Once upon a time (as all good fairytales start), I was living in paradise, a smallish tourist town nestled by the great Lake Taupo in the centre of the North Island of Aotearoa, aka New Zealand. I was there on an extended sojourn with my family and happily trading Forex and Currencies. Small-town life is very different to the big smoke, and in due course, I was on first-name terms with my local bank manager Paul, himself a lover of financial markets and all the magic and mysteries they encompass.

Over time, news of my occasional seven-figure trades filtered through the grapevine all the way to Taupo from the country’s capital, Wellington, at the South of the North Island, the bank’s head office. Now, almost all bankers are glass-eyed bastards, and my particular bete noir, but Paul and his team were affable blokes, as are most Kiwis, and my seven-figure trades happened often enough to grab their attention. After all, nobody loves money more than bankers. It is their life’s blood, and a splendid luncheon at the bank’s private dining room and elsewhere in town quickly became an integral part of our relationship. As things moved along, I was introduced to one of the bank’s heavies from their Auckland office, who pitched me the idea of training their currency traders as they came through the system. A suitable fee was easily agreed upon, and for the next two years, I trained the vast majority of the guys and, very occasionally, gals who went on to run the bank’s trading and prop systems.

Now, New Zealand lies just east of the Tasman Sea from Australia, what we call the ditch, and these two countries have a symbiotic relationship. Australia, as the larger country, is New Zealand’s most important trading partner due to long-standing defence treaties and much more. Australian exports are ~ $8 billion a year to NZ, and almost $5 billion comes the other way. So there is a huge bunch of money changing hands with each other and these monetary flows have periodically to be converted from one currency to the other. This particular bank, one of the players in this fairy tale, handled fully 64% of all Aussie Dollar/Kiwi transactions, so this was a vital part of the bank’s business and underwrote its trading activities in currencies.

In due course, the first group of wannabe currency traders from the bank arrived for my 3-day seminar in Taupo. There were just five in this initial batch, but the numbers were constant, and these future traders rolled up frequently. Over the years, I have trained several thousand of them for future service in NZ, Australia, Hong Kong and the UK and what I noticed first is that all of these trainees were strikingly similar both in appearance and abilities. They were almost uniformly large, good-looking with attractive personalities, well-presented, good talkers and largely private school boys. They had or were undertaking basic undergraduate degrees, and certainly, there were no math majors or PhDs. Almost all were outstanding sportsmen who had represented their county, province or country in rugby, cricket or rowing. Some were household names due to their sporting prowess.

As this program rolled on, the Director, who I primarily dealt with, informed me that they had “The Smoke” department in Sydney, Australia. This was a team of math majors and PhDs whose sole purpose was to reverse engineer trading systems that were using the bank’s platforms in one manner or another, and he asked if I could identify system traders at a high level for The Smoke to explore. On this basis, I had access to much of their trading reports, including time and sales. This made it simple to identify the big system players and the bank could take the appropriate action in laying off the risk from the smart money as opposed to the mere trade flows.

Bankers are extremely good at looking after themselves and their clients, and in New Zealand, Rugby Union is the national religion, so it follows that the bank had superb private boxes and entertainment facilities at Eden Park, the home of Rugby in the North, the derogatorily named Cake Tin in Wellington and at Hamilton. As an almost permanent guest of the bank at the big Rugby games in the era of the incomparable Dan Carter and Ritchie McCaw, I was privileged to watch some of the finest rugby ever played anywhere. In the process, I kept coming across my former pupils whose sotto voce job was to entertain the punters, and I would routinely ask them how their trading was going and which of my several strategies they were using. The unanimous answer was that their trading was going great and that they were trading the flow.

Now all traders know what the flow is. It is the composition and apportionment of the totality of trades that flow across each market daily. Of course, few individual has access to all of the details of the flow. Each major institution can see its own flow, but confidentiality, secrecy, Chinese walls, and competition assure that the flow in full and its component parts will never be revealed. But I had access to about 65% of the flow on a daily basis. And I could identify the individual traders well enough. If you stare and obsess at a set of numbers long enough (and I mean over years), you will start to see the patterns. As you disprove and discount each individual pattern, what is left standing must be the truth, and the truth was that the stars of my training seminars in Taupo, for those fledgeling traders were now controlling the game featured prominently, In short, they were systematically front running the bank’s own clients. If you know that a $200-300 mill trade is going through it is simple enough to insert your $2-3 mill trade before it. How could this happen? There are strict rules of ethics and, indeed, the law that is designed to prevent this very occurrence. Staff are physically and electronically separated to ensure this is not possible but possible it was at the bank back in the day when the Wellington Mafia ruled.

What made it possible was the selection of the group that was taken into the hallowed halls of international currency trading. Think of these various small groups that passed through my hands as Good Ole Boys. And indeed they were. They had grown up together, went to the same schools and universities played rugby with or against each other. Represented their county or province, and indeed, a large proportion had represented their country. They had gone on tour together and faced the might of England and Ireland, not to mention their perennial nemesis South Africa’s Springbok. And as all players know, what happens on tour stays on tour. Las Vegas had nothing on this crew. They were bred to keep secrets.

To them, there were no boundaries or Chinese walls. They were simply the Good Ole Boys. They drank together after work, and some of the timid ones drank together before work. Remember, back in the day, alcohol and tobacco were the drugs of choice. The scourge of real drugs had not then touched our shores apart from the occasional puff of weed. They had lived and continued living as a loose group. They knew each other’s families, attended each other’s engagement parties and weddings, were godfathers to each other’s children, and if some were earning bigger bonuses than others, well, there were plenty of opportunities to do a mate a good turn or two. After all, these were the Good Ole Boys, and what are mates for?

Remarkably, this behaviour never saw the light of day, and I doubt that the thought of rampant collusion ever crossed anyone's mind. I mean, these boys were all players of the game, and they played to the referee whistle, understanding, of course, that what went on in the depths of a six or seven-man ruck was hard for anyone, let alone the referee, to see. Hadn’t Richie McCaw, the world’s most famous open-side flanker, gained international fame by being the expert of the ruck’s dark places?

Most of these players have moved on, many took early retirement, and they went to their retirement covered in glory, respected and idolised by their peers and subordinates and almost without exception, very, very wealthy. And the bank continued to prosper. No harm, no foul, as one of them said.

And all of the players lived happily ever after, which is always the crowning note of all good fairy tales.

As for me, I continued my slavish devotion to the trading charts, and of course, having once seen the pattern, it cannot be unseen. I scoured the financial markets of the US, UK and Germany and there it was. As plain as day. Interestingly, like many other blood sports, Americans are better at this trick than others, and in US markets, it is pretty much universal. Equities, metals, currencies, bonds, grains and commodities all show the same pattern. It turns out that the trading world everywhere has its own group of Good Ole Boys!

The pattern shows that markets are enclosed in a sort of elastic membrane both above and below, and this membrane can expand and retract, but once the pattern is complete, the probabilities are that the market will extend or retract to a whole new level. These are the trend days so beloved by traders, and if you understand the flow, you can see them coming and see their ending. All markets are controlled by Daniel’s Time ratios which can be converted to Price targets. Add this knowledge to the pattern and we are ever closer to nirvana.

In a fairy tale you would have a directional trade signal every dayt

In a fairy tale if all of these trade signals were elected you would be making multiple hundreds of percent on margin every year

In a fairy tale you would never have a losing year in any market

In a fairy tale you would know the optimum times to trade both long and shor

In a fairy tale you would catch all of the big trending moves in every market

In a fairy tale you would know when the big players were entering and exiting each trade

In a fairy tale you would avoid the hum drum moves that just trade both ways around an axis

You are free to take as much or as little as you wish from my fairy tale. Much of it is factual, with a bit of embroidery to protect the guilty. It was a long time ago.

I hope it has started you thinking outside the box about the great and endless trading opportunities that exist in the Futures and Forex markets. Some fairy tales come true and fortunes are always there to be made, and I can show you how.

John Needham

jneedham@thedanielcode.com

www.thedanielcode.com

7 October 2024

Disclaimer: All the reports, charts and content in the Danielcode web site are for educational purposes only and do not constitute trading advice nor an invitation to buy or sell securities. The views are the personal views of the author only and should be treated as such. Before acting on any of the ideas expressed, the reader should seek professional advice from a licensed broker in the appropriate jurisdiction.

Risk Disclosure for Front Page, Long Term Trend Charts: THE RISK OF LOSS TRADING COMMODITIES OR FUTURES CAN BE SUBSTANTIAL. COMMODITY TRADING HAS LARGE POTENTIAL RISKS, IN ADDITION TO ANY POTENTIAL REWARDS. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THE FUTURES OR COMMODITIES MARKETS. DON'T TRADE WITH MONEY YOU CAN'T AFFORD TO LOSE. THIS IS NEITHER A SOLICITATION NOR AN OFFER TO BUY OR SELL COMMODITY INTERESTS. THE USE OR PLACEMENT OF ANY STOP-LOSS OR STOP-LIMIT ORDERS MAY NOT LIMIT YOUR LOSSES AND YOU COULD LOSE MORE THAN YOUR INTENDED AMOUNT OF MONEY AT RISK. PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT INDICATIVE OF FUTURE RESULTS.

Risk Disclosure for Genie Results, T.03, T.03+ and TradeProgram: HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.