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Weekly Conversation: Meet Christopher Vecchio

Weekly Conversation: Meet Christopher Vecchio

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Christopher Vecchio is the newest analyst to join our team full-time. However, Chris is no stranger to DailyFX – he has worked with us an intern and then part-time analyst for some years now. To introduce our readers to the group’s newest member, we wanted to put the spot light on him and gather his thoughts on trading and analysis.

1. Welcome to the team Chris. Let’s start our conversation into who you are and what your approach is by talking a little bit about your background. What would you say is your style of trading and what has guided you towards this brand of trading today?

I’m a firm believer in fundamental analysis. Broader market trends – such as quantitative easing by the Federal Reserve, or the European sovereign debt crisis – will always guide exchange rates. And to that end, based on broader market trends, for longer-term trades, I look at interest rate differentials, and interest rate expectations. Fundamental data will always trump other styles of analysis; for example, the Euro could be oversold on a technical basis versus the Swiss Franc, but if one of the PIIGS were to default on their debt, the Euro would still decline, regardless of what the charts say. That being said, while fundamentals paint the broader strokes of the picture, technical analysis, in my opinion, notes the finer points. In my trading, I use technical analysis to determine entry and exit points for my trades. The pairing of the two styles is crucial, because it removes the emotional aspect of trading: identifying market trends, sticking to entry and exit points, and moving on.

Analyst_Profile_Meet_Christopher_Vecchio_body_Picture_3.png, Weekly Conversation: Meet Christopher Vecchio

Graph generated using Bloomberg Data

2. As an intern for DailyFX for the past few years, you have had exposure to very different trading personalities and worked on a range of unique projects. What ideas, strategies, analysis techniques, etc have really stuck with you through this learning period?

Having had very little forex trading experience before DailyFX, I was certainly impressionable to adapting a trading style. Unlike in equity markets, a buy-and-hold routine would not suffice – there was not quarterly dividend to look forward to. The lesson here is that I would need to be assertive with my trading, and attentive to shifting market conditions. The 24/7 nature of the currency market meant that for me to be successful, I would have to be aware of my exposure constantly – just because it’s nighttime here in the United State doesn’t mean that my trades aren’t active. While it’s tempting to only examine short-term time frames, choosing a longer-term period to examine is generally more beneficial. That would be the main lesson I’ve learned over the years – choose a longer time frame for direction, and a shorter time frame for entry and exits.

Analyst_Profile_Meet_Christopher_Vecchio_body_Picture_1.png, Weekly Conversation: Meet Christopher Vecchio

Charts generated using FXCM Strategy Trader

3. Each person on DailyFX has a primary responsibility for a certain brand of content. What should we expect to see from you going forward.

I will be covering topical content on DailyFX going forward. That includes wrap-ups of price action in the Asian and European sessions, as well as identifying trade patterns. More importantly, I will be covering broader macro trends. Essentially, when there are major events – the Japanese earthquake, for example – or shifts in policy by a central, as well as important data releases, my responsibility is to examine how this could shift the currency landscape in the months ahead. As stated previously, shifts in fundamental analysis tend to be the primary driver for the direction of exchange rates, so topical content on DailyFX is crucial.

Analyst_Profile_Meet_Christopher_Vecchio_body_Picture_2.png, Weekly Conversation: Meet Christopher Vecchio

Charts generated using FXCM Strategy Trader

4. Analysts start off at the same level as every other trader as we make that first foray into the markets. So tell us what is the most important lesson you have learned about trading along the way?

As noted earlier, the combination of both styles has helped me remove the emotional aspect of trading. As research on behavioral finance shows, traders tend to believe that their winning trades can accrue more profit, and thus leave positions open longer than necessary – even if the trade has hit their target – while traders on the losing end tend to remove stops in hopes that their trade will turn the corner. Thus, sticking to my entry and exit points, with my stops and limits, has been the most important lesson. This has led to some disappointment along the way, of course. I’ve been stopped out of trades by 1- or 2-pips before the trade turned and became profitable once more; on the other hand, I’ve hit a target rather quickly, and missed out on collecting profit due to my risk/reward criteria. But that’s part of trading, and the longer that I have traded, the more closely I have stuck to my rules, the more successful I have been.

5. And, since we all want to retain some level of humility, can you recall what your biggest mistake has been since you began trading – more importantly, have you since corrected this lapse in trading judgment?

My biggest mistake when I started trading was allowing emotions to influence my decision. I used to have a tendency to “double-down” on my losses without correctly adjusting my exposure to the market. This means that if I were to increase the size of my exposure to a particular trade, I wouldn’t reduce my stops and limits. While in some cases this turned out to be profitable, when I first started trading, it often led me to be burned. Stick to your trading rules! – there is no reason to doubt yourself.

6. What area of your trading are you currently work on? Crafting a new strategy? Adapting a new edge? Testing out different risk/reward ratios?

Currently, I’m doing research into behavioral analysis. Traditional behavioral analysis suggests that a rational man exists in the capital markets. However, rather than examine a theoretical figure, by examining actual active market participants and their trading patterns, it could be better possible to forecast exchange rates and movements among currencies given market participant sentiment. This train of thought feeds into my previous point that fundamental analysis trumps technical analysis, and I believe this is best evidenced by the EUR/USD pair trade for the first half of 2011. While the Euro-zone was and continues to face a distressing debt situation across multiple members, the Euro rallied against its American counterpart, in spite of the fact that, historically, in times of duress, the U.S. Dollar is seen as a safe haven.

Analyst_Profile_Meet_Christopher_Vecchio_body_Picture_4.png, Weekly Conversation: Meet Christopher Vecchio

Graph generated using Bloomberg Data

In regards to different risk/reward criteria, not too long ago I adjusted my expected gains and tolerable losses based on time frames. For short-term trades, based on hourly charts, I set tighter stops and tighter limits. However, when looking at long-term trades, based on daily and weekly charts, I have loosened my stops and extended my limits even further. For long-term trades, it is important to have a higher tolerance for ‘pain,’ and given the premium on time, a larger reward is required.

7. Stepping away from your regular trading style and time frame; what do you see for the dollar, euro and pound over the coming six months?

While it is hard to advocate U.S. Dollar strength, I do believe that we will see a rebound in the Greenback in the second half of the year. This is less of a function of Dollar strength but rather more of a function of Euro and Pound weakness. I’m not optimistic whatsoever on the ability of the European Central Bank and its constituents (the IMF, the World Bank, etc) to save the countries that are struggling with increasingly burdensome debt crises, and I think that Greece is just the tip of the iceberg. If one domino falls, more could follow.

Britain, on the other hand, does not instill confidence in me, but not from a debt perspective, but rather, the entirety of the economy. As I noted in an article earlier, “house prices continue to fall, the country remains steeped in a soft labor market, and producer prices maintain their climb – to such a point that the consumer price index rose by 4.5 percent in April.” The stagflating state the British economy appears to be entering does not bode well for the Pound over the next few months: further stimulus and continued low rates works against the Pound, as well does the prospect of draining liquidity from the economy in order to fight price pressures.

Analyst_Profile_Meet_Christopher_Vecchio_body_Picture_5.png, Weekly Conversation: Meet Christopher Vecchio

Graph generated using Bloomberg Data

Thanks for taking the time to answer these questions for everyone Chris. You can find Chris’ content on DailyFX on a regular basis. Along with impromptu Market Alerts, events in the Live Trading Room and regular commentary in the Real Time News feed; Chris publishes the Pairs to Range Trade and Top 5 Events report on a daily and weekly basis respectively. Have questions for Chris? You can email him at cvecchio@dailyfx.com.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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