I just found this cute overview of the relationship between fundamentals and the DOW over at zerohedge:

GM chapter 11 = PRICED IN
125K+ jobs lost from GM chapter 11 = PRICED IN
unemployment @ 9% = BETTER THAN EXPECTED
unemployment @ 10% = DOW SOARS
unemployment @ 11% = GREEN SHOOT RALLY
unemployment @ 12% = ALREADY FACTORED IN
unemployment = 35% = DOW DROPS 100 POINTS
housing price =1% = RECESSION ENDING
housing collapses = GREEN SHOOT
Housing falls 20% = STABILIZATION
Government spends 1 trillion of OUR dollars = STIMULUS
North Korea fires nuke = RALLY
Israel bombs Iran = 30 MINUTE END OF DAY RALLY
world explodes = ASIA RALLIES
PMI crashes = HUGE RALLY
No jobs are created = RECESSION ALMOST OVER
U.S. debt overwhelming = TOO BUSY RALLYING TO CARE
Consumer stops spending = RETAIL RALLY
Banks are insolvent = SIGNS OF STABILIZATION
American auto industry BK = GOOD THING
Banks pass scam stress tests = HUUUUUUUUGE RALLY
Banks “only need 75 billion = OUT OF THE WOODS
Banks pass a real stress test = NEVER WOULD HAPPEN
Banks pay back tarp = LATE DAY SURGE
Banks can’t pay back TARP = EARLY MORNING SURGE
12% mortgage delinquency = GOOD FOR STOCKS
Hundreds of thousands of mortgages underwater = HOUSING BOTTOMED
Dollar rises = RALLY
Dollar crashes = RALLY
Inflation = BULL MARKET
Deflation = BULL MARKET CONTINUES
REFLATION = MASSIVE SHORT COVERING RALLY
Gold rises = STOCKS RALLY
Gold falls STOCKS RALLY BIG
Banks’ fake earnings = SIGNS OF STABILIZATION
CRE stabilizing= 1000 POINT RALLY
CRE CRASHING = STOCKS SHAKE IT OFF TO RALLY
CONSUMER INSOVENT = CONSUMER IS SPENDING
OIL @ 50 = BULL RALLY
OIL @ 60 = GREEN SHOOT
OIL @ 100 = IMPORTANT RECOVERY SIGN
OIL @ 20 = TAX BREAK

As much as I would like to think that you can use fundamentals to predict the market, it just goes to show you how difficult they are to use in reality. But before you jump to conclusions and say “this is why we should use technical analysis”, the real moral of this story is the DOW is quite illiquid at the moment because most big funds are sitting on the sidelines.

In a follow up to my previous posting on the proposed NFA rule change on FIFO, it seems that the more I read the more different interpretations of the FIFO rule I see.

FxSol, for example have an entirely different interpretation to IBFX.  In their view of FIFO, it means that all open trades on a specific pair must be treated as a single position.  Therefore, when you start closing trades because a stop has been hit or profit is being taken you should start closing the first positions first.  This effectively means there is a single stop and profit target for all trades on a single pair.  i.e. all the trades are treated as part of a single position with a single stop and target.

The FXSol interpretation, basically allows you to pyramid and keep your stops and profit targets the same.  This works fine for some strategies, but it does not really work for others which rely on each trade on a currency pair having its own stops and targets.  Some grid traders do this for example.  If you do still need to do this FXSol recommends you transfer your account to Australia.

If you want to see how some other brokers are choosing to interpret the FIFO rule, FX Street has a page covering the variations.  This page provides a list of the various FIFO related press releases from each of the brokers.  For example, GFT claim they have always used FIFO, so there will be no changes for them.

I guess in my case I will wait and see.  Probably of greatest concern for me at the moment is my IBFX account which is a nice broker for trading M5G cyborg with.  So I am waiting to see what IBFX actually implements by the end of the month.  If IBFX is still workable for M5G cyborg, then I will leave it running there.  Otherwise, I think I might move it over to Alapri or FX Pro.

If anyone has experience with FXPro or Alpari and M5G cyborg I would love to hear about it.  Heck drop me a line about what you think you will do with your US accounts.  I am keen to hear.

This is a pretty short posting. I have been looking around at other forex expert adviser review sites and “BestForexEA” is pretty good. The site is a blog written by Casey Lim and he writes pretty well.  If you get a chance check it out.

At the end of the month the NFA are placing in a new rule on its member forex brokers where they need to manage orders in a similar fashion to equities and futures, based on a First in First Out rule on trades on the same pair.  The benefit of this rule is it makes trading more transparent as the trader knows what to expect in the order of the execution of trades.  For example, if you opened two trades on the EUR/USD, then you can expect the first one to be close first.

The downside of this is that  if you have stops or profit targets on your trades such that it is possible to close the second trade before the first, the broker cannot honor the stop or profit target.  This may mean that many pyramiding, grid trading and martingale strategies will no longer work.

How brokers interpret this rule varies immensely.  FXCM for example have spat the dummy and interpreted this rule as meaning that no stops or limit orders can now be honoured and they now urge their clients to open an account in the UK which is regulated differently.   FXCM on their website explain this further.

I asked IBFX how they interpreted this rule and they basically told me that it only applies to positions on the same pair with the same lot sizes and as long as you vary the lot size you are fine.  For example, if you vary your lots sizes by 0.01 lots you should be fine.

What does all this mean?  well first ask your broker.  As for me, I am starting to get a gut full of the NFA and maybe FXCM’s suggestion of using a UK regulated broker is not so silly.

In my last posting I asked “what if I raised the risk level on M5G cyborg“. Well after 3 weeks and tripling my demo account, it did this:

Before you say “I told you so – never get greedy and fool with the leverage settings”, an interesting thing is I am trading the same system with the same settings (except leverage) using the same broker and both accounts opened the same trades. The difference is my live account closed the same trade for a profit and the demo did not hit the target and found the stop instead. Just goes to show the price feeds for live and demo and the order execution are similar, but quite not the same. This is why you should never really totally trust a demo account forward test.

(Another more superstitous part of me knew that as soon as I published the last post on my blog the account would blow up….)