financial risk Archives - Page 2 of 5

Trade balance data out from China Sunday will not be viewed as a positive input for China-related risk markets.

The counter to this is, of course, the expectation of stimulus from China, some of which we have already indeed seen (eg. only on Friday we got news of the cut to the RRR) and more is forecast.

Yuan terms trade balance data

Surplus for the trade balance of 239.60bn … miss

expected CNY 299.3bn, prior was CNY 310.26bn

Exports +2.6% y/y … miss … slowing global growth and US tariffs key points for exports missing

expected +6.3%, prior was +10.3%

Imports -2.6% y/y – falling imports are often associated with domestic economic weakness -this result not as sharp a fall as expected.

expected -3.1%, prior was +0.4%

USD terms

China trade balance: $+34.84

expected $44.3bn, prior was $44.58bn

IMF issues annual report on China

10-Aug-19 04:47 am

Risks tilted to the downside amid trade uncertainty

The IMF is out with its annual report on China. They say:

risks are tilted to the downside amid trade uncertainty
China should maintain flexible yuan if tariffs rise
China could intervene to support one in adverse scenario
China GDP growth could slowed to 4% by 2030
escalating trade tensions could warrant China stimulus
China augmented government debt to top 100% of GDP in 2024
The yuan is not significantly overvalued or undervalued. In line with fundamentals
IMF has been pressing China for more exchange-rate flexibility, less intervention in currency markets
China should open up more sectors to foreign competition to put its economy in best position to deal with trade pressures

GBPUSD falls to new 2019 lows. Trades at lowest level in 27 months.

26-Jul-19 10:50 pm

Trades below the July low a 1.23815..

The GBPUSD has falled to a new 2019 low on the break of the July 17th low at 1.23815. The price has traded to 1.23755 so far.

In trading to new 2019 lows, the pair is trading at the lowest level in 27 months (April 2017). The next target from the weekly chart above is at the April 2017 low at 1.2364. The March 2017 low was at 1.23599. Moves below those levels open up the downside even more.

The price action this week has seen the price move below the 1.2441-748 area (see yellow area on the chart above). That area is defined by 2018 lows and weekly lows from June and early July. Last week, the price fell below that level only to rebound back above. This week, the pair will close below that swing area….(see red circled numbers).

Drilling to the 5 minute chart, the pair has accelerated and trended lower in the NY session. The session in the London and NY session has been able to stay below the 200/100 hour MA (there was a brief move above the 100 bar MA in the London session but stayed below the 200 bar MA). It cracked below a lower trend line in the last couple hours that accelerated the fall.

The 38.2-50% of the last trend leg lower comes in at 1.2396-1.2400 now. The trend line cuts across in that area. For the trend traders looking for more, that area is a risk/trend defining area. Stay below, keeps the trend intact.

GBPUSD on the 5 minute chart is trending lower

How will the Fed react if US and China reach a trade truce this weekend?

28-Jun-19 12:19 pm

A trade truce between US and China will be good for risk assets but does that mean the Fed will shelve its rate cut plans?

WIRP US 28-06

Although risk assets will steal the focus in the aftermath of the Trump-Xi meeting tomorrow, the dollar and the Fed are likely to be the more talked about topics in the coming weeks with the next FOMC meeting scheduled for 31 July.

A 25 bps rate cut is all but a given at this point but markets are still seeing a 22% probability that the Fed may cut rates by 50 bps, according to Fed fund futures.

But if US and China are able to achieve a trade truce this weekend, which I reckon they will find some form of agreement to resume talks at the very least, it puts the Fed in an interesting spot ahead of their July meeting.

Final Q1 GDP data yesterday gave little concerns for the Fed to be immediately cutting rates and the revised uptick in PCE is also a welcome sign on the inflation front. And if trade talks find some limited progress in the near-term, it’ll be very interesting to see how they would phrase their decision in cutting rates in July.

Risk Management

14-Feb-19 09:35 pm

Risk of Ruin-Never risk more than 1% of your total account capital on any one trade.
Position Sizing-Use your capital at risk to understand the right amount to trade based on the securities volatility.
Capital at risk: Never put more than 6% of your total capital at risk at any given time on all positions.
Trailing stops- Always have an exit strategy to lock in your winners.

Lessons from Paul Tudor Jones

14-Feb-19 02:32 pm

-Never play macho man with the market. Never over-trade relative to the equity in your account
-his first mentor has “steel hard emotional control”
-always liquidate half his position below new highs or lows
-after having 60-70% draw-down, he was so depressed he nearly quit. “Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?”
-he then first decided to learn discipline and money management. Become disciplined and business-like about trading
-“Now I spend my day trying to make myself as happy and relaxed as I can be. If I have positions going against me, I get right out; if they are going for me, I keep them”
-Be quicker and more defensive. Always think about losing money as opposed to making money. He always has a mental stop. If it hits that number, he is out no matter what
-“Risk control is the most important thing in trading” Stop out at near 10% monthly draw-down. He never wants to lose 10% in a month

Book Review :Risk Management in Trading -by Davis Edwards

13-Feb-19 05:33 pm

It is a commonplace that risk management is critical to trading success. What constitutes good risk management, however, is anything but commonplace knowledge. Was VaR the number that killed us, as Pablo Triana claimed, or is it a useful, perhaps even indispensable, tool? Should risk management teams have their separate turf or should they be integrated with the trading desks? And what do you have to know to be a risk manager?
Davis W. Edwards addresses all of these questions, with particular emphasis on the third, in Risk Management in Trading: Techniques to Drive Profitability of Hedge Funds and Trading Desks (Wiley, 2014). The book is a useful self-study guide for those who aspire to become risk managers; each chapter ends with a set of questions to test the reader’s knowledge, and there is an answer key at the back of the book. It also goes a long way toward satisfying the curiosity of those who want to know just what it is that risk managers really do. It does not, however, directly address the concerns of the individual trader who wants to incorporate sound risk management principles into his business model.
After three preliminary chapters (on trading and hedge funds, financial markets, and financial mathematics) Edwards gets to the heart of the matter. He discusses backtesting and trade forensics; mark-to-market accounting; value-at-risk; hedging; options, Greeks, and non-linear risks; and credit value adjustments (CVA).
To give you a better sense of the level of the book—and so you can test your own skills—here are a few questions from the quizzes.

The 14 Stages Of Trader

12-Feb-19 07:56 pm

1. OPTIMISM – It all starts with a hunch or a positive outlook leading us to buy a stock.

2. EXCITEMENT – Things start moving our way and we get giddy inside. We start to anticipate and hope that a possible success story is in the making.

3. THRILL – The market continues to be favorable and we just can’t help but start to feel a little “Smart.” At this point we have complete confidence in our trading system.

4. EUPHORIA – This marks the point of maximum financial risk but also maximum financial gain. Our investments turn into quick and easy profits, so we begin to ignore the basic concept of risk. We now start trading anything that we can get our hands on to make a buck.

5. ANXIETY – Oh no – it’s turning around! The markets start to show their first signs of taking your “hard earned” gains back. But having never seen this happen, we still remain ultra greedy and think the long-term trend is higher.

6. DENIAL – The markets don’t turn as quickly as we had hoped. There must be something wrong we think to ourselves. Our “long-term” view now shortens to a near-term hope of an improvement.

7. FEAR – Reality sets in that we are not as smart as we once thought. Instead of being confident in our trading we become confused. At this point we should get out with a small profit and move on but we don’t for some stupid reason.

8. DESPERATION – All gains have been lost at this point. We had our chance to profit and missed it. Not knowing how to act, we attempt to do anything that will bring our positions back into the black.

9. PANIC – The most emotional period by far. We are clueless and helpless. At this stage we feel like we are at the mercy of the market and have absolutely no control.

10. CAPITULATION – We have reached our breaking point and sell our positions at any price. So long as we can get out of the market to avoid bigger losses we are content.

11. DESPONDENCY – After exiting the markets we do not want to buy stocks ever again. The markets are not for us and should be avoided like the plague. However, this rare point marks thepoint of maximum financial opportunity.

12. DEPRESSION – We drink, cry and/or pray. How could we have been so dumb we think to ourselves. Some start to correctly look back and analyze what went wrong. Real traders are born here, learning from past mistakes.

13. HOPE – We can still do this! Eventually we return come to the realization the market actually does have cycles (shocking). We begin to start analyzing new opportunities.

14. RELIEF – The markets are turning positive again and we see our prior investment come back around. We regain our faith (although small) in our ability to invest our money. The cycle start all over again!

Confidence in trading

12-Feb-19 01:25 am

The Oxford English Dictionary gives the definition of confidence as “The feeling or belief that one can have faith in or rely on someone or something”.

In relation to trading, confidence therefore is having:

the belief in your ability to succeed as a trader;
the belief that whatever method you use for selecting entries and exits will help generate a positive expectancy;
the patience to wait for the right opportunities to present themselves;
the discipline to follow your rules;
the ability to keep taking suitable signals, when your criteria is met, even when suffering a run of losses.