they are taking and utilize smaller leverage values. With this, they will have possess greater margin for error, do not have to pay a high price for mistakes made which is part of the learning curve, and are able to grow their investment capital at a gradual rate.
Over time, as their trading experience increases and skills improve, they would then be able to exercise better judgment in order to take greater risks on their trades. At the same time, they would also have built a large capital base to leverage on in order to make greater profits.

Bruce Kovner – Traits that distinguish successful traders
Being one of the most successful traders in the world, Bruce Kovner has made profits of over $300 million in 1987 alone. A trader of such caliber would definitely possess traits that would distinguish him from other average traders.
Perhaps his acquaintance with Michael Marcus during his time at Commodities Corporation at also assisted Bruce in developing essential insights into trading attitudes. In particular, Bruce learnt to use discipline in trading as well as to learn from his mistakes.
In this context, Bruce believes that there are two important elements that have helped him become successful. The first element would be his ability to correctly identify and predict upcoming trend changes and future price scenarios. The other element would be his ability to stay rational and disciplined amidst pressure while trading. This would help in making rational and right decisions for his trades.
While he believes that good traders can be trained, he also believes that only a handful would actually make it in this line of business. In fact, those who do make it are usually the ones that are strong, independent and are able to go against the flow. For instance, these traders are the ones who are wiling to go into positions that other traders would not. Combined with their disciplined attitude, they would adhere to the rules and thus trade with the right trade sizes at the right times.
GREED – this is one attribute of traders that Bruce believes have driven many brilliant traders into losses. Through his personal experience, Bruce had met traders who had all the right strategies and picked the right markets. Taking positions that were too large had caused their downfall, although they had initially made profits. This type of traders can make huge profits and huge losses too.

Bill Lipschutz – The subconscious side of trading
“I don’t trade on dreams or rumors. I’m a fundamental trader. I try to assemble facts and decide what kind of scenario I think will unfold.” Bill Lipschutz, Market Wizards
When Bill had a dream about the balance of trade number to be released, and the level of increase that the dollar would incur, he took no action based on his dream. Nevertheless, his dream came to life the next day, with trade numbers that exactly matched his dream and prices that matched the sequence of his dreams. Still, Bill did not take the trade. Why?
This boils down to the fact that Bill has the discipline to follow his basic principle of placing trades only when the fundamentals are favorable. He will always analyze his facts to determine a justification for a trade before placing one. This trait of his is probably one of the reasons why he has been a successful trader.
However, while Bill admits that he had not taken the trade as he didn’t want to trade on the basis of a dream, it can also be debated that his dream could have surfaced from his subconscious mind. The fact that Bill eats and sleeps market statistics, (there are screens everywhere in his home too), he may have picked up the market direction, including trade numbers and price levels subconsciously. All of these information had already been stored in Bill’s mind, these positions which had not been acted on by Bill, were literally trying to surface in the form of a dream.
Nevertheless, Bill was adamant on his stand to only follow fundamental indicators. In fact, this stems from the fact that he believes that trade ideas must be well thought out and well justified before action can be taken. This is why he doesn’t rely on his gut feel at all when making trades, and believes that all other traders shouldn’t either.

Major construction projects awaiting government decision

there is urgency for a heightened pace of construction works flowing to keep at least one economic component pumping hard. With a new Cabinet line-up and by-elections (almost) out-of-the-way, we anticipate a refocus on development priorities. Of the RM7bil first fiscal stimulus unveiled in November, only RM2.4bil worth of projects was awarded as at April 17. Of this, RM350mil has been spent; the balance is still “work-in-progress”. Plans are for a total RM5.2bil worth of projects to be awarded by June, and a full roll-out of RM7bil (38,000 projects) by August.

As for the RM60bil mini-Budget unveiled in March, RM15bil is fiscal allocation (RM10bil development, RM5bil operating), direct from the government’s coffers. Of the RM7bil first fiscal stimulus, we estimate the construction component to be RM4.6bil. The RM60bil mini-Budget offers RM11bil worth of works; the largest being the RM2bil LCCT, KLIA.The 9MP, too, is not forgotten. Of the RM230bil 9MP allocation for development for 2006-2010, only RM119bil has been spent as at end-2008, implying a potential RM111bil spending over 2009-2010 assuming the RM230bil is maintained. For 2009, government’s gross development spending was projected at RM56.7bil (2008: RM42.8bil) before imputing the stimulus allocations.

Including the second fiscal stimulus package, this would reach RM60bil in 2010. We expect a heightened pace of construction tenders and awards from mid-2009. Major projects awaiting decisions are the Pahang-Selangor water transfer and Klang Valley LRT system. The government has clearly no problem in fund raising, without the distraction of a banking crisis, as in 1998. Year-to-date, RM30.5bil worth of MGS-GIS has been issued, out of a total RM95bil estimated for 2009. Of the RM95bil, RM42bil is for refinancing while the balance RM53bil is new financing.

The RM30.5bil issued is already more than half of the official projected budget deficit of RM53.8bil for 2009. This should be sufficient for the immediate roll-out of construction packages. More focus on east Malaysia Higher allocations under the 9MP and second fiscal stimulus, and the new Cabinet line-up imply “urgency” for more infrastructure development in Sabah and Sarawak. Of the RM10bil development allocation under the RM60bil mini-Budget, Sarawak has the highest allocation of RM1.2bil while Sabah’s allocation was the sixth largest.

Sarawak Corridor of Renewable Energy (Score) and Sabah Development Corridor remain very relevant and we expect more construction works in Sabah and Sarawak. We expect more positive news flow benefiting construction by mid-2009, with more mid-sized contracts of less than RM500mil each to lead the momentum for construction.

Top on the list of potential beneficiaries are contractors with long experience, excellent delivery track records and strong balance sheets to carry the weight of a turnkey contractor. Our top picks for contractors of mid-sized projects are WCT and IJM Corp, which we upgraded to “buy” last week.Increasing momentum of works at Sarawak should benefit home-grown contractors like Hock Seng Lee (HSL) and Naim Cendera. We expect HSL, (outstanding order book of RM1.27bil), to record strong earnings growth in 2009 (+>20% year-on-year), while further job wins should sustain earnings into 2010.

We upgrade HSL to a “buy”. We also expect Loh & Loh to gain from water- and energy-related works under Score. WCT and IJM Corp, which have built up good track records, could benefit in Sabah. Gamuda remains known for its construction ability in mega projects – SSP3 in 1999 and SMART in 2002 - and we think Gamuda may play a lead role in the Klang Valley LRT works. However, it is a little early to review our “hold” call on the stock. Our TP is raised after removing a 20% discount to our unchanged RNAV of RM2.50/sh.

Stock Charts Fail Forecast Test in Complete S&P Miss (Update1)

John Bollinger, inventor of the “Bollinger bands” system of predicting stock movements with price charts, says technical analysis works. “I don’t know what people are saying when they say somehow indicators have broken down,” Bollinger, president of Bollinger Capital Management, said in a telephone interview from Manhattan Beach, California. “It’s like somehow saying streetlights don’t work anymore. As long as people obey them, streetlights work.”

Ever since the Standard & Poor’s 500 Index peaked in October 2007, six of eight strategies -- which are supposed to make money whether stocks rise or fall -- failed, according to data compiled by Bloomberg. As the bear market erased $11 trillion from the value of U.S. equities, buy and sell signals from those six technical indicators produced losses of as much as 49 percent, the data show.

“Technical analysis on its own as a discipline does not work,” said Diane Garnick, the New York-based investment strategist at Invesco Ltd., which oversees $348 billion. Using it in isolation is “the fastest way to lose money,” she said. Of the eight strategies, stochastics, Bollinger bands, relative strength, commodity channels, parabolic systems and the Williams %R indicator generated buy and sell signals that resulted in losses between the S&P 500’s peak of 1,565.15 on Oct. 9, 2007, and its March 9 trough, the data show. They did worse as the index then rallied 30 percent.

No Help
The models failed to protect investors last year, when the S&P 500 had its biggest decline since 1937, as price swings reached a record, according to William Stone, chief investment strategist at PNC Financial Services Group Inc.’s wealth management unit, which oversees $96 billion in Philadelphia. The S&P 500 gained 1.3 percent last week. Futures on the index added 0.4 percent as of 1:25 p.m. in Tokyo. Bollinger bands are designed to alert investors when a security rises too high or falls too low by comparing its price to the average level over the past 20 days. If the stock gains or drops enough from the average -- two standard deviations -- a turnaround may be at hand, Bollinger’s system says. Moves of two standard deviations are defined as occurring 5 percent of the time or less in a statistical model.

Financial Stocks
When used to determine when to buy or bet against S&P 500 financial stocks, the technique produced a gain through mid- September of $28,588 on a $100,000 investment, when banks retreated 37 percent, data compiled by Bloomberg show. Profits evaporated in less than a month and turned into a loss of $64,388 as the strategy failed to trigger any sell signals during the rest of the bear market, when banks and brokerages plummeted 72 percent.

John Bollinger says that methodology is too simple and his bands should be used in conjunction with data on trading volume to create “set-ups” and “confirmations” for investment decisions. His fund, which aims to profit in any environment, made money sometimes during the bear market. He declined to comment on specific returns. Stochastics predicts a security’s movement based on how close its price is to the highest or lowest levels. Stochastics would have left anyone who started with $100,000 at the October 2007 peak with $75,881 by March 9, a 24 percent loss, according to data compiled by Bloomberg.

False Buys
The trades were undone by the buy signals, which on eight occasions suggested that the S&P 500 had fallen too far, too fast, based on data compiled by Bloomberg that exclude trading costs and unexpected price fluctuations at the moment of the trade. Stochastics told traders to buy on Oct. 6 last year, three weeks after Lehman Brothers Holdings Inc.’s bankruptcy. The S&P 500 lost 14 percent in the following month.

Burton Malkiel, whose 1973 investment text “A Random Walk Down Wall Street” argued that price movements aren’t predictable, says chart-based investing worsens returns. “People who think they are going to make excess profits with technical analysis are kidding themselves,” Malkiel said in a telephone interview from Princeton, New Jersey. “Most of the people who say this is pretty good have some ax to grind.” Traders shouldn’t use charts without other technical data, and choosing the most appropriate ones can both mitigate losses and produce gains, said Katie Townshend Stockton, chief market technician at Greenwich, Connecticut-based MKM Partners LLC.

Cut Losses
Each of the eight strategies would have cut losses for investors benchmarked to the S&P 500. The directional movement indicator and the moving average convergence/divergence indicator flashed signals that made money even during the worst financial crisis since the Great Depression. Directional movement is a theory developed by J. Welles Wilder in 1978 that measures how far a security moves from an average price range calculated from second to second. The system is designed to gauge who is more eager to trade a security, buyers or sellers. The so-called DMI generated a gain of 24 percent.

The moving average convergence/divergence indicator, which bases trades on the difference between 12- and 26-day moving averages, provided profits of $25,896 from a $100,000 investment. In both strategies, the signals that directed traders to sell and then short the S&P 500 made more money than their buy signals lost. Short sellers typically borrow shares from a brokerage and then sell them on a bet they will be able to repurchase the stock at a lower price.

Value Investors
Returns also exceeded those of many who follow the principles of value investing, the practice popularized by Warren Buffett, the billionaire chairman of Omaha, Nebraska- based Berkshire Hathaway Inc. He searches for the cheapest companies relative to earnings or assets. Buffett told shareholders at Berkshire’s annual meeting on May 2 that “many” U.S. stocks have fallen to levels where they are cheap relative to their intrinsic value. He said the housing market is the biggest drag on the economy and remains “very hard” to forecast.

Bill Miller, whose Legg Mason Value Trust beat the S&P 500 for a record 15 straight years through 2005, produced a loss of 72 percent, including dividends, during the bear market. David Dreman was fired this year by Deutsche Bank AG’s asset management unit after his flagship $2.62 billion DWS Dreman High Return Equity Fund lost 65 percent. Both managers piled into stocks such as Freddie Mac and American International Group Inc., misjudging the severity of the financial meltdown.

‘A Little Misleading’
“It’s a little misleading to be looking at any indicator in a vacuum,” said MKM’s Stockton. “It’s a matter of knowing which ones to combine and knowing what environment you’re in.” None of the technical indicators produced a bigger return than S&P 500’s 30 percent rally from its 12-year low on March 9. Five sent signals that have resulted in losses of between 1.9 percent and 8.3 percent during the eight-week climb, which added $2.29 trillion to the value of U.S. equities, data compiled by Bloomberg show. The Williams %R indicator, which calculates the difference between a security’s closing price and its highest price and then compares the result with its average over 14 days, handed traders who heeded its buy and sell signals an $8,286 loss on $100,000 invested at the trough.

Only one technical indicator, moving average convergence/divergence, made money for investors during both the bear market and the subsequent rebound. “Some of the indicators might work at given times, but that’s not where I put my odds,” said PNC’s Stone, a certified market technician who learned to read charts on the trading floor of Salomon Brothers Inc. in the early 1990s. “You zigged when you should have zagged.”

Ranked Performance of Eight Technical Indicators

Indicator 10/09/2007 - 3/09/2009

• Relative Strength Index -49.0%
• Williams %R -41.7%
• Commodity Channel Index -38.7%
• Parabolic Systems -36.6%
• Bollinger Bands -31.5%
• Stochastics -24.1%
• Directional Movement Indicator +24.0%
• Moving Average Convergence/Divergence +25.9%
• S&P 500 -56.8%

-------- Indicator 3/09/2009 - 5/01/2009

1. Commodity Channel Index -8.3%
2. Williams %R -8.3%
3. Bollinger Bands -6.6%
4. Stochastics -3.3%
5. Directional Movement Indicator -1.9%
6. Moving Average Convergence/Divergence +7.8%
7. Parabolic Systems +8.2%
8. Relative Strength Index +21.8%
9. S&P 500 +29.7%

-------- Indicator 10/09/2007 - 5/01/2009

1. Williams %R -43.1%
2. Commodity Channel Index -40.3%
3. Parabolic Systems -34.3%
4. Relative Strength Index -34.1%
5. Bollinger Bands -22.2%
6. Stochastics -21.8%
7. Directional Movement Indicator +9.0%
8. Moving Average Convergence/Divergence +24.6%
9. S&P 500 -43.9%
   

top 20 Universities in Financial Economics

Top 20 Universities in Financial Economics
1) University of Chicago USA
2) Harvard University USA
3) University of PennsylvaniaUSA
4) New York University (NYU)USA
5) Massachusetts Institute of Technology (MIT)USA
6) Northwestern UniversityUSA
7) Stanford UniversityUSA
8) University of California at Los Angeles (UCLA)USA
9) Columbia UniversityUSA
10) Princeton UniversityUSA
11) Ohio State UniversityUSA
12) London School of Economics (LSE)UK
13) Duke UniversityUSA
14) Université Toulouse I (Sciences Sociales)France
15) University of RochesterUSA
16) University of Southern CaliforniaUSA
17) University of Texas at AustinUSA
18) University of California at San DiegoUSA
19) University of California at BerkeleyUSA
20) Yale U

Top ten Investment book all time

1) The guru Investor: how to beat the market using history’s best investment strategies by John P.Reese

2) The intelligent investor by Benjamin Graham

3) Common stocks and uncommon profits and other writings (Wiley investment classics) by Philip A fisher

4) The neatest little Guide to stock market investing (revised edition) b7y Jason Kelly

5) How I made $2,000,000 In the stock market by Nicholas Darvas

6) What works on Wall Street by james O’Shaughnessy

7) How to make money in Stocks: A winning system in Good times or bad, 3 edition By William O’neil

8) Security Analysis: the Classic 1951 Edition by Benjamin Graham

9) One up on Wall Street: how to use what you already know to make money in the market by Peter Lynch

10) The Warrren buffet Way, second edition by Robert G. Hagstrom

Warren Buffet's Bears Market Maneuver..

In times of economic decline, many investors ask themselves, "What strategies does the Oracle of Omaha employ to keep Berkshire Hathaway on target?" The answer is that the esteemed Warren Buffett, the most successful known investor of all time, rarely changes his long-term value investment strategy and regards down markets as an opportunity to buy good companies at reasonable prices. In this article, we will cover the Buffett investment philosophy and stock-selection criteria with specific emphasis on their application in a down market and a slowing economy.

The Buffett Investment PhilosophyBuffett has a set of definitive assumptions about what constitutes a "good investment". These focus on the quality of the business rather than the short-term or near-future share price or market moves. He takes a long-term, large scale, business value-based investment approach that concentrates on good fundamentals and intrinsic business value, rather than the share price. (For further reading, see Warren Buffett: The Road To Riches and What Is Warren Buffett's Investing Style?)Buffett looks for businesses with "a durable competitive advantage." What he means by this is that the company has a market position, market share, branding or other long-lasting edge over its competitors that either prevents easy access by competitors or controls a scarce raw-material source. (For more insight, see Competitive Advantage Counts, 3 Secrets Of Successful Companies and Economic Moats Keep Competitors At Bay.)Buffett employs a selective contrarian investment strategy: using his investment criteria to identify and select good companies, he can then make large investments (millions of shares) when the market and the share price are depressed and when other investors may be selling.In addition, he assumes the following points to be true:

1) The global economy is complex and unpredictable.
2) The economy and the stock market do not move in sync.
3) The market discount mechanism moves instantly to incorporate news into the share price.
4) The returns of long-term equities cannot be matched anywhere else.

Buffett Investment ActivityBerkshire Hathaway investment industries over the years have included:
a) Insurance
b) Soft drinks
c) Private jet aircraft
d) Chocolates
e) Shoes
f) Jewelry
g) Publishing
h) Furniture
i) Steel
j) Energy
k) Home building

The industries listed above vary widely, so what are the common criteria used to separate the good investments from the bad?Buffett Investment CriteriaBerkshire Hathaway relies on an extensive research-and-analysis team that goes through reams of data to guide their investment decisions. While all the details of the specific techniques used are not made public, the following 10 requirements are all common among Berkshire Hathaway investments:

1) The candidate company has to be in a good and growing economy or industry.
2) It must enjoy a consumer monopoly or have a loyalty-commanding brand.
3) It cannot be vulnerable to competition from anyone with abundant resources.
4) Its earnings have to be on an upward trend with good and consistent profit margins.
5) The company must enjoy a low debt/equity ratio or a high earnings/debt ratio.
6) It must have high and consistent returns on invested capital.
7) The company must have a history of retaining earnings for growth.
8) It cannot have high maintenance costs of operations, high capital expenditure or investment cash flow.
9) The company must demonstrate a history of reinvesting earnings in good business opportunities, and its management needs a good track record of profiting from these investments.
10) The company must be free to adjust prices for inflation.

The Buffett Investment StrategyBuffett makes concentrated purchases. In a downturn, he buys millions of shares of solid businesses at reasonable prices. Buffett does not buy tech shares because he doesn't understand their business or industry; during the dotcom boom, he avoided investing in tech companies because he felt they hadn't been around long enough to provide sufficient performance history for his purposes.And even in a bear market, although Buffett had billions of dollars in cash to make investments, in his 2009 letter to Berkshire Hathaway shareholders, he declared that cash held beyond the bottom would be eroded by inflation in the recovery.Buffett deals only with large companies because he needs to make massive investments to garner the returns required to post excellent results for the huge size to which his company, Berkshire Hathaway, has grown.

Buffett's selective contrarian style in a bear market includes making some large investments in blue chip stocks when their stock price is very low. And Buffett might get an even better deal than the average investor: His ability to supply billions of dollars in cash infusion investments earns him special conditions and opportunities not available to others. His investments often are in a class of secured stock with its dividends assured and future stock warrants available at below-market prices.

ConclusionBuffett's strategy for coping with a down market is to approach it as an opportunity to buy good companies at reasonable prices. Buffett has developed an investment model that has worked for him and the Berkshire Hathaway shareholders over a long period of time. His investment strategy is long term and selective, incorporating a stringent set of requirements prior to an investment decision being made. Buffett also benefits from a huge cash "war chest" that can be used to buy millions of shares at a time, providing an ever-ready opportunity to earn huge returns.

One reason the rich become richer !!!

In a recent piece, Wise Bread notes several reasons why the rich get richer. But they leave one reason out -- one that I've been thinking about for some time now:

"The rich network with other rich people and as a result get opportunities that other's don't have."

Why have I been thinking of this lately? Because I've experienced it firsthand. My wife and I have friends that are pretty well off. They own their own business and make a good income. In addition, they save and invest wisely and hence their fortune continues to grow.

As they invest, they've met more and more people who are also wealthy and that invest in opportunities most of us never get the chance at -- the "ground floor" opportunities. Now these aren't the "ground floor" opportunities that your Uncle Larry used to tout, but are instead investments in real businesses that have the potential to offer an exponential return on the money invested. Sure, they are risky, but if you have enough money, you simply invest in 10 or so hoping that two or three earn you 10 times your money (or more.) Three hold their value and the rest are worthless. Even at these odds, you're doing quite well investing this way.

Since our friends are on the inside among these sorts of investing groups, they've opened up opportunities for us. Now we're not plopping down $50k on ten different investments, but they have opened the door for us to some less risky but still much-better-than-most-people-can-do sorts of investments that are doing quite well for us. And our qualification for being allowed to invest in these opportunities? Simply that we know some rich people who opened the door for us.

So I'd suggest that one reason the rich get richer is that rich people know other rich people and get much more profitable and exclusive investment opportunities as a result. Make sense to you or am I off the deep end on this one?