ADVISED #1: Learning How to Trade
Inside the world of cyclitecnical trading strategist, Derek Frazier's methodology.
Weekly Issue #1:
In this first issue of Advised, I discuss the future of bond prices and Fed interest rate decisions’ impact on them. As well as trades taken in Bonds and the Mexican Peso and what is next for these markets. Also, I talk about setting myself up for success when I was a new, developing trader. Lastly, I define my 4 step process to take short to long term Swing trades after asking 5 questions about my investment idea, or trade idea
From the Desk of Derek Frazier:
I write this from Mexico with pollution rolling in above the 90th percentile for 2.5 ppm grading and am listening to the baby, a 5 month doll, protesting and arguing with his nanny while he gets a bath. The wife is in the other room watching Netflix and eating chocoroles, a very sweet and unhealthy treat.
My mind is racked with a swirl of emotions, I didn't sleep well this past week. The war in Ukraine is pounding me pretty hard with feelings from my past experience with that.. That being Iraq with the 3rd Infantry Division and my comrades, some lost quickly, most suffering still. Some have found peace. I need to stay off Telegram, I don't need to see evidence of war.
Pushing that aside, I'm engaged and excited to start this newsletter, Advised. A regular, once per week long form email that discusses how I increased my development as a trader, how I trade, reviews of past trades, and a slant towards the “work alongside me” type of narrative. Lets have introspective but formative chats that traders and investors (I hope) like to see and hear.
You will Find Topics Like This in Advised
Speculation in the markets
Successful and Unsuccessful trades
Cyclical Analysis, Trading and Education
My thought process associated with and my trading in the markets of all types, including: stocks, commodities, financials and crypto
Trades that I took and how I developed my thesis, my plan and what the catalysts were, as well as execution method and details that help see what I did from beginning to end
Interviews with prominent traders, investors, and analysts that do the same type of work as me
A tiny bit of interesting (or not so) things about me and personal reflections on myself in the markets and personal things, history and reflections about the future, family and the ups and downs of life
Typos, grammar issues, slang, PG13 language and periodic idiocy
You Will NOT Find Topics Like This in Advised
Economist (professor-type) musings
Overbearing charts from CFA’s or portfolio managers about economic data
Performances of traders or funds
Trend following, mean reversion,
Huge discussions about algorithms and/or automatic trading or systematic trading
Long discussions about any one thing (shorter is better)
Investment Advice or client privileged relationships
In addition to the above, I will be delivering a podcast to accompany the newsletter as well. I believe we are all developing. Its better to admit it now, and just develop in real time, together. We can also start here to forgive ourselves of our past transgressions and those that were laid bare upon us, and to rise up to a different level of understanding with both the world and our inner worker.
So, this is a journal for a trader from a trader. I hope you enjoy and really can appreciate the weekly series, from here, known as Advised!
I'm seeing big things happen for you in the future.
With that, lets begin…
Heres the 5 Questions to Ask Yourself When you Want to Trade or Invest
Where is my next big trade coming from?
What geopolitical environment will make this work?
What has to happen to the Dollar and interest rates for me to put my money on this trade?
What is going to happen… next? What cyclicality do I need to see? Alternatives?
Who or what entity or government is going to speak about this and push prices up or down?
Each of these will be answered in time for you. That is why you are here and not some other website, or blog or YouTube video. I trust that you will really look for the answers on your own this week.
Now, esteemed readers, I will do my best to find the references for all of us to share in and benefit from the answers, together… BUT I hope we DON'T need to break out the research (or big citations) to show ourselves. The references are for academics, economists and CFA meetings. Please read the following, so that this doesn't upset you in the future:
We are traders and active investors bent on speculation without undue stress, work or reasoning. We have families, jobs and passions, so, we don't want a perfected masterpiece of citations or research publications
That being said, for us to truly thrive as people, we have to plan ahead. We can do that without the fluff, bias and backslapping that occurs with advanced degree obtainment, club membership and monikers earned through discipleship. So, with this inaugural edition, I believe it's time to face the facts once and only once:
We are speculators that need to make decisions quickly and methodically, but we certainly are not going to waste time on things that don't matter
Now for the opposite side, there are traders that forget and leave planning to someone else (or don't care entirely), or they think by sitting at the computer they are going to find a trade. Or that we are going to read a new book by Bellafiore or Dalio and perhaps our pain will go away. And this right here is the reason why some traders and investors do not make it. They may not have confidence because they need to try to go through iterations where they are successful or have at least trained their minds to see something before it happens. This is training.
Let us continue!
NOW… Im going to go very quickly through a “refresher training” for my readers and just get this out of the way on issue number 1.
How to Plan your Swing Trades Ahead of Time with 4 Steps
Think of what is going to happen
Yes, read, listen and research your work. You are trading. Do the research and find out what is going to happen. Backtest and learn how to work properly through mentors, books and other traders. Ask for help if you need it. I don't think this is taught. Some banks and prop desks and funds may have a method, but it's up to the trader to figure it out. People need to really dig in and find out whats going to happen before it does. Always ask this question. Luckily, some analysis of cycles and the rules that they abide by, usually clear up 55% of the problem. But it helps to feel confident and understand your work before looking at charts or research.
Look for the catalyst setting up the trade
Is there a decision, non-decision, event, non-event, technicality or non-technicality that happened in the market that you want to trade? Again, cycles assist us in this regard.
Time the trade to the best of your ability using cyclical analysis
Cyclical “action tools” that usually work for this are available to us, and they are the only technicality I have been using for entry and exit over the last 11 years.
Execute in the live market with a plan that results in you winning over time
Know the correct instrument, e.g option spread or future; likewise know any result that you are getting, e.g. tax consequences before trading
3 Rules that WILL Help You Plan Your Swing Trades… and Avoid Making Your Life Into a Disaster
No listening to others after you have completed step one stated above (after you thought about your idea and what is going to happen in your market)
No trying to time the market with a stop that disagrees with your risk size
No exiting until you have met the target or you are confident that something has changed with the trade or investment, i.e. breaking a cyclical rule when it shouldn't have happened. Likewise: no worrying about losses or gains while actively engaging in speculation
Thats it, thats all there is to planning swing trades. Lets review some trades using these above concepts!
Review Of Trades Section
There are 2 examples in Bonds (TLT) accompanied with a chart of interest rates that moves inversely (TYX) & 1 Example in USDMXN that Id like to share, using charts of before and after, my processing of the trade dynamics, and catalysts as part of the 4 step process above.
Again very simple: Think of what's happening or going to happen, search for a catalyst, watch the market for entry, then enter with proper understanding of the result that you are going to get.
Historic Mexican Peso “Rush to Dollar Safety” Price Spike Trade April 2020
Thinking that there was a rush to dollars seen in other currencies around the world, I decided to take the trade against the Peso. Selling my dollars for Pesos on the short term bullishness associated with the trust and instinctual rush to safety of the dollar system caused by the pressure of the pandemic.
What I found was that there was monetary policy and expansionist policies that were beginning to take hold all across the world. In March 2020 and thereafter, I thought these policies would prohibit the dollar from going higher after things became normalized and stocks rallied. I have a personal connection to the Peso, I use it alot.
The Peso is matched to the dollar (currently around 20 to 1 for the entirety of the pandemic) because of the economies and the remittances being so closely tied. I thought 25 to 1 was ambitious for the Peso, considering its history well below that, and I just took it, as it was clear that it was temporary, and other currencies would reflect this as well.
My idea was that all currencies would start rallying against the dollar, as Interest rates were lowered or stayed the same. I also saw that the dollar wasn't actually moving higher into late April.
I found the proper entry after a peak of the 10 day cycle became evident and placed my order for Pesos at a price I was willing to sell my USD, which was around $25. It came down as shown in the chart, back to sub $20.
Further evidence is showing that this eventuality may happen yet again, whereas the dollar, again recently (2021 to 2022) strengthened on war, trade and oil and several other factors, like the Fed policies, might in fact push the Peso to 25 to 1 yet again. It may go sideways if interest rates are raised, I expect the dollar to rally against the Peso.
I don't have much else to say about trades in the future for the Peso, just that this was a great trade on a historic price spike.
$USDMXN Monthly Chart Showing Price Spike
30 Year Bonds Drop in Interest Rates Decision Trade February 2019
Bonds underwent a massive buying campaign brought on by dropping rates in the 30 year. TLT took off from this, and there were lots of signs in the cyclicality of the market, showing its hand in a variety of ways. The TYX (treasury yield index 30 year) has been on a massive rout its entire life, interest rates always move down in the United States, right!?
TYX Interest Rates Monthly Chart
It comes up, then drops down. Then Bonds rally on their dropping. Its quite predictable, especially when you see the announcement and then the cyclicality breaks down, forcing traders and institutions and countries to take the opposite of the trade. Its amazingly clear.
The trade involved looking for and trading long, a major cycle low in early 2019, and it was announced on my written blog February 2019.
February 2019 $TLT Trade
The catalyst was rates dropping yet again. And through the Trump presidency, I felt that stocks must rally and this would need easy money policies to be set in the markets. IT happened, and quite historically, there was a run up in equities and a sharp run up in bonds as all assets, even Bitcoin converged higher.
TLT rallied into a massive peak, a little over a year later, which coincided with COVID19 peak in the drop of interest rates (TYX) March 2020. As stated they are instruments that trade against each other almost identically. The trade worked based on cyclicality and rate decisions.
Weekly Chart of $TLT Showing Resulting Run up From February 2019 to the December 2020 Short Trade Decision (Red Arrow) and Resulting Move Down
In the same chart above, another trade posted on December 26th 2020, the day after Christmas, I posted a written blog and video about TLT having a bearish event, based on a catalyst of cycle projections not meeting their targets. Shown here:
Published Trade of $TLT December 2020
I decided to short TLT in December 2020, with TYX moving higher, and sentiment down on bonds, with stocks still rallying. This trade resulted in a massive slide in prices and a positive result.
Moving onto the next trade for TLT, I believe there is going to be an interim chance to go higher, albeit slightly, in TLT while we wait for the big peak in interest rates TYX, yet again due next year. This is because TLT is experiencing a new 80 week cycle here, in March 2022. And it may go higher in the short term.
On TYX, Cyclic analysis finds that there is a 9 year cycle peak that is due in interest rates by early next year, therefore TLT may go sideways to slightly up until mid year, even in the face of rate increases. These rate increases are not trusted by economists as they feel that the Fed cannot raise rates much at all or for a long period, or that inflation is not a big thing.
I think this Fed decision for interest rate increases will be slow and will make TLT go sideways to higher. But the new 9 year peak coming later this year on TYX will push interest rates down yet again, perhaps years, and accelerate the growth of TLT higher. But I think Bonds move higher short term, as of March 2022 out of this 80 week cycle trough that tends to run a bit over the nominal, of 80 weeks.
The Whole $TLT Trade Sequence on Weekly Chart
Discover a New Idea and Then do the Work: Catch the Massive Trends
Its possible to trade with just charts, but it becomes increasingly impossible to plan wisely. Therefore it is imperative that we as traders continue to grow, listen and experience what other professionals experience. Slowly but surely we can win. That is why it's vital to do the work. Take what we have learned today and find out why interest rate decisions and currency decisions are taken by the powers around the world. Really dig in, find something to read from the websites of the Fed, IMF, and the Central banks around the world. Then look at what happens to TYX and TLT. Look what happens to Euro, Peso, Pound charts. This is the time to reflect on how we can also be longer term traders to make sure we are catching these massive trends.
Trading is not about looking at charts all day. To me, thats for proprietary traders with massive resources. I, an amateur or developing trader need not waste my time. Instead, I think of this as my ongoing PhD in trading. I make yourself work to find out what really moves the markets. I write my own trade ideas, keep a blog, a video journal or something to look back on when I feel I am ready to graduate. I take positions in trades when I see them and try to think long term. That is what you are going to find in Advised. A trusty companion to the art and science of trading holistically.
The majority of traders that I idolize, actually work very hard to do what I just laid out here. They take responsibility for their own investment and trading decisions from beginning to end. They ask the correct questions, explore resources, read, listen and don't even touch charts until they know they have an idea. The charts and execution can come after they have already found 60% of the answer that they need. They then look for an entry.
Please don't see me as obtuse and overly bold, I'm just trying to stay solvent. Even if you have 30 years in the market, you know Im right.
Meet a trader
Every week I am going to bring you a trader that is developing into an icon from their work.
Please recommend a trader to me to interview! I will ask them questions based off my analysis and trades shown in the next issue before release
Reminder of What is Necessary to STOP Before You ARE a trader: Gambling
Thanks to our modern internet your broker has found a way to extract money from your pocket every month. What was originally intended for professionals and Congress tried to shield us against is now our archnemesis. People think it has come full circle because of the access that they have to fractional shares under companies like Robinhood.
Guys and gals, here today, I'm gonna tell you:
…it's not actually the case when you have a gambling mindset, you're just going to gamble it all away anyways as has been shown with contracts for differences (CFDs) as well in spread bedding. I want you to be aware none of the concepts I've discussed today should be employed with a gambler's mindset. No one should ever trade more than they can afford to lose. They should always be taking care of their finances first. Secondly even if you do lose small amounts like I just alluded to you're still never going to be a trader! LOL
You have to do the work, record the results, take the trades in a way that shows you are a completely sane individual and follow a logical and nearly 100% unemotional process from beginning to end. You have to be sane and if you ever want money from others, your insanity will show and you will not get money from anyone.
So my emotional roller coaster days are far long gone history… but one of my illustrious trading (gambling) stories goes like this: its some time in 2015 I'm sitting there staring at my broker platform on my cellular, and my heart's pounding because I didn't know if Tesla is going to take off, I didn't know what the hell's going, I'm addicted to “being right”, Im having no success, so I decided spending $1,500 on options that expire in 3 days, because I had an opinion, was the right thing for my family and I. Just because I thought I had a catalyst that I thought would last for 3 months.
I lost all my money by the close.
That's why I started Advised. To help you to finally trade correctly and with long term results that are favorable. Trade the plan, look for the catalyst, find the cyclical evidence, and execute (unemotionally).
Why? Because I knew for sure, after losses and struggles, that my life wasn't going to get better after witnessing cycle after market cycle with bad results or no results to speak of. I needed to take charge before it was too late. Trade smaller and work harder, make a plan.
Of course it helped, finally having the time to trade and seeing THE SAME THING HAPPENING OVER and over! I realized I have a cycle too. A cycle of gambling 😒…
Often it is hard to think long term. I know. I did a tour of duty in the Army and cant possibly tell you here, now, all of the things I wanted to do when I got out. But I did the work and always pushed as hard as I could FOR MYSELF. I knew Id leave the Army after the war and on my terms. I just didn't want to look like a clown and mess up my buddies. I made sure that I was trying my best at all times. The day finally came, and I was free. All it was was more work. The work never ends, friends.
Thank you for reading this issue of Advised. I wish you the best of times in the market.
I can be reached at DEREKWFRAZIER@GMAIL.COM