Notes From An FX Trader: Let Us Prey

I am one among some legion of people who trade currencies out of my "home office." Which currencies: I basically ping pong around between the Euro, the US dollar, the Canadian dollar and the British pound, looking for opportunities to buy low and sell high. These are the most liquid currencies in the world, along with the Japanese yen. But Japan's economy is weird so I don't really touch that. We'll discuss why it's weird some other time.

Beware of anyone who claims you can get rich quick doing this.

Following on the previous statement, the moment you think you've got everything figured out is the moment you get your ass kicked. And the moment you give in is the moment you are vindicated.

A friend of mine, on hearing that I've been day trading the FX market (I prefer using "FX" to "currencies," "forex" or "foreign exchange," I don't know why) said, "Isn't that kinda like saying, ‘I picked up a crack habit, but I think I can keep it under control?'"

My response to him: "It's something like crack+casino+surfing all rolled into one."

Sometimes I do this in my underwear.

For the first time in my life, I actually look forward to Mondays. Actually, more specifically, I look forward to Sunday evenings when Asian markets open.

For my purposes, of the main financial news networks, Bloomberg gives me what I want more than anyone else. Reuters is a not-so-close but not-too-far second. Everyone else is a distant third, except for the New York Times.

The New York Times is dead last. Surprised?

Once Bloomberg TV starts running its daily repeat cycle, I turn it off and either play old skool Judas Priest really loudly (old skool = pre-sellout Priest, which basically means anything before that abomination called British Steel) or else I pop Point Break into the DVD player and just keep it looping.

John Maynard Keynes: "Markets can remain irrational longer than you can remain solvent." In other words, when 100 points fall into your lap, shut up and take ‘em.

Suppose a full 365 days pass by without any rain in New York City. What would you be willing to bet that it rains on the 366th day? And if day 366 goes by without rain, and you lose that bet, how much would you then be willing to bet that it rains on day 367? Surely it will rain again, won't it?

Other things I've wagered money on over the course of my life: blackjack, roulette, craps, guts, poker, pai gow poker, football, basketball, horse racing, boxing, jai alai, cockfighting, political elections and eating.

European politicians do not have the first clue about free markets, public relations or pragmatism. They must have a clue about something though. I wonder what?

I've learned to like holding positions overnight. I've also learned to like sleeping less, not from sweating my positions, but because I don't want to miss anything.

It's true, you do have to have a decent head for math to do this. Not rocket science math, just really, really, really fast grade school math, with an ear for politics and a sense of crowd psychology.

If you want to debate the morality of short selling or the merits of European monetary unity or… well, I'm not going to get in your way, but realize that I'm not some hedge fund bottle-service guy. I'm just trying to scrape out some rent money without having to answer to anyone.

Of all the analytics that day trading geeks have come up with, Elliott Wave theory, Fibonacci retracements and Bollinger bands make the most sense to me. Pivot points seem to vary in relevance.

But sometimes you get something like the other Friday.

That Friday-June 4, 2010-a few interesting things happened. The most interesting to me was that the French Prime Minister apparently said he sees only good news in the Euro and dollar being at parity. The response was a 300 point drop. A later editorial note emerged, pointing out that the word "parity" and the French word for "level" sound similar. Whatever! Equally compelling here is that the halfway point between the Euro's all time high and its all time low against the dollar was crossed on Friday and the general response in the following week was a battle over whether the Euro is at fair value yet. Draw your own conclusions.

When I was in college at the University of Vermont in the mid 90s, two of my roommates and I would every so often drive up to Montreal to hit the casino. We spent most of those trips trying to count cards at the blackjack tables but would always take some time out to troll the roulette pits.

Our roulette strategy was as such: watch the screens above each roulette table showing the most recent history of that table's rolls; wait for a lot of, for example, red rolls (seven of them, say) to come up and then go in and bet on black, doubling the bet until black turned up a winner. In gambling parlance, this is known as the Martingale strategy.

We never came out of those experiments down money but there were definitely a few moments where an extra bounce of the roulette ball would have meant prostituting ourselves on Saint Catherine Street to come up with a semester's worth of rent money. I think about those days a lot lately.

Okay, now check out Warren Buffett, from ages ago: "Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. Anyone watching from Mars would be scratching their head."

I should've held onto my gold position. But I'm glad I got rid of that Nasdaq position. Oh well. NEXT.

Because he wants to work making money with other people's money, obviously our currency-trading friend would prefer not to publish under his real name.