Stress-Free Trader (The Lawrence Chan Blog)
Full time index & forex trader, occasional consultant to hedge funds / institutions, my work leads to my not so normal view of the financial markets. My blog mostly talks about trading, market behaviours and other musings.
Originally this blog is supposed to be organized in a separate website like what most authors do but I don’t think I will maintain it properly that way. So here it is as part of this website.
Schedule – Regular blog post every Friday with occasional additional posts when I feel like ranting.
In case you are curious of what I do outside of blogging here:
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More on Site Changes
2016 Sep 30 Fri 18:00:33 | by
Real-Time Custom Breadth Chart for Emini S&P Going Alpha
The real-time custom breadth tool for Emini S&P will go alpha early October (keeping my fingers crossed). Instead of my original more aggressive plan to deliver it with many features. It will be simple and functional. From there all premium members can give me feedback to see where we are going to take it. It will also give me idea on what to write about the various custom breadth trading techniques.
It was one of the most frustrating developing project for us all here. From not enough server power to difficulties in securing internet connections to our website for real-time updates, every little adjustments were met by more setbacks than making progress. So I made the decision to put the more complex prototypes on hold and asked my team to give me the barebone version ASAP for alpha release. And here it is.
Consolidation of Funds and the Start of a New Fund
Mentioned quite a number of times already that I am obligated to help out close friends and family members to manage their risk capitals. I have now formally formed a company with my business partner to put everything under one company to detach the investment and trading from my personal accounts. The good thing with this approach is that I can structure an example trading account as a demonstration on how some of my trading models work with clean audit trails.
The setting up of corporate accounts for trading can take some time to do as many paperworks have to be filed during the application process. This means the expectation is that official launch of the demo will be more likely to start in first quarter of 2017.
For the swing trading and short term investments decisions that will be made on daily and weekly basis, I will see if I can make the watch list of potential trades to be made available to premium members here. This is like an extension to what we are offering already with Market Bias Observer newsletter but more active with specifics on each individual stocks or markets. It may not come with a lot of explanations but it is not intended as teaching materials. To learn my trading methodology one can check out the website for the information. The trade ideas will be useful for seasoned swing term traders and investors.
Busy Busy Busy
Although I am encouraged by my existing clients to move on to active management of my own firm, I still need to work with them to rearrange my role with their family offices. This means I will have to schedule my travel in coming months to handle the transition quickly so that I can focus on the new projects. Hopefully this time my internet access will be much better than my last travel experience.
From being busy to very busy, I can foresee a very exciting year ahead already.
Tax and More Taxes on Real Estate
2016 Sep 24 Sat 14:07:13 | by
Vancouver Canada has chosen to tax houses that are deemed vacant. London Britain has chosen to increase tax on foreigners who purchased properties there. Ontario Canada chose to increase minimum down payment percent for more expensive houses. There are more such taxes and constraints introduced around the world. Many people think that these are such great ideas to improve the supply of housing for people who need affordable housing. The reality, however, is far more complicated and the unintended consequences can be far reaching.
More Taxes Never Put Money into the Pockets of the Local People
Contrary to what the politicians telling the people, tax increases almost never help resolving the budget issues of any government. The more money a government gets to collect, the more money the government will eventually spend. There is never an end to this downward spiral once deficit budget was chosen. So whatever politicians promise, no matter how sincere they are, there is absolutely nothing they can do to reverse the inevitable.
The same holds true for tax increase that is supposed to stop people from engaging in activities hurting the general public. The excuse itself, like tax on tobacco or additional tax on the buying and selling of properties, does nothing to curb the underlying activity since the fundamental reasons for these activities have not changed. All these additional taxes or tax hikes do, is to give the government more money to spend on the wrong things.
More Constraints on the Real Estate Markets Never Cool Them Down
One of the craziest laws proposed on real estate was coming from none other than the City of Toronto many years ago. The proposal was to allow homeless people to live in buildings that are supposedly vacant. The idea actually gathered quite a lot of support from the left leaning community. Back then, the homeless people issue was growing out of hand in Toronto. Many people simply wanted the homeless people to disappear on the street. It was not empathy whatsoever to help the homeless people.
Lately, the concept of foreigners being guilty of pushing real estate prices higher has gained traction everywhere in the world. This, again, is just another example of branding a complex issue into naive black or white thinking. As oppose to embrace complexity, majority of people choose to use problematic narratives to enable them to stay ignorant. The real underlying reason for many asset classes going up in price in terms of the local currency is the result of the extremely low interest rate policy of these countries. This fundamental driver unleashed all the evil consequences that we are seeing around the world from asset inflation to instability in many countries that in turn give rise to terrorism.
Maybe, these unintended consequences are not that difficult to anticipate as many people figured that out years ago. For taxes on real estate, it is obvious that it will force people to choose to live or invest elsewhere. It will also reduce the competitiveness of a city relative to the nearby counties. Hence, instead of getting more revenue as the politicians expected, the net outcome is always negative in terms of overall income for these cities. The dire consequence is the reduced ability of these municipal governments to borrow money as their financial strength in securing revenue is greatly diminished.
The Source of the Next Global Crisis: Municipal Debts
As many countries can no longer get enough income through taxation to cover their expenses, these countries have now resort to introducing more form of taxes by many creative excuses. The core reason for which taxes on the people are not generating enough income for the governments is that the governments are simply too big in terms of economic footprint relative to the size of the economy of these countries. While the private sector of the whole world has been in nimble with real wages not growing for the past ten years for many countries, the governments of these countries keep growing at a very fast pace. As there is never enough tax income to satisfy these big governments, they borrow more and more through the issuing of government bonds.
The soaring of debts in many countries confirms this global problem. What we do not know, however, is the limitation of the investors to be willing to lend to these governments. When investors become sick and tired of negative returns from near zero interest rate government bonds, the music chair game of debt driven financing of these government entities will end abruptly and destructively.
It is not likely the biggest countries in the world will default their debts against their creditors because these countries can print money to pay for the debts and their interests. On the other hand, we cannot say the same for the regional governments and the municipal governments. The particularly troublesome ones are the big cities with huge infrastructure cost like Toronto in Canada, Chicago in United States, etc. When these cities no longer able to borrow, they will have to default on the debts they issued. Basic services will disappear. Upon restructuring, local real estates will be targeted as cities do not have power to tax people’s income.
Of course, we all hope that this day is not going to happen to the city we live in but that is just wishful thinking.
The Mid-Autumn Festival vs. Full Moon
2016 Sep 16 Fri 13:25:21 | by
Chinese people were celebrating their Mid-Autumn Festival on Thursday worldwide while the astronomy enthusiasts are going to observe the full moon tonight. But isn’t Mid-Autumn Festival supposed to happen on the day of full moon? Since many traders believe in the effect of the moon cycle on various financial markets. It is a good idea to look at this interesting discrepancy.
Full Moon Is An Exact Event
Officially, this full moon in September 2016 is supposed to happen on the 16th at 3:05 pm Eastern Time. But during day time we cannot really see the full moon hence when you observe the full moon tonight in North America, the actual full moon has already passed. On the other hand, the moon we got to observe last evening, was not yet the actual full moon, but close.
For Chinese people, their solar lunar calendar is based on a set of formulas created long time ago for the purpose of giving us accurate solar and lunar cycle information, without the help of computers. Since we cannot really have half a day or fractional day for normal human to function properly, calendars have to round up or down the moon cycle every month since each moon cycle is approximately 27.321 days. This leads to the labelling of the new moon and full moon in the Chinese calendar and other ancient calendar systems, being an approximation as well.
Time Window vs. Exact Event
I bring this topic up because many traders who believe in the lunar cycle effect on trading would pinpoint certain dates in the past being all important turning points. The truth is that such dates based on the exactly event like a full moon is actually quite ambiguous to interpret. First of all, for an event like full moon, since the exact event may not fall into the trading hours, the interpretation of the event becomes a time window of at least 2 trading days. That can represent 2 trading days that are sticking together on the calendar, or, in the case of the full moon event happening over the weekend where the 2 trading days are several calendar days apart.
This time window effect produces an obvious interpretation issue.One person would see the price dropping into the full moon and that a bottom is coming, while another person would see the price rising into the full moon and that a top is forming.
Trading Hours Impact
Assuming the lunar cycle has a strong effect on many markets, since the price swings cannot develop continuously due to trading hours constraint, the accumulated effects during the non-trading hours can distort the expected moves easily. For example, a swing low is expected but then the market gap much higher at open which can lead to a sell off first back down to the higher timeframe support.
So should this gap up and selloff be considered as a swing high formed and reversal from there with more downside in store?
Or a confirmed swing bottom in place that one should look for long only?
Even worse, as many traders who use lunar cycle successfully would point out, sometimes the markets do not reversal on such event and instead accelerate in the same direction. So how can we tell if it is a turn or an acceleration is coming. In other words, the extra information does not really help a trader in making good trading decision. They are just adding more confusions to the trading decision process.
Not Good for Day Trading
Hence as a day trader, maybe lunar cycle is just not precise enough as a market timing tool. Personally, I prefer keeping things simple – consistency and sound money management always give us an edge better than any elusive timing tools.
I am not saying using the lunar cycle as part of our analysis is wrong. I am saying that since lunar cycle is not precise enough, at best it is good for swing trading only. As a day trader we should not mix the timing method for daily chart with our day trading strategies. This problem can be summarized easily by the infamous trading axiom, picking a bottom (top) that never arrives.
Mooncake is Bad for Health
For those mooncake lovers, please skip this last part.
A regular mooncake made with white lotus paste and 2 yolks weights about 190 to 200 grams. The calories for one such mooncake is about 800 to 1200 calories depending on the manufacturer. But the real issue is the amount of cholesterol within one such tasty treat. Each mooncake contains about 150 to 200 percent of cholesterol based on the usual recommended daily intake (maximum) for an adult.
Wish Everyone a Happy Mid-Autumn Festival!
How Heavy Is My Sabre?
2016 Sep 10 Sat 17:47:19 | by
Answering one of the many odd questions I received, “How heavy is the sabre you mentioned in your post about your exercise practice?” What they are referring to is a piece I wrote last year, Back to Rigorous Exercise Regime and Planning for Next Year. Obviously these readers must be some kind of exercise or martial art enthusiasts.
The feature image of this post is my practice sabre. It weights about 10 pounds, custom made by one of my Tai Chi teachers for his own practice. The whole thing is cut from one piece of metal all the way to the handle. It is tip heavy meaning that by design the front part of the sabre is two times as heavy as the handle end.
The sabre is just the base for the add-ons. I have magnets each weighting from 2 to 5 pounds that can stick on the side of the sabre to increase the intensity of my training. When I was younger I can manage my practice effectively up to a total weight of about 30 pounds.
It is a fun toy to play with as the sabre does not have a sharp edge like a real sabre. Similar to the dumbbells we use in weight lifting, dropping this onto your feet can cause serious damage. Hence it is important to not overload myself with weight that I cannot handle.
A normal practice sabre weights about 2 to 3 pounds. A real sabre made with steel is usually about 3 pounds. My friends who are very into body building cannot effectively manage this practice sabre with the simple posture of just lifting it horizontally with arm extended sideway. It is not because their arms are not strong enough, it is their wrists are not trained to handle the dead load coming from the extended centre of gravity away from the body.
False Sense of Security and Reality
2016 Sep 2 Fri 13:24:12 | by
Talked to many people lately who said they are now interested in buying a safe to put in their homes. Some of them heard the news about Japanese people have bought so many safes that many places are out of stock. Some of them learned that in Europe the trouble caused by the refugees has been getting worse. Overall, many people here started to feel the insecurity in our modern society, finally. But does it really help to install a safe at home? I seriously doubt that, at least not the way these folks think a safe will do for them.
A Safe Is Not There To Protect You From Real Criminals
Many people who are thinking of buying a safe in North America got the wrong idea what a safe is really useful for.
In short, a safe is there to mainly deal with disasters like fire, flood or even earthquake so that your valuables, not just expensive jewelleries or money, like important documents, are protected. A lesser important duty of a safe is to guard against casual theft as the inconvenience to open a safe or to carry the damn heavy thing would reduce the chance of the thieves from wasting time on the safe due to the elevated risk of being caught as more time and effort has to be spent at the crime scene.
If you really care about the stuff you put into the safe, you cannot have it standing around like a piece of furniture. Even hiding the safe does not really help. Real robbers can simply put your life in danger to force you to disclose all the money and valuables you have. They can force you to open the safe for them. They do not even need to do it themselves.
But this last situation has been the exact motivation driving normal people into thinking of getting a safe so that they can feel safe with their valuables. This is false sense of security at best and false sense of reality at worst. If I were some ruthless criminals, I would target those folks with the best safes around since they are probably the ones who have the most valuable things for me to rob, isn’t it?
The Old Saying of Keeping Your Wealth a Secret Works Much Better
If you cannot afford 24 hours security guards, super ninjas and snipers protecting your house, the best option is to live a life without all the fancy things – hiding yourself and your family in a nice neighbourhood that would not draw attention from thieves and robbers is a good starting point. Not having fancy cars that attract attentions is another. But some people need to satisfy themselves with the keeping up with the jones feeling. Well, if that’s the case you should also accept the fact that you are subjecting yourself and your family 100 times the chance of being robbed and other risk. It’s a personal choice.
An interesting trick used by people coming from long lineage of wealthy background is the use of a decoy placed in a common location for such purpose. The decoy safe should have some money and other stuff enough to make the perpetrators think they find the jackpot. Essentially a way to buy yourself and your family a chance to survive the ordeal, hopefully minimize the harm done to you and your family.
Putting gold bars at home even hiding in places you think cannot be found is not such a good idea. By having the right kind of metal detector, your stash of gold will be found in no time. Once one stash is found, you can be sure the criminals will waste no time at all to start asking for more hiding places. You are essentially asking them to torture you and your family.
Ten Years From Now
The relative low crime rate in western countries and North America cannot last. As global economy contracts, more and more people will be forced out of work. Let alone potential natural disasters that are picking up speed lately. If the spiral down effect turns into a trend, it will be difficult to imagine in 10 to 15 years how bad things can get in major cities around the world.
It will be a big headache for governments worldwide. I do not see them being able to stop the trend from happening.
To keep oneself safe in troubled period does not start from buying a safe, some weapons or defensive gears, it starts from changing your mindset on how to stay out of trouble all together by being invisible to the criminals in the first place.
To answer a number of questions all along similar line of thoughts, here are my answers. My current spam to actual email ratio is about 15 to 1. My spam filter could only catch 50% of the spam mail. The actual number of emails that I need to response …
I have been exchanging email with Ron, an old friend from Netherland, lately and here is a short story of his path to establish his trading career. Ron was part of the Dutch Air Force. Since then his career had been revolving around airplanes until …
Last year when I was training my son on some classic exercise routines, the topic of how strong one has to become so that it is sufficient for normal and unusual situations was raised. I responded with an interesting set of answers. I am sure many pe …
I started taking blackstrap molasses as a dietary supplement about five years ago. I did that not because of me reading some information from random sources on the net about the benefits of blackstrap molasses. I did it to show my support for my late …
US election is early November. Olympic occupies pretty much all August. Although they are completely independent events, yet their schedules are set to happen together every four years. This combination creates a very interesting trading environment …
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