Ransquawk

Basic requirements no longer basic

When I first started in the market one of my first jobs when I arrived in the trading room in the morning was to “update the charts”.

This may sound incredible since it was “only” twenty-eight years ago but we kept manual charts of the markets. I was mostly responsible for the cable chart, and one thing I knew without question was where the support and resistance levels were. Second only to the trader who “lived” the market I had a perfect view of what was happening.

These days candlesticks are the favoured style of chart but in those days, it was point and figure a style that has virtually ceased to exist.  Point and figure charts give a clear indication of the trend in a currency pair and illustrate clearly any reversal or correction. Using varying time scales and unit changes gives another dimension to the market.

It is often the simple methods that prove successful and we can easily complicate things. It is true that in today’s market it is nigh on impossible to be a “manual scalper” but for those using a more cerebral approach, look at point and figure charts you may find another dimension.

Bots and algo’s cannot replace eyes and ears

I was reading an article the other day about how so much information is missed as traders, particularly those coming to the market in the past three years or so miss so much because they have, figuratively, close their ears and eyes.

I had been with my first trading job about a couple of months and had just been given my first few clients to deal with when on a particularly busy afternoon, I received a call from a client who I saw as potentially very profitable.

The noise in the room was deafening so to hear what he was saying I had the handset clamped tight to my ear and had covered my other ear with my other hand. On seeing this my boss walked over and pulled the phone from my ear causing me to pull it back and hit myself, quite hard, on the side of my head. While it didn’t hurt it gave me a shock.

Having finished the call, I walked over to his desk assuming that he had wanted to talk to me.

He simply said “Lesson one. How can you expect to know what is going on in the market if you cover both your ears?” I tried to explain but he told me that it was a skill I would learn and eventually I did.

Working in that environment you become able to hear the prices in the market and still hold a conversation. I doubt that is still something that happens today.

Cheap? Not necessarily

When we consider something to be cheap or inexpensive, those terms must be looked at relatively.

Take Sterling, during its progress over the past couple of months or so, it looks cheap.

But are we comparing it in the manner we should?

Why is it cheap? Should it be this cheap? Could it be cheaper?

Relative to its drivers, it still looks expensive to me and if I was still a trading I would be looking at buying out of the money put options funded by selling calls for twice the face value.

Aggressive? Yes, but maybe I would also already be short since I was calling sterling lower as soon as it broke 1.4000 (on the way up).

For at least the fifth or sixth time since negotiations started, the market has chosen to ignore the economic reality of Brexit since it has gone quiet following the Prime Minister’s proposal of a fudged customs union and the Upper House of Parliament rejected or amended the bills being placed in front of it.

There is a curious myopia developing in a similar fashion to what happened close to ten big figures ago. I find it odd that I read that given the choice many analysts would be buyers!

Why?

Because it looks cheap!

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Ransquawk