Friday, July 13, 2012


I mentioned the Aussie yesterday as a possible short trade, but that I was not doing it because my account was not opened yet at the new place. It is open today, but I am just going to wait until Monday to start again. Had I been short the Aussie yesterday, I would have been stopped out for a scratch this morning. After that good sized break down, that quickly reversed, with the market still in a daily uptrend, I would have had my stop at break even or a bit better than that. The stock market is really oversold, and this correlates pretty highly with stock indexes. I would not want to be short on any strength there in this situation.

This is where you have to think about what you are doing at times, and kick the systems aside. You can see on the weekly above, we are in a good sell zone. We had a decent sell pattern on the daily, with a lower short term high and a break of a trend line. However, the market by it's price action told us it was not going down. This is more important. The markets are very highly correlated. You have to be careful about shorts, when they occur after the stock indexes have already gone down a good bit. The Aussie was the last guy to the party, so he would get a very short leash. Chances are very good that currencies will rally along when the indexes do, and the DX will decline. There is no sense just holding onto a trade that is swimming up stream, just to pat yourself on the back and say you followed your system.

I hope this makes sense, it is just an example of how you have to mix together sound judgement with mechanical methodology. If a car is coming right at you in your lane, and you can either swerve across a solid line to save yourself, or follow the rules and be run over, cross the line.

I had a very nice conversation with a guy from the NFA this morning. I am not going to dwell on this anymore, but I wanted to give his name and number in case anyone wants to talk to a real human being, who will talk to you and not read the play book. He is non committal of course, but at least he will talk to you. There isn't any more new news on this today that I am aware of. My gut feeling at this point is that we are looking at some time here before anything comes back to us. Apparently, statements are coming out now showing positions were liquidated as late as yesterday with some accounts. I am skeptical that this is correct, the accounting could be messed up here. In any event, everyone should be out at this point. I suspect, but am not sure and have no facts at all on this, that most trades were liquidated pretty fast and the statements are wrong.

Here is the contact information for the guy from the NFA I spoke with:

Michael Mason
Manager, Compliance

He might be hard to reach, and there is not any new information as of 6 am PST, but if you want to have that conversation with someone, he is a good choice. This is a mess and it is going to take time for them to figure all of this out unfortunately. Hopefully the balance sheet is real with PFG but I suspect it is not. This guy went pretty far in what he did, so there is no reason to believe he did not doctor other things as well. I suspect we will be going after the accounting firm in time here legally. There will also be people in line in front of us when it comes to things other than segregated funds even though there should not be. Also, there could be some claw back stuff that takes place like settling that one problem with our money and not customer money. This could take years and will likely not represent much to us by the time it is all said and done.

I don't have much else for today, I did not see any new trades to do, and the BOND Systems did not trigger anything either.

Have a nice weekend


Anonymous said...

I realize I'm a bit late to the issue, but did want to affirm with you my sincerest condolences for this financial tragedy. I really enjoy reading your posts and have learned much from your prose. You certainly did not deserve this thievery at the highest degree. The ability of humans to function at such a low ethical level embarrasses me to be a member of the same species.
I laud your fortitude in navigating this disaster and hope you know, many are watching at a distance in support.
CD in Seattle, WA

Anonymous said...

Good to see you back. Just like a bad trade, the most important thing is to preserve your mental capital: you have to be able to see past a set-back and get back in the saddle. Failure really happens in the mind long before it happens in the bank account or anywhere. Good for you for refusing to fail even when the actual worst-imaginable-case was thrown at you.

If you don't know the poem "If" by Rudyard Kipling, you might as well not even read it, because you are living it right now.

Chris Johnston said...

It is interesting the thoughts and emotions you experience when something pretty bad happens to you. I would be the first to admit I have not handled this as well as I hoped I would. I have had some bad moments in all honesty. The nice comments here have made me realize that doing this blog has been a very good thing for me and others. I have formed friendships with people in different countries, and that is just incredible. I know there are readers who are in this boat with me, just probably not with the dollar amounts involved. However, if all you have to your name is $20,000 and you lose half, for some people that is really tough. I still have some money left fortunately even though I have lost hundreds of thousands of dollars in this fiasco at this point.

My goal now is to lead us all out of this mess and hopefully things will turn out better than it looks at the moment. I do think readers now know though how honest I am as I have shared some difficult stories.

Anonymous said...

Hi chris, i have a technical question: im long wheat, @843 since monday, but the pullback seems to remain in a channel, with a big reversal day now friday. Would you rather go out at the open monday and wait, or stay in.. sorry for bothering you, but i dont see the answer and i thought you could have som3 thoughts on it.. good luck trading!

Anonymous said...

I find that whether it is a bad trade or some other financial disaster that I am much stronger and better at whatever endeaver it has happened in. That is what sets the the failed from the successful apart. It is not always that you know what to do just a huge list of things not to do. I still add to mine.
I have followed your blog for a couple of months but never posted.
You seem to have what it takes to make you stronger.
Thanks and I have really enjoyed your blog

Anonymous said...

I had 2 accounts with PFG accounting for almost 50% of my funds. I been with them for 8 years. I had the same reaction as you. Heart coming out of my chest and horrified to tell my wife. I too felt guilty as if it was my fault which ofcourse it isn't. This is how all fraud victims feel. Mostly embarassed for being so trusting of someone or some organization. I have the same feeling that somehow I let my family down. I have 3 children, 2 of which are of college age. I hope that the segregated funds liquidated by Jeffries from open trades amounts to something. At this point I would take .50 on the dollar. I took the week off trading due to my emotional state. We all have experienced trading losses which can be tough but you accept it as part of the game. This is a totally different animal. The best thing I can do is take it day by day and try to build my account back up and try to mentally write it off as a trading loss. Hopefully we will get better news on this matter in the coming days. I just wanted you to know that there are many others out there in the same position. Any updates you hear about and update on your blog would be appreciated. Hang in there. Better days ahead.

Chris Johnston said...


It does appear at this point .50 would almost be a miracle. However we just don't know enough right now to really know where this stands. It is my understanding that we are first in line for proceeds for any asset sales, so you just never know. If those assets are real and fetch any real money, we could see something. With this guy alive, if he were to come clean which it appears he might, maybe we can claw back some money. I have a brother in law who has been involved in all of these cases as an attorney, and he explained that often firms with loose ties to this often pony up some money to make the problem go away. Since JPM has some involvement here, I am thinking I want to sue them.

The initial trustee resigned the first day I saw, no idea what that means, but does not sound good. Ultimately it is going to be up to the government to solve this and that is never a good thing. I am operating under the assumption it is all gone until I see a penny come back. It does appear this is a worse situation that MF in terms of what we will get back.

On the Wheat question, I am not in that trade so I think I can be objective. On average reversal bars like that are not good sells even though some do work. I would suggest following your rules for the trade. You don't want to get into a trade after a few days and not know where you are getting out. You need to know your exit strategy before you get in.

As a result, my advice would be to go back to why you are long, where you intended to exit and how you intended to manage the risk. Then follow those rules. Scared decisions are usually no good, and once you get some money involved, it is easy to make emotional decisions.

I am not trying to dodge the question, but I have no idea why you went long where you did and what your objectives were. I always know where my targets and stops are when I get into a trade.

Chris Johnston said...

I also do agree about the comment about getting stronger. Rarely is a road to great success an easy path. This type of thing is tough, but it has happened so at this point I am not going to let it ruin my life. It may in the end ruin me financially, but I am going to give it the battle of a lifetime to try and avoid that. It is going to take me a long time to get back the money I lost because I have to use prudent risk parameters, and I have to have a job to pay bills now.

However, I will not give up and it will make a good book when it is all said and done.