the gestalt shift

Interview with Tom Yeomans

Tom Yeomans is a trader based in Canada who has made a big impact to the forex community by teaching methods to profit from the market based on what really moves markets- fundamentals. Tom demonstrated his expertise in markets and ability to teach others by putting his reputation on the line everyday in live trading rooms of over five hundred people. He now runs a website, tradetime.ca, featuring both educational materials for trading forex as well as institutional-caliber currency analysis software. After chatting with him last month I jotted down a few notes and posted an excerpt below. I hope you enjoy it.

What was your strategy and at what point did you realize you were profitable due to having an edge as opposed to luck? Alternate: How did you develop your edge over time to profit from the markets?

 [When I first started out] I lost about $6,000 and replenished my account a few times and then started paying attention:  I used to get wiped out around 08:30 NY time, and I thought, “what is this?” At that time, no one was looking at economic reports and news trading, and stuff. This was in 2004/2005 and for some reason, forex being a newly established market, no one else paid attention and that became my niche. I spent the next three years going intensely into all the economic reports that were being released. What would happen? What were the trigger points for when they would take off?  I would sit there and I would stun audiences of up to 500 traders in the morning. We would get numbers directly from the data stream. Jobs numbers- terrible – BOOM! And the US Dollar would sink. It worked until it got phased out by the brokers. It was wonderful because a lot of people were [earning] a lot of money but I left about a year or two before everyone else left [when the edge started to disappear]. [After that] I started looking at the S&P and the Dow and listened to the audio pit noise from the CME, and we’d make trades with the pit noise. We made a lot of money doing that. Finally that started to fade away [also] with this economic situation coming in last year so I got away from that, so I’ve been strength trading on currencies.

Most people hold the view that “the trend is your friend,” and they see EUR/USD going up so they just buy using their technical indicators. What’s wrong with this? (Hinting at the necessity to view individual currency strength)

Technical analysis seems to be a beginner’s answer to having to actually sit down and learn what it is they’re doing. It’s a lot easier to just get some bogus technical indicator like MACD or RSI or blah, blah, blah. All these technical tools were transferred from the stock industry where they didn’t work anymore either. Technical analysis has its place, but it’s not the end all and be all, and it can’t replace knowledge. A lot of times in the morning I can make trades just based purely on what I see and what I’m hearing on the news. I don’t use candles or anything other than moving averages which gives me an idea of what’s going on and where [price] has been. That’s me personally. There are other very successful traders that use technical analysis.

Right and one of the things I’ve noticed about technical analysis is that it can actually appear plausible and easy to trade because it looks great in hindsight but it’s difficult to tell which patterns and indicators give signals that are based on randomness and which actually have some meaning (i.e. patterns representing market psychology). It brings me back to a quote I read in the Zurich Axioms, [edited: "Chaos is not dangerous until it begins to look orderly."]

(laughs). Well, all trading is the same in that it’s a gambler’s industry and most people lose. Most people use technical analysis, and there you are. I think what you need is experience and unfortunately there’s no way to get to it except through experience. Most traders fail within ninety days. If you can get through for a year or so and keep yourself going you can eventually get some experience. And after a while you just know.

Let’s talk about currency correlations. How can this be used to the investor’s advantage?

I’m actually writing a book about correlations, but it probably won’t be out until next year. I watch the Dow and the S&P to get a signal [noting] when the US Dollar is weak or strong. I often [even] see moves in the currency market that are later reflected in those. I often will see movements in the currency markets that are later reflected in other currencies. I’ll watch gold, silver, oil, the Dow Jones, and the S&P 500 to see what’s going on. I recommend just watching these on an intraday scale. Sit there for a few days or even weeks on Metatraderar and you’ll see [the way] they start to move. I invented and have used a currency strength meter since four years ago. I’m surprised not all traders are using it. It doesn’t make sense to me how someone can be in the foreign exchange business and not know whether the Dollar or the Swiss is strong. You don’t just look at one chart. That will only tell you what [single] currency it’s strong or weak against. You have to look at a whole range of charts to find out [its individual strength]. Say I want to find out whether the US Dollar is strong or weak. Well I have to open up 12 or 13 charts to take a look. And that’s why I invented the meter. If I were to make a trade on the strength of the US Dollar that morning I’d better be sure that it had been strengthening according to [all] the other currencies.

As the market becomes more efficient, where do you see edges coming from in the future?

Right at this moment the edge that is working [for me] is getting leverage down [because times are so volatile] and going for the longer term in the day. Once you get the 8:30 reports out of the way you look at the trend for the morning and say, the US Dollar (as a single unit) has been strong all the morning. Unless that report says something that says that shouldn’t be, it should continue on that day. But I’m like you and I believe the trend is not necessarily you’re friend. But here’s something you never hear about: Currencies trend. Pairs don’t trend.  If you look at various economic reasons for why a currency is priced a certain way then you become a better trader.

If you would like to get in contact with Tom Yeomans or learn more about his educational materials or Currency Strength Meter, please visit his site at tradetime.ca or read his blog at tomyeomans.livejournal.com

Sunday, July 26th, 2009, by admin and is filed under "Strategy, interview, currency strength, fundamental analysis, interview, tom yeomans ". You can leave a response here, or send a Trackback from your own site.