Forex Myth Buster: Leverage is Dangerous

I have been very busy the last few months and as you can tell I have only been able to get one post per month out, but I tried to make it worth it. We are one trading day away from the mid-point of November trading action and I have comfortably reaped over 2,000 pips so far. Yes, it has been a good month which partially explains my absence. I was busy living life and enjoying the benefits a rogue forex trader is able to afford.

As stated above, I may only have had time for one post per month but it was one which knocked you off your feet as I read a healthy dose of unpopular reality about forex trading. During last month’s forex myth buster section I informed the newbies who try to dabble around in the largest and most liquid financial market of world about forex demo accounts. In case you have not had a chance to check it out I strongly recommend that post to you which you can access here: Forex Myth Buster: Forex Demo Accounts.

Today I will bust yet another myth which often circulates in newbie circles as well as equally less educated offices of regulators; leverage is dangerous. Those pathetic morons who claim that leverage is dangerous and will lead to blown accounts are equally dumb and uneducated as those who think you can learn how to trade in a forex demo account.

This myth has not only infested newbie traders circles, but also the highest echelon of regulators who blame the collapse of Lehman Brothers and Bear Sterns on over-leveraged trading accounts which is not only a display of utter ignorance and lack of comprehension about leverage and the financial system in general, but it also makes for a good joke around smart money institutions.

The amount of leverage simply does not matter; the lack of risk management causes traders to blow their accounts like a prostitute who sucks you dry for the right price. The two primary reasons why Lehman Brothers and Bear Stern collapsed are simple: 1. They were dumb money financial firms who thought they should try to manage hedge funds; 2. They did not follow proper risk management and where trading based on hope like a teenager with a few thousand dollars in his pocket hoping to get some.

Leverage may be the greatest tool given to traders, but you need to understand leverage in order to use it
otherwise the tool will use you and become your master while you become the tool. Alright, I sense that most of you are still struggling with this concept so let me slap you with a numeric example the same way I slapped something else in your girlfriends face which she enjoyed and begged for over and over again while you spend your free time figuring out why you have failed at life:

Most newbie traders have picked up the idea that 1% to 2% risk per trade is how professional traders operate their accounts so I will use that example (whether it is correct or not is for another post).  I will also give you a familiar trading portfolio size as most new traders operate an account with insufficient capital; anyway so here you are thinking you are something with a trading account of $1,000.

Common sense will allow even the most moronic trader to calculate that 2% out of $1,000 is a whopping $20. This means you will risk no more than $20 on your trade. Stay with me for a few more moments; your leverage is 1:10 and you will only risk $20. Now you increase your leverage to 1:100 and guess what? You are still only risking $20. Take it another step further and trade with a leverage of 1:1000 and you are still only risking $20.

Did you get my point here?

Don’t worry; if this was too much for you to comprehend then you are definitely in the wrong place.

Forex myth busted!

PS: The hotties in the above picture are Mariah Milano and Jessica James.

Read More

Rogue Forex Trader Counter AUDUSD Call

Fellow forex traders, accept my apologies for my month long absence. Being a rogue forex trader sometimes means you will fade into the shadows and do some heavy research especially if you plan a longer-term move so I have been busy doing just that. You know, now that I think about it; don’t accept my apologies as there are none!

You want to be a forex trader?

Everyone does, but only a few select will ever join the sacred ranks of a true forex trader. Since you are here reading Rogue ForexTrader, there may be hope that you will manage to reap a few pips alongside this outpost I have created.

You may wonder what I have been researching the last five weeks and to be honest it is none of your concern so stop bothering finding an answer. I am not here to tell you about my life, I wrote today in order to counter the research and analysis conducted by Excalibur Funds Management Pty, a global macro alternative asset manager out of Sydney. I love Sydney, I love Australia and I love the women there.

When it comes to Excalibur Funds Management I have to slap them with a dislike in regards to their latest call on the AUDUSD currency pair. Excalibur Funds Management launched a new hedge fund on July 17^th which is an Australian Dollar only strategy and basically means the fund only trades the Australian Dollar. According to Matthew Harper who is a principal as well as trader over at Excalibur Funds Management, institutional investors have placed in access of $200 Million with this specific hedge fund.

Excalibur Funds Management, which additionally runs a G-10 currency strategy, targets an annual growth rate between 10% and 13% per year with a maximum loss per month of 2.5%. This is by no means a solicitation or advertisement for the company. I just want to give you guys some very basic information so you know who released the below analysis.

Excalibur Funds Management calls the AUDUSD down to 0.7500.

They did not give a specific timeframe for this call, but they think the AUDUSD currency pair will tank severely from here citing a Chinese slowdown which they predict will reach 5% GDP. Australia did depend on Chinese growth as Australia is the world’s largest exporter of iron ore and heavily depends on the commodity sector. The Australian Bureau of Resources andEnergy Economics estimated that commodity exports would total A$177 Billion, down A$9 Billion from its previous estimate.

According to Excalibur Funds Management, which conducted their analysis with the assumption the Reserve Bank of Australia will cut interest rates down to 2.00%, further noted that should Australia enter a recession as they predict will happen in 2015 with a 30% chance that the AUDUSD currency pair could fall down to 0.6000 which would be the lows of 2008 as the US sponsored financial crisis unfolded.

Excalibur Funds Management further reasons their prediction with treasury yields between the Australian 10-Year Notes and the US 10-Year Notes. The margin between those two are just above 100 basis points and they predict it will shrink further until the margin will converge. The closest the Australian-US margin came to convergence was in 2005 and at that point the AUSUDC currency pair traded at 0.7500.

Matthew Harper, who was formerly employed by National Westminster Bank in Sydney, runs the fund together with James Wallace who was a former Citi Group trader. I have to admit, being a professional trader for over a decade and around financial markets for almost two decades that neither National Westminster Bank not Citi Group are great trading outlets. They are banks and should stick to banking and they are definitely not places where excellent forex traders are groomed.

When banks, or former bank employees, think they are smart enough to run hedge funds bad things usually happen. Banks belong in the dumb money camp together with mutual funds and hedge funds are a smart money trading vehicle which means they are not a natural fit. More and more dumb money trained and educated traders launched hedge funds which explains while the average performance dropped as more and more hedge funds are not pure anymore, but have been infested with dumb money untalented traders and managers.

Given that Excalibur Funds Management targets a growth rate of 10% and 13% per year, which means just below 1% per month; while they allow a 2.5% monthly maximum loss makes this a hedge fund which I consider a bad investment. That is my personal opinion and I am not here to tell you where to place your money, I am here to discredit an analysis conducted by a firm which Rogue Forex Trader disagrees with to the max.

Excalibur Funds Management calls the AUDUSD currency pair

down to 0.7500.

Rogue Forex Trader calls the AUDUSD currency pair back up to parity.

Now you want to know my counter argument as of why Rogue Forex Trader calls the AUDUSD currency pair higher from current levels and eventually retest parity, especially after I mentioned the cornerstones of Excalibur Funds Management and their reasons why they call the AUDUSD currency pair lower?

You won’t get it, that’s part of being a rogue forex trader. You can do whatever you like with what you read here, I state my opinion and don’t need to give you reason as of why. You can ignore it and follow those who give you reason as I earn pips from my forex trades regardless if you believe what I write or not.

See, what you guys fail to realize is that true forex traders trade their own strategy because they know it works and have a track record plus lifestyle to back it up. They don’t trade so others understand and agree with it. Those forex traders and management firms who have to be out there and market their case are usually the ones you should stay away from.

PS: The hottie in the above pictures is Aletta Ocean.

Read More

Bernanke opened Pandora’s Box

As I entered my EURUSD short positions at 1.3400 and GBPUSD short positions at 1.5700 earlier this week I was well aware of the fact that Ben, the Septic Tank, Bernanke and his 12 plumbers will start their Fed meeting on Tuesday and that the FOMC will make a statement Wednesday at 1400 hours New York time followed by a press conference 30 minutes later. It was obvious that Bernanke would spill some feces as soon as he starts his speech which has named him the nickname ‘Septic Tank’ to start with.

When quantitative easing, or QE as it is commonly known, started the Fed had no exit strategy. QE2 followed QE and QE3 followed QE2 while a final adjustment was made which many refer to as QE4. After QE4 was announced which amounts to a total of $85 Billion of wasted tax payers money each and every month the Fed had to think about some sort of guidelines as to when they will be forced to phase out their socialistic market manipulation and eventually reduce it down to $0.

The sole reason for the stronger than anticipated bear market rally was QE which artificially propped up markets and dumb money investors happily opened their watering mouths to catch all the feces Bernanke decided to drop into them. Dumb money swallowed the still steaming feces with a smile on their face and kept buying US equities which resulted in all-time highs for major benchmarks. There was a severe disconnection with the real world and as history has shown us time and again such a disconnect will correct itself later rather than sooner.

Bernanke then announced one day that the Fed will remain committed to throw away tax payers money until the unemployment rate will drop to below 6.5% and the economic outlook will remain stable. Since the 6.5% unemployment target was and remains unachievable to the point that even dumb money realized this it essentially meant that the Fed will defraud tax payers without an end in sight.

After the S&P 500 eclipsed past 1,650 and everyone was talking about how you should move into equities smart money understood it was the end of the rally. Bernanke than found out that he is essentially fired after his term expires and then decided to make statements that the Fed is considering to adjust QE. Bernanke was able to do so because the US economy was in the eye of the storm and economic data, especially unemployment figures, painted a somewhat better picture.

After Bernanke rattled the markets with his statements dumb money actually wanted bad economic news in order to keep the Fed in financial markets and continue their idiotic interference. Each economic data point was anticipated to show a US economy in bad shape and dumb money cheered each time they received worrisome economic news. This perversion allowed US equity markets to not contract as much as their European as well as Asian counterparts.

During his press conference yesterday Bernanke stated that the Fed may start to alter QE starting this fall without using the word ‘taper’ and called a full end of QE by the end of H12014. That statement was equivalent to opening Pandora’s Box. Financial markets started to correct and smart money portfolios increased in value as dumb money will be left holding the bag just like in 2009 after they dropped 50% or worse.

Some dumb money segments translated Bernanke’s comments as an overall improvement in the US economy and therefore cheered the end of QE. In reality the US labor market started to crack eight weeks ago and overall economic activity is closer to contraction than consistent expansion. Despite what Bernanke said, which was nothing more than an uneducated guess powered by hope about the state of the US economy by mid-2014, the Fed under a new chairman will not be able to taper or adjust QE.

Since he specifically mentioned this fall and he will still be at the helm of the Fed he may reduce QE by $10 Billion per month to $75 Billion just to make his prediction come true. This fall the US economy will flirt with a recessive performance and his reduction will come at the wrong time. After he passes the torch to the next Fed chairman who may end up being Janet Yellen, the first female Fed chairman, the only thing that will remain of Ben, the Septic Tank, Bernanke, is the fallout of his moronic Fed policy which dumb money praised over and over again.

Plenty of the dumb money camp claim that Bernanke tried to prepare financial markets and make the job of the next Fed chairman, or chairwoman, a bit easier. That is utter crap as he made sure he could do all he can to make the job even more challenging for his successor. Given the fact that traditionally every Fed chairman was absolutely unqualified to hold that post it will be at least entertaining to witness pathetic retards make monetary decisions which will impact the economy.

Either way, I closed my short positions for profits of 200 pips as well as 275 pips respectively and those who followed my rogue forex trades were able to do the same. 

PS: The hottie in the above picture is Breanne Benson.

Read More