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TranceAddict Investors Club @ Marketocracy (pg. 182)
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| Capitalizt |
| quote: | Originally posted by Comrade Stalin
If you think the dollar is going to drop in value relative to other currencies, you can short the dollar. Some good currency pairs are to buy if you believe that are...
AUD/USD
NZD/USD
NOK/USD
INR/USD
CAD/USD
Just make sure you use technicals so you buy at the right price. |
I prefer to keep it simple and buy commodity ETFs. My "gut" feeling is telling me this recession will end for the US in the next 12 months. The sheer amount of stimulus being pumped into the economy makes that inevitable. Of course I think the long term consequences are going to be disastrous, but nothing can stop us from having another 5-6 year "boom" period where unemployment drops and prices rise. Once the economy starts recovering, you do not want to be short silver krypt. It's not only a precious metal, but an industrial one as well..used in countless industries. China and India are gobbling it up like mad, and once the rest of the world gets out of their slumps, you can expect demand to continue increasing. There is also a very large paper short position on Comex. I think you should look into that before you consider going short again. A squeeze could happen at any moment.
If you want to go long the dollar, fine..but you can do that with an ETF..rather than playing games with commodities that have fundamentals which can unnecessarily complicate matters.
http://www.invescopowershares.com/p...aspx?ticker=uup |
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| Comrade Stalin |
| quote: | Originally posted by Capitalizt
I prefer to keep it simple and buy commodity ETFs. My "gut" feeling is telling me this recession will end for the US in the next 12 months. The sheer amount of stimulus being pumped into the economy makes that inevitable. Of course I think the long term consequences are going to be disastrous, but nothing can stop us from having another 5-6 year "boom" period where unemployment drops and prices rise. Once the economy starts recovering, you do not want to be short silver krypt. It's not only a precious metal, but an industrial one as well..used in countless industries. China and India are gobbling it up like mad, and once the rest of the world gets out of their slumps, you can expect demand to continue increasing. There is also a very large paper short position on Comex. I think you should look into that before you consider going short again. A squeeze could happen at any moment.
If you want to go long the dollar, fine..but you can do that with an ETF..rather than playing games with commodities that have fundamentals which can unnecessarily complicate matters.
http://www.invescopowershares.com/p...aspx?ticker=uup |
The fun thing is, you can leverage 100:1 on the FOREX, which is good for people like us who have little capital to trade. You can control $100,000 with just $1,000. The profit potential far surpasses any commodity ETF. Commodity futures are another option but are far harder in my opinion to trade than currencies. If only I knew how easy it was to trade currencies, I would have started a long time ago. The risk though is, you can be 100% wiped out, if you don't learn how to trade and limit your risk with stop losses. But at least you can't lose more than 100%. Say your $100,000 loses $1000. The broker liquidates your positions before you lose anymore so that all that is lost is the money you put in and no more. Unlike shorting a stock, which theoretically has unlimited losses. |
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| Capitalizt |
| quote: | Originally posted by Comrade Stalin
The fun thing is, you can leverage 100:1 on the FOREX, which is good for people like us who have little capital to trade. You can control $100,000 with just $1,000. The profit potential far surpasses any commodity ETF. Commodity futures are another option but are far harder in my opinion to trade than currencies. If only I knew how easy it was to trade currencies, I would have started a long time ago. The risk though is, you can be 100% wiped out, if you don't learn how to trade and limit your risk with stop losses. But at least you can't lose more than 100%. Say your $100,000 loses $1000. The broker liquidates your positions before you lose anymore so that all that is lost is the money you put in and no more. Unlike shorting a stock, which theoretically has unlimited losses. |
So you can lose 100% worst case..but what is the best case? How much more volatile on the upside is this method vs getting an ETF? If you somehow control $100k with a $1k investment and it gains 10%, you actually get a $10k profit? Despite the fact that your trade only earned 10%, you get a 1000% return? That sounds too good to be true. |
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| Comrade Stalin |
| quote: | Originally posted by Capitalizt
So you can lose 100% worst case..but what is the best case? How much more volatile on the upside is this method vs getting an ETF? If you somehow control $100k with a $1k investment and it gains 10%, you actually get a $10k profit? Despite the fact that your trade only earned 10%, you get a 1000% return? That sounds too good to be true. |
10% is a HUGE move in the currency markets. A more realistic move would be 2%. Let's look at two scenarios.
PROFIT CASE: Using $1000, you buy $100,000 worth of USD/JPY at $84 expecting the Japanese Yen to fall relative to the US dollar. Your leverage ratio is 100:1. Your thesis proves correct and the Yen falls 2% against the dollar to $85.68. Your profit isn't your original $1000 plus 2% ($20), but really, it's $100,000 plus 2% ($2000). $20 profit x 100 leverage ratio = $2000. That would be a $2000 profit. Yes, that is a 200% profit on just a 2% move. Why? Because you're using leverage of 100:1 that magnifies the characteristically small movements of the FOREX market.
LOSS CASE: Using $1000, you buy $100,000 worth of USD/JPY at $84 expecting the Japanese Yen to fall relative to the US dollar. Your leverage ratio is 100:1. Your thesis proves wrong and the Yen rises 2% against the dollar to $82.32. Your loss isn't your original $1000 minus 2% (-$20), but really, it's $100,000 minus 2% (-$2000). -$20 loss x 100 leverage ratio = -$2000. That would be a $2000 loss. But, the broker automatically closes out your position once the loss reaches the amount of your initial investment ($1000). So you wouldn't be losing $2000 on your $1000 and thus owing $1000 to the broker. You would just lose your $1000. So, that's a 100% loss.
Keep in mind that when you trade currencies you must limit your risk so that you never ever lose 100%. Here is how I do it.
1) Never risk more than 2% of your capital on any one position. You have $10,000 to trade currencies with. That means you will never buy or sell more than 2% ($200) on any one position. This means that no position should control more than $20,000 ($200 x 100 leverage ratio).
2) Set your maximum acceptable loss before-hand and enter stop loss orders on every position based on this number. In our $10,000 portfolio, I decide that I do no want to lose more than $100 on any one position. We have to use a little math to decide our stop loss price because our positions are leveraged. The formulas I use is for this particular $10,000 portfolio with 2% position allocations...
STOP LOSS PRICE OF LONG POSITION = (PRICE X 19900) / 20000
STOP LOSS PRICE OF SHORT POSITION = (PRICE X 20100) / 20000
Basically, the 19900 comes from the value of the position, which is $20000 minus our maximum loss which is $100. $20000 - $100 = $19900. The $20100 is just the opposite. $20000 + $100 = $20100. So, using our theoretical USD/JPY trade, we calculate our stop loss...
LONG POSITION ON USD/JPY STOP LOSS PRICE = (84 x 19900) / 20000 = $83.58
So to avoid losing $100 on this trade, we set our stop loss at $83.58, which is just a .5% move down. Very small right? But of course, because of leverage, any move is magnified by 100x.
It's not too good to be true! You can certainly lose it all (-100%). But if you limit your losses and maximize your gains, it's one of the best markets to trade for us little guys. It would be too good to be true if I told you that is was risk-free, but again, you can lose all of your capital if you don't know what you're doing. But if you follow a strategy and stick to it, you'll limit your losses and maximize gains. |
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| IL Duce |
| your capitalist ways have made you soft comrade, i shall prevail over your army with my pointy shoes. |
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| Capitalizt |
| Sounds interesting krypt.. I like the idea of big gains and limited losses with your method, but with such tight stops it seems impossible to let your ideas play themselves out. If you are setting stop losses at .5% below your buy price, that kind of move could happen in a split second without any fundamental reason.. One big buy or sell from a large institution could knock you out of the position, even if the long term trend is where you expected it to go. If it works, it works..and I hope you make $$ on it..but it seems too stressful and gambling-ish for me. ;) |
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| Comrade Stalin |
| quote: | Originally posted by Capitalizt
Sounds interesting krypt.. I like the idea of big gains and limited losses with your method, but with such tight stops it seems impossible to let your ideas play themselves out. If you are setting stop losses at .5% below your buy price, that kind of move could happen in a split second without any fundamental reason.. |
Remember, that because of leverage, small movements are magnified. 2% becomes 200%. So 0.5% becomes 50%. I put in $200 and lose $100. That's a 50% loss! That's why you only risk 2% of your capital on any one trade. The stop losses must be that small, because of leverage, again.
| quote: | | One big buy or sell from a large institution could knock you out of the position, even if the long term trend is where you expected it to go. |
That's very much true but why would you want to stay in when the currency moves against you? In that case, you'd want be stopped out. That's when you either wait for some technical signal or try again.
| quote: | | If it works, it works..and I hope you make $$ on it..but it seems too stressful and gambling-ish for me. ;) |
I'd say all investing/trading is gambling. I actually sleep well at night because of my risk management. But if it seems too gamblish, trust me, that feeling can be reduced. But don't get in it without having a solid foundational understanding of it first. Until then, it probably is too hard and akin to spinning a roulette wheel. The key is to become the house, that way, you'll always win (enough of the time)!;) |
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| Comrade Stalin |
I am making a prediction.
Tomorrow, the S&P500 is going to rise in value. Accordingly, I'm buying UPRO, which is an ETF leveraged 3x what the S&P500 moves. So far, I'm 88% accurate in last 38 days. *Crosses fingers* |
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| Capitalizt |
| quote: | Originally posted by Comrade Stalin
I am making a prediction.
Tomorrow, the S&P500 is going to rise in value. Accordingly, I'm buying UPRO, which is an ETF leveraged 3x what the S&P500 moves. So far, I'm 88% accurate in last 38 days. *Crosses fingers* |
3X leverage :eek: That's awesome. Last I checked they only offered 2X leverage.
Anyway..on another subject, does anyone here know much about the fundamentals for oil? I'm thinking about buying the USO ETF. It's near a 1 year low. My "gut" is telling me now is the time to buy but I admit I don't have a clue about the fundamentals, or where to begin research. I'm also interested in the natural gas ETF UNG. Any opinions? |
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| Comrade Stalin |
| quote: | Originally posted by Capitalizt
3X leverage :eek: That's awesome. Last I checked they only offered 2X leverage.
Anyway..on another subject, does anyone here know much about the fundamentals for oil? I'm thinking about buying the USO ETF. It's near a 1 year low. My "gut" is telling me now is the time to buy but I admit I don't have a clue about the fundamentals, or where to begin research. I'm also interested in the natural gas ETF UNG. Any opinions? |
The fundamentals are not good. One thing for you to look at is oil inventories. They have unexpectedly risen meaning more supply meaning a justified lower price.
http://www.thestreet.com/_yahoo/sto...=FREE&cm_ite=NA
But if you hold a long-term view, then just buy it, and forget it. You should do a little technical analysis to choose the right buy price. I pulled up a chart for you to look at.
http://finance.yahoo.com/echarts? s...ource=undefined
Learn how to use the parabolic SAR. It's indicating USO has further downside to go. Once the chart breaks the top series of dotted lines, then that may be a good time to buy. |
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| Capitalizt |
thanks krypt..Oil seems unfairly beat down on the ty short term (1-2 year) outlook. Long term however it seems like a no brainer to me. I can't imagine it being at these levels 5 years from now.
As for buying based on technicals..I've never liked doing that. ;) I much prefer to buy stuff that looks dead ugly on technicals..stuff that fundamentally sound but hated by the market. If USO falls 5% below it's 1 year low, I'll buy the hell out of it. |
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| Comrade Stalin |
| quote: | Originally posted by Capitalizt
thanks krypt..Oil seems unfairly beat down on the ty short term (1-2 year) outlook. Long term however it seems like a no brainer to me. I can't imagine it being at these levels 5 years from now.
As for buying based on technicals..I've never liked doing that. ;) I much prefer to buy stuff that looks dead ugly on technicals..stuff that fundamentally sound but hated by the market. If USO falls 5% below it's 1 year low, I'll buy the hell out of it. |
You certainly take the risk of the trend continuing way past your buy point which is why I would use some technical signal the downtrend is leveling off at the very least. Just my opinion. If I did what you are you telling me you do, I'd have to buy and forget because watching it tumble would be psychologically damaging...;) |
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