It was the great Roman poet Horace who once wrote:
"In times of peace; prepare for War"
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| For military buffs please turn to my Pininterest page for modelling |
There is nothing pretty about a battle at all; in the end it all becomes a right old mess unless the trader has become seasoned with years of hardship and mental discipline.
The last 6 months saw a sideways trading channel in both the USDX and the EUR/ USD which we are following.
On the USDX since August 2014 prices have risen to the 100 mark reached in April 2015, but since then USDX futures have settled into a 94-98 range for the last 4 months with uncertainty in the markets over the Fed position on an official rate hike of 25 basis points. Q3 is now underway and we can expect either disappointment or some spur of action that may provide the momentum to change the direction of price action for the next 6 months or so.
The use of options for a market breakout for position traders could become a point of entry either way.
On the USDX Dec 15 contract the ICE futures options are trading at close:
calls - 96.00 = 2.880, 98.00 = 1.850, 99.00 = 1.480 and 100 = 1.180
puts - 96 = 1.115, 95 = 0.7894, 94 = 0.5350 and 93 = 0.370
On the EUR/ USD Dec 15 contract on the CME options are trading at close:
calls - 1.05 = 0.09720, 1.10 = 0.09260, 1.15 = 0.08820
puts - 1.15 = 0.00450, 1.10 = 0.00390, 1.05 = 0.00350
Although most currency traders are day spot traders watching for news events that may drive prices for the moment, position trading over longer extended time periods with options hedging can prove to be more reliable that dealing with daily extremities which may offer whipsaw as prices swing to and fro. If you choose to live by the sword then you die by the sword at some point.
The use of options over a longer time frame are like placing your artillery in position at the beginning of the battle and waiting for any signs of an impending battle of price action. As the Roman poet Horace said, make your preparations in times of peace, during the lack of momentum of a sideways channel, the necessity of patience becomes the chief ingredient for the strategist who wishes to engage in price action with more effective force. Once engagement commences and the battle roars spot positions can be taken in either direction as the heat of the battle pushes price action one way or another. Call or put; should momentum commence one side has to gain ground and the other falter as you cut your dead weight and charge with the rest of the cavalry and the big boy specs who will push a market at some point. Things can't stand still forever; entropy and a pregnant pause eventually has to lead to a big bang.
Markets are not rational; were they rational then we could all plan effectively to become billionaires. We cannot predict the future but using our senses we could anticipate which way the wind will blow and go with the flow. Tomorrow can be anything literally and even the best pundits and commentators will always get it wrong. Not to say that economics 101 is like having 100 economists in the room and coming out with 101 theories! Economics certainly is like driving down the road with the front screen blacked out with only the side and rear offering any view. At the very best successful traders can live with expected losses and keep them to the minimum as they scope out for the next future moves. Losses are part and parcel of the trading career. But it is the pride of the individual not to yield when it is most required; that often leads to the downfall of the trader.
For more philosophical dialogue please turn to:
The Way of the Trader Master Lao by Pieter Bergli:
1. http://forexeducationperspective.blogspot.com/p/blog-page_51.html
2. http://forexeducationperspective.blogspot.com/p/the-way-of-trader-master-lao-chpt-2.html
Thank you,
Yours sincerely,
Pieter Bergli - DeLoren Trust Holdings
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