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Are You Smarter Than A 5th Grade FX Trader?

Tyler Durden's picture




 

When it comes to stocks - "everyone" knows the "Tuesday effect". When it comes to volatility - "everyone" knows the "just sell you idiot" effect. But, as Citigroup's Richard Cochinos explains (and Bloomberg annotates in charts so simple a 5th grader can get it), there is now an FX trade for dummies...

 

As Bloomberg explains, for all the headlines and hand-wringing since 2009 about the viability of the euro, its exchange rate versus the dollar has barely changed in five years.

While we admit the observation may seem superficial (the euro rose to $1.51 in 2009 and fell to $1.19 in 2010), we make mention in order to highlight the distinction between holding euros over time versus trading euros short-term across time zones, where the Citigroup currency team has identified an uncanny trading pattern.

To understand the opportunity, first recognize how dealers trade currencies. There are three "spot" markets for trading euros over the course of a 24-hour day. New York constitutes the primary market from 8am to 5pm ET, followed by Tokyo 5pm to 1am ET and then London 1am ET until New York resumes the following day at 8am.

Citigroup Head of G10 FX Strategy Richard Cochinos analyzed the intra-session price action of the euro for the three spot markets and found a very clear pattern since 2009. Whereas London tended to trade lower, New York tended to trade higher. Asia was roughly flat. Over time, this pattern created some significant distortions.

Reliable patterns are hard to come by, and this one strikes us as particularly valuable. As Mr. Cochinos wrote to clients: "Day trading behavior is tending to skew prices in a meaningful manner. Supporting evidence for this type of quick reversal has also shown up in our cash order flow."

As for those of us wondering how to profit, he elaborates:

International money flows are complex.

This relationship is not: Buy euro dips early in the London session, sell them in New York late afternoon.

 

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Mon, 05/19/2014 - 18:30 | 4775261 The Alarmist
The Alarmist's picture

Yep, Ivy League talent pool at work.

Mon, 05/19/2014 - 18:30 | 4775262 NotApplicable
NotApplicable's picture

So... I'm supposed to believe that someone hand drew the data in these charts?

Mon, 05/19/2014 - 18:51 | 4775310 Tenshin Headache
Tenshin Headache's picture

They probably hand drew over the data lines, then drew the chart around that. Fairly clever actually, it humanizes the chart and lets you direct attention to the critical info.

Mon, 05/19/2014 - 18:40 | 4775280 Cattender
Cattender's picture

All i know is to OWN Physical Gold!

Mon, 05/19/2014 - 18:41 | 4775283 Unknown Poster
Unknown Poster's picture

The euro is weak when european markets are open, and strong when they are closed.

Mon, 05/19/2014 - 18:45 | 4775289 Rainman
Rainman's picture

Count me in on this plan ...I got an extra hundred fiatscos I'll eventually just piss down some other wagering rat hole .

Mon, 05/19/2014 - 19:03 | 4775336 bentaxle
bentaxle's picture

That there is a banker suggesting we BTFD! And, if I confine it to Tuesdays, what can possibly go wrong?

Tue, 05/20/2014 - 00:16 | 4776278 BrosephStiglitz
BrosephStiglitz's picture

What BTFD?  Fiat currencies on floating exchanges are just an equilibrium of the two-way cash flows.  That's not to say the trends here might not change, or reverse in the future. 

Currency trades might be one of the few unrigged markets left, but it is difficult to foresee because the players in the market are largely political.  Just watch out for leverage.

Mon, 05/19/2014 - 19:20 | 4775374 Atomizer
Atomizer's picture

Looks like a common core math problem for the elite to solve.

/Sarc

Mon, 05/19/2014 - 20:36 | 4775643 franciscopendergrass
franciscopendergrass's picture

Gonna have to try that one although I don't like trading the Euro.

Tue, 05/20/2014 - 01:14 | 4776353 Schmuck Raker
Schmuck Raker's picture

If you can't trust a guy whose name means "Pig Dick" in continental tongues then who can you trust these days?

Tue, 05/20/2014 - 03:31 | 4776456 CHX
CHX's picture

Exchange a dirty shirt for another dirty one? Thanx, but no thanks...

Tue, 05/20/2014 - 04:50 | 4776485 intric8
intric8's picture

Lets see. 200 bucks divided by 1.37 equals... oh fuck it, i dont even have enough money to pay the electric bill, let alone open a friggin fx account

Tue, 05/20/2014 - 04:59 | 4776489 JDFX
JDFX's picture

The last thing a master learns is simplicity.

 

The kids ? It's often the first thing.  Thus undo the hardwired programming you have as an adult and return home to your own child and see how they exploit all the educated adults and steal their wallets in the markets.

 

Don't fight the pack, join them. You can go back to helping old ladies cross the roads on the weekends.

 

 

 

 

Tue, 05/20/2014 - 06:20 | 4776521 hairInTheSoup
hairInTheSoup's picture

time tables are wrong between london & tokyo 8 hours, but between london & ny 4 or 5 hours

the comparative graph seems to indicate (ny close - ny open) vs (london close - london open)

the theory is buy eurusd at ny open if eurusd is down in london session but at ny open, london is not closed so you don't know where will close london ...

can't work, might test it on a bot though if someone explains me how the guy comes up with that time table and how he deals with those hours with ny & london opened at the same time

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