the 3500

I won’t be trading (or blogging) in December so this pretty much wraps it up for the year. Much work remains, but it’s nice to finish 2007 on a high note after so many ups and downs.

Wishing everyone a merry, festive season, and a happy new year. I look forward to catching you on the other side.

Driving to and from London is quite boring. Even though the journey only takes about an hour, the monotony of unchanging scenes along the motorway can get quite tedious.  Listening to the ipod and radio helps, but it’s still all too easy to drift off in to a driving daydream.

Driving home from London last night, I turned up the radio and opened the window so the cold air and loud music would help keep me awake. Still my mind wondered off for a matter of seconds … just enough for me to miss my junction. Alas, the next junction is many miles away and my journey length and time was increased by more than half.

Two lessons from the road:

- It only takes a small slip-up to create big negative effects. Conversely, the road to success in many of life’s ventures seems to be more incremental. Think of the engineering behind cars, space shuttles etc. One small error can lead to total disaster, but for everything to work, so many things have to be ‘right’. A related pattern is the  carry trade in the currency market, where returns are incremental as the high yielding currencies slowly appreciate, but when we witness episodes of carry trade unwinding, things are not nearly as orderly.

- Missing my junction would be less of a problem if I was less tired and fatigued, because I would feel less downhearted at having to do the additional driving. However, it is when we have energy and are wide awake that we are least likely to miss our junctions, and we are more likely to miss them when we least want to. This reminds me of insurance not working when it comes to claiming, of correlations heading to one in times of crisis, and of markets being flush with liquidity, only for it to dry up right when it counts.

My trading room web cam: “Sir, could it really be true …. yes, it is, we have a new equity high!”

Just as I decide to stop reporting my weekly results on any regular basis, I have a decent trading week with a tidy profit of over 10%.

I’ll present the equity chart at the end of the month, but if I can hold on to these gains then I will have broken through my ‘channel of discontent’, an illusory channel of difficulty where my equity has bounced between £11.5-£12.5k.  The bubbly stays in the basement, however, as I’m still some £5k from break-even.

Economist Brad Setser gives an clear and insightful, big picture interview on the dollar. Its a good read for any one trading currencies or with an interest in the economics of exchange rates - I particularly like the reminder that it is difficult for China to diversify its reserves away from dollars so long as it maintains a currency peg.

Oanda has put together a nice selection of interviews with professional retail fx traders.

After reading Trader Gav’s post on reviewing trading results on a monthly basis I realised that the way I report my results is sub-optimal and is in need of a change.

Until now, I reported my results on a weekly basis because I felt that I needed to be held closely accountable to my actions and more importantly, to my trading behaviour. However, reporting one’s trading equity on a weekly basis serves little purpose, especially now that my trading frequency is significantly lower.

From here on I’ll be reporting the change in equity (after expenses) at the end of each month. In order to be held even more closely accountable to my trading behaviours I’ll assign a behavioural score to each trade and present an average of these score along with the monthly results.

‘Into the Wild’ is a great film that leaves one with a strong taste for wide open spaces. It is based on the true story of Christopher McCandless, a university graduate who leaves his wealth and belongings behind and heads off to Alaska to connect with nature.

Replace ‘nature’ with the ‘markets’ and you have a cautionary tale for traders; I view the market as a beautiful, natural system, but it is probably just as easy to romanticise the idea of being a profitable participant in the markets as it is to imagine how liberating and fulfilling it would be to live off nature. Alas, close-up, nature can be raw, cruel and unforgiving. And in both nature and the markets, the smallest of errors can lead to the gravest of results.

Trading: 0.0%.

Behavioural road-map score: 7 out of 10.

Still nothing happening at my end, despite the large moves in the currency markets. Such is life.

Trading: 0.0%.

Behavioural road-map score: 7 out of 10.