Dealing with it all

My wife said the other day that I should write less about foreign exchange-related topics because people don't find that interesting. I begged to differ. However, I did not write a post based around that topic for over a week, partly because I was tired from foreign exchange dealing (which has been going well), but also because I was in the midst of dealing with Grand Slam tennis.

I have grown to like tennis very much after learning to play while I was in Guinea. The Australian Open tennis is underway and with the time difference the action starts in our evening and closes in our morning. So I have not had a lot of sleep. Most of the games have been at best mediocre and the ESPN coverage limited (so I could have slept and not missed much). Roger Federer is my favourite player of the moment and he has livened things up by dancing with defeat and then playing like the superb champion he has been for the past few years.

As for reader interest, I know a lot of people read the foreign exchange-related posts, and the statistics for visitors to the blog show that the top posts in recent times have been those dealing with foreign exchange and Jamaica's alternative investment schemes. I even got a phone call this week from someone I met in Barbados who works for a UN agency; he had found my blog, and wanted to talk to me. He was very interested to read about these topics because he was also dealing online himself. So, with the liberty of the author, I write on a range of topics and readers will find what they want or not.

It's been an historic week in financial markets. The US Federal Reserve shocked and surprised most people by holding an emergency policy making meeting and then reducing key interest rates by about 3/4% early on Tuesday morning (January 22, see report). The last such emergency meeting was after the attack on the World Trade Center on September 11, 2001. I wont lie: I was unprepared for that; but so were many others. Although the market expectation was for a cut of between 1/2% to 3/4%, with the scheduled meeting due on January 30, it seemed very unlikely that a decision would be made ahead of that. Now there is a lot of confusion and uncertainty in the markets about what will happen next week, but also what will happen in coming months. Because equity markets have seen the worst decline at the start of any year it is easy to get panicky. Will the Fed's move do much to help the ailing US economy (too little, too late?). What else can be done to ward off recession? A package of budgetary measures has been announced and the US politicians will approve the details of that very quickly. Europe does not face the same economic problems so policy makers there seem unlikely to follow the US action. Financial markets are now very nervous, and so are very volatile. That's good and bad for traders, though, and many are reported to be pulling to the side waiting for the dust to settle.

I was caught out because the market was moving in a certain direction and I was with it. But moreover, I was caught out because thinking that there was nothing dramatic due to happen I was away from my "trading desk" doing some chores for a few minutes and returned to see a world of numbers that made no sense. I have paid attention to certain times during the trading day, when markets tend to make most of their moves, and that has been a big contributor to doing better with trading. So doing other things in these "quiet times" is normally alright. Dramatic news and important economic data make prices move by large amounts. At first I thought there was some glitch. Fortunately, Bloomberg TV commentary got me up to speed very quickly.

In my case, a very nice winning position was suddenly turned into a big loser: I was selling US dollar against the euro, hoping the dollar fall would continue and the news helped the dollar rise amazingly during the day and turned the market around. That reminded me of several lessons, not least the one about planning the trade and trading the plan. I was doing that but let's say that my plans were laid to rest very quickly by the unexpected. Ironically, that day I got a call from my foreign exchange specialist for a one-to-one consultation, from which I learned about other tools I can use to help my analysis. But the best thing was the reminder about planning and to hear another voice that was calm after the storm.

Anyway, I dusted myself down, got back onto my horse and started to make back some of my losses. Happily, the next two days were good, and yesterday was my best day ever for dealing in terms of how I closed the day, making over US$1,100. (Now, all I have to do is keep that up!) That outcome was due to the help of some very good technical analysis by the company whose trading platform I use and also some instinctive moves. The day could have been better because the trends continued much further than most expected and has not yet turned back. But you should not look back at done deals and say "I could have" or "I should have". New opportunities come along all the time.

I have a limited objective of making one percent a day: that adds up and it is working nicely. I do make about 5% on many days. What was satisfying about the day was making as much as 10% and to get a result the hard way, so to speak, on the back of Tuesday's shock. Most deals can be concluded within a few hours at most because prices move a lot and the profit/loss possibilities arise from the rise and fall of prices. Holding onto a position for a long time increases the risk of loss, but it can bring the reward of much larger gains, when the market moves by more than 100 points (that amounts to US$100 gained for each $10,000 invested) in one direction. Well, not only did I hold onto the positions a long time (from Wednesday afternoon through Thursday morning), but I also watched the situation unfold overnight (seeing potentially big gains temporarily transform into large potential losses as the prices move up and down). I took my profits after the prices had moved about 150 points on both deals. For such deals to work you need to risk more than one lot (US$10,000) and have to stomach seeing some large negative movements, but also long periods of almost no movement (which give you lots of time to reflect on the wisdom of what you are doing).

I was able to monitor the markets because I was indulging my passion! The tennis semi finals were on. The women's matches were interesting but for wildly different reasons. Russia's Sharapova beat Serbia's Jankovic easily because the latter was injured. Serbia's Ivanovic came back from a 0-6 drubbing by Slovakia's Hantchakova in the first set to win in 3 sets, with the end of the final set being full of drama. That set the plate for an amazing men's semi final where Spain's Rafael Nadal (number 2 in the world and knocking to be higher) was absolutely crushed by France's Jo-Wilfried Tsonga (ranked 38; Congolese father and French mother) in 3 sets.The nature of the result would have made more sense if the rankings had been reversed. It was something worthy of the word "bashment", and the pictures tell the story of the power Tsonga unleashed and the hurt that he put on Nadal. Tsonga looks like Mohamed Ali and knocked out Nadal with the tennis equivalent of a lot of body blows and some knockout punches right on the chin. Whoever meets him in the final will find a new kind of "warrior" on the other side of the net.

After the all-night tennis and the dealing were done I was planning to just chill because people were due to come to clean the house. However, they needed to reschedule, but I still decided to just take a breather. So I spent a lot of the day absorbing news of the day's and week's economic and political events, thinking, doing my online course work, taking my daughter and her friend to gymnastics, and sort of resting. Ironically, my wife was spending the day at Naniki--a restaurant in the hills of St. Joseph--at a retreat she had organized for her staff. Now I could have enjoyed myself being there and just looking out over the horizon.When you are on the sidelines, however, the world does not stop moving and it's good to watch it move. In my little financial world I was shocked to hear that a rogue trader had made losses of 4.9 billion euros (about US$ 7.2 billion--that is bigger than Barbados' GDP, which is about US$ 4 billion, according to IMF statistics) at a French bank (Societe Generale) and apparently not for personal gain. Now we have to wonder what he or she was really doing. Things are rarely as crazy as they first seem to be.

So there was no tennis coverage for us last night so I went to bed early and got a good night sleep and am now writing in the early morning ready to watch Federer play his semi final game. I dont plan to deal much today not least because the cleaners will be here, but also because after all the drama a breather is a good idea. I will look forward to watching the tennis finals over the weekend and wonder whether I will see history being made with a Tsonga victory.