Slow Motion Wreck Hits Exchanges - Again

And so we have the new generation of global risk markets, built by default for traders and not investors, with nuances that many will take too long to adjust to. Suffice to say, it will be the prop desks that rape and pillage their way through 2010, and it will be the prop desk that issues a client note on January 1st 2011 that explains the reason why they made more in spread than performance fees, and that average Joe would be so much better off under their wing, because of the treacherous waters that lie beneath the Exchange floors.

Instead of having a 300 point stop loss for a 20 point gain, the answer is to determine the 4-hour trend (90 SMA), look to trade in that direction with regular exposure, or counter-trend with 50% reduced exposure. Look to buy support at main price action points from the previous session, looking to the low of the day initially, and bank two sets of 30% of the position and pull the stop to the entry at target 1, before hitting the high of the previous day. Leave 40% as a runner that can test the previous HOD, and be prepared to close out if it fails to break.

Timing the Trade

Keep an eye on the clock, and ride futures momentum at 2am (Dax), 6-7am (London Fixings), 11am European close, 2.30pm (Nymex close). Outside of those times, forget it, there is no momentum, and forget trading the cash market. Futures-based algorithms are stealing all of the moves ahead of the cash-trading herd. In these conditions there really is no need to look for dividends, which may cycle back into vogue eventually but that will take a while, as the dividend amount is always at risk of being diluted by depreciation in underlying asset via the daily melts that are an integral part of the Exchange days.

The easiest route to longevity is to trade in-line with global risk, and hedge that risk as required, with currency and futures contracts. Buy and Hold is dead; long live Futures Trading. Get in, get banked, get out, and sit by and watch the carnage happen while the analysts go about explaining why you should actually be in the wreck, rather than watching with your futures trades in the bank.

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